Camofi Master Ldc v. College Partnership, Inc.
| Decision Date | 28 September 2006 |
| Docket Number | No. 05 Civ. 9017(DC).,No. 05 Civ. 7710(DC).,No. 05 Civ. 6775(DC).,05 Civ. 6775(DC).,05 Civ. 7710(DC).,05 Civ. 9017(DC). |
| Citation | 452 F.Supp.2d 462 |
| Parties | CAMOFI MASTER LDC, Plaintiff, v. COLLEGE PARTNERSHIP, INC., Defendant/Counterclaimant, and Bridges & Pipes LLC and Duncan Capital LLC, Third Party Defendants. And Related Cases. |
| Court | U.S. District Court — Southern District of New York |
Curtis, Mallet-Prevost, Colt & Mosle LLP by Turner P. Smith, New York, NY, for College Partnership, Inc.
Sichenzia Ross Friedman Ference LLP by Sameer Rastogi, Christopher P. Milazzo, New York, NY, for Duncan Capital LLC and Bridges & Pipes LLC.
Eaton & Van Winkle LLP by Charles K. Fewell, Jr., Alexander Tripp, New York, NY, for CAMOFI Master LDC.
These three related diversity cases arise out of a failed financial arrangement pursuant to which College Partnership, Inc. ("College Partnership"), a college preparation company, engaged financial advisor and investment banking outfit Duncan Capital LLC ("Duncan") to assist in College Partnership's expansion. Towards that end, Duncan arranged for two funds, CAMOFI Master LDC ("CAMOFI") and Bridges & Pipes LLC ("Bridges"), to each lend College Partnership $250,000. Each loan was secured by a promissory note executed by College Partnership (the "Notes").
In these actions, CAMOFI and Bridges sue College Partnership to recover payment on the Notes. In turn, College Partnership counterclaims against CAMOFI and Bridges to, inter alia, rescind the Notes on grounds of fraudulent inducement. College Partnership also asserts claims against Duncan for allegedly failing to perform services as promised under the terms of a financial advisory and investment banking agreement (the "Banking Agreement").
Before the Court are CAMOFI's and Bridges's summary judgment motions to recover on the Notes and motions to dismiss College Partnership's counterclaims. Duncan has joined in the dismissal motions with respect to College Partnership's claims against it.
For the reasons set forth below, CAMFI's and Bridges's motions for summary judgment and motions to dismiss are granted. Duncan's motion to dismiss is granted in part and denied in part.
College Partnership is incorporated in Nevada with its principal place of business in Colorado. . Its mission is to assist high school students from lower-income and middle-class families with college admissions and funding. (Jones Decl. ¶ 1).
Duncan is a New York limited liability company ("LLC") with offices in Manhattan. . CAMOFI, formerly known as DCOFI Master LDC, is a "limited duration company" organized under the laws of the Cayman Islands, with its principal place of business there as well.1 . Bridges is a New York LLC, with its principal place of business in New York, New York. .
The facts, which are drawn both from the pleadings and from the evidentiary materials in the record, are summarized below. As to the motions to dismiss College Partnership's claims, the allegations set forth in its complaint, counterclaims, and third party claims are assumed to be true. As to the motions for summary judgment on the Notes, the facts are construed in the light most favorable to College Partnership, as the party opposing the motions.
1. Negotiation and Execution of the Banking Agreement
In early 2004, the husband and wife founders of College Partnership, John Grace and Janice Jones, decided to seek outside financing for the expansion of their company. (Jones Decl. ¶¶ 1, 3). Towards this end, they flew to New York in April 2004 to meet with Richard Smithline and Michael Crow at Duncan's offices, located on the fourteenth floor of 830 Third Avenue, New York, New York. (Id. ¶¶ 4-6 & Ex. J).
In the weeks that followed, these four individuals negotiated the terms of the Banking Agreement between College Partnership and Duncan. . Grace and Jones met at least one more time with Smithline at the Duncan offices in New York and once with Crow in Los Angeles to work out a deal.. (Id. ¶ 7). In emails to Jones and Grace in April and May 2004, Smithline expressed eagerness to complete the deal with College Partnership. . These emails were sent from Smithline at his rs@duncancapital. net account and with the company name "Duncan Capital Group LLC" accompanying his signature. (Id.). Smithline claims he met with Jones and Grace in his capacity as Director of CAMOFI. (Smithline Aff. ¶¶ 1-2).
On May 27, 2004, Grace, as Chief Financial Officer of College Partnership, and Bradford E. Monks, as General Counsel/ Senior Vice President of Duncan Capital, executed the Banking Agreement. (Jones Decl. ¶ 12 & Ex. C). By its terms, College Partnership engaged Duncan as its "exclusive advisor for . . . financial advisory, investment banking and related transactions." (Id. Ex. C at 1). Duncan agreed to
(i) identify on a "best efforts" basis funding sources and secure financing for [College Partnership] through a private placement of equity and/or debt in one or more transactions between [College Partnership] and one or more investors and/or lenders . . . (the "Financing"), and
(ii) use commercially reasonable efforts to arrange an "accounts receivable" line (the "A/R Facility") with a third party . . . . Duncan also will seek to arrange a bridge financing for [College Partnership], the terms of which will be set forth in separately executed definitive documentation (the "Bridge Financing.") As compensation for services rendered in connection with arranging the Bridge Financing, upon receipt by [College Partnership] of gross proceeds of not less than $500,000 pursuant to the Bridge Financing, [College Partnership] will issue 250,000 shares of [College Partnership]'s restricted Common Stock as directed by Duncan or its affiliate and provide certain registration rights with respect to such shares of Common Stock.
In sum, on behalf of College Partnership, Duncan was to: (1) secure financing and funding sources, (2) arrange an accounts receivable line of credit (the "A/R Facility"), and (3) arrange bridge financing of $500,000. In return for the bridge financing, College Partnership was to issue 250,000 shares of company stock, with registration rights, to Duncan "or its affiliate." (Id.).
With respect to the financing and A/R Facility, the Banking Agreement also implemented a detailed fee structure to compensate Duncan for services rendered to College Partnership. (Id. Ex. C § 4). As exclusive advisor, Duncan would have the right of first refusal with respect to any financial transactions or advice sought by College Partnership. (Id. ¶ 13 & Ex. C § 9). The timeline for financing "contemplated that the Bridge Financing will close on or prior to June 7, 2004, and that, within thirty . . . or sixty . . . days following the closing of the Bridge Financing, [College Partnership] will pursue a Financing." (Id. Ex. C § 1).
2. The $500,000 Bridge. Financing and Promissory Notes
The $500,000 in bridge financing came through two weeks later in the form of a $250,000 loan from CAMOFI and a $250,000 loan from Bridges. On June 15, 2004, Grace, acting on behalf of College Partnership, signed and delivered the two Notes, for $250,000 each—one to CAMOFI (the "CAMOFI Note") and one to Bridges (the "Bridges Note"). (Smithline Aff. ¶ 4; 11/16/05 Fuchs Aff. ¶ 8; Jones Decl. Exs. D & E).
That same day, Grace also executed a Security Agreement on behalf of College Partnership, designating College Partnership's personal property and assets as collateral. (Jones Decl. Ex. F §§ 1(a), 4, 6, 8; 11/16/05 Fuchs Aff. ¶ 9). Listed as Secured Parties were Bridges and DCOFI Master LDC (now known as CAMOFI). As managing members, David Fuchs signed the Security Agreement for Bridges and Smithline signed for DCOFI Master LDC. Both Bridges and DCOFI Master LDC provided 830 Third Avenue, 14th Floor, New York, New York, as their address. (Jones Decl. Ex. F).
3. College Partnership's Performance on the Notes
With the exception that one Note is payable to CAMOFI and the other to Bridges, the Notes are identical. They each provide for College Partnership to repay the principal of $250,000 with interest at 10% per annum. College Partnership was to make quarterly interest payments to CAMOFI and Bridges (on September 15, 2004, December 15, 2004, and March 15, 2005), with full payment of the principal and unpaid interest due on June 15, 2005. (Id. Exs. D §§ 1-2 & E §§ 1-2; Smithline Aff. ¶¶ 5-6; 11/16/05 Fuchs Aff. ¶¶ 8-9). Failure to make any interim interest payments gave CAMOFI and Bridges the right to demand full payment on their respective notes. (Jones Decl. D § 8, E § 8, & F § 6.1). Default on June 15, 2005, would trigger a late fee—an increase in interest rate from 10% to 20% per annum. (Id. Exs. D § 1(b) & E § 1(b); Smithline Aff. ¶ 8).
College Partnership made quarterly interest payments to CAMOFI through March 15, 2005, but ceased further payment after that date. (Jones Decl. ¶ 23 & Ex. K; Smithline Aff. ¶ 5). On June 15, 2005, College Partnership did not pay the principal of $250,000 or the remaining interest, prompting CAMOFI's counsel to send College Partnership a letter on July 18, 2005, demanding immediate payment of the principal, as well as the unpaid interest, liquidated damages, and attorneys' fees. (Smithline Aff. ¶ 7 & Ex. B).
College Partnership failed to make any quarterly interest payments to Bridges or repay the principal amount of the $250,000 loan on...
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