Donnelly v. Richner (In re Broad St. Media LLC)
| Decision Date | 20 November 2017 |
| Docket Number | ADV. PRO. NO. 17-1450 (JNP),CASE NO. 16-26615 (JNP) |
| Parties | In Re: BROAD STREET MEDIA LLC, Debtor. RICHARD DONNELLY, Plaintiff, v. STUART RICHNER, et al., Defendants. |
| Court | U.S. Bankruptcy Court — District of New Jersey |
Hearing Date: November 8, 2017
MEMORANDUM DECISION
This matter is before the Court upon the defendants' motion to dismiss (the "Motion") the adversary proceeding (the "Adversary Proceeding") filed by the plaintiff Richard Donnelly. The Adversary Proceeding stems from Donnelly's leveraged buy-out of the Debtor, Broad Street Media, LLC ("BSM") from several of the defendants through a sale contract. The primary dispute in this Motion is whether the forum selection clause in the sale contract requires dismissal of the Adversary Proceeding, A hearing was held on November 8, 2017 (the "Hearing"), at which all parties presented oral argument. Because the Court finds that the forum selection clause applies and other grounds for dismissal are present, the Motion will be granted.
Purchase of BSM and pre-petition actions
For the purposes of this Motion, the Court accepts as true the facts set forth in Donnelly's amended complaint filed on September 6, 2017 (the "Amended Complaint"). Dkt. No. 21. Only the facts pertinent to the issues before the Court are discussed. Donnelly is the principal and sole owner of BSM, a publishing media company. BSM was formed in 2010, and its primary assets were acquired through an asset purchase agreement with Philadelphia Media Network ("PMN") in 2010 (the "PMN Agreement"). Donnelly initially purchased a 20% interest in BSM through a sale agreement in September of 2015 (the "2015 Sale Agreement"). Believing the value of BSM to be considerably less than what he paid for it, Donnelly then filed an action against the individuals that sold him the 20% interest, Stuart Richner, Clifford Richner, Jerry Anfinson, Robert Bromeland, Shopper Enterprise LLC ("SE" and, collectively with the other sellers, the "Sellers"), and Darwin Oordt (collectively, with the Sellers, the "Defendants") for breach of contract, fraud, and several other causes of action (the "First Lawsuit"). In an attempt to settle the First Lawsuit, the parties signed a letter of intent (the "LOI") on June 22, 2016. The LOI stipulated, among other things, that Donnelly shall have unrestricted access to all of BSM's books and records regarding its revenues and obligations. Shortly following this, the parties entered into formalized agreements on July 15, 2016 (the "Settlement Agreement" and the "2016 Sale Agreement").
The Settlement Agreement settled the First Lawsuit and released all claims Donnelly may have against the Defendants. Specifically, the Settlement Agreement reads:
[Redacted]
Dkt. No. 26-5 ¶ 4 (filed under Seal).
Through the 2016 Sale Agreement Donnelly purchased the remaining 80% of BSM from the Sellers for a reduced price and became the sole owner of BSM. The 2016 Sale Agreement called for the promissory notes signed by Donnelly (the "Secured Promissory Notes") to be secured by, among other things, property held by BSM, as well as Donnelly's interest in BSM. Dkt. No. 21-2. The 2016 Sale Agreement includes forum selection and choice of law clauses, agreeing that New York law should govern the construction and rights of the parties pursuant to the agreement, and further agreeing that:
It is specifically agreed and acknowledged by the parties hereto that: (i) the courts of the State of New York ([including district courts]) shall have exclusive jurisdiction over any suit, claim or cause of action arising under or relating to this Agreement; (ii) venue shall be proper in either the applicable state court . . . or the United States District Court for the Southern District of New York; and (iii) it shall be a breach of this Agreement for either party to attempt to pursue litigation arising under or relating to this Agreement other than in accordance with this Section 11.8.
Dkt. No. 26-6 § 11.8 (emphasis added). The 2016 Sale Agreement also includes a merger clause which states that "[t]his agreement constitutes the entire agreement among the parties in respect of the transaction contemplated hereby and supersedes all prior agreements, arrangements . . .." Id. § 11.10. Finally, the 2016 Sale Agreement also contains a clause specifically disclaiming anyand all representations by the Sellers, other than those contained with the 2016 Sale Agreement. The disclaimer clause states:
Buyer has conducted its own independent investigation, review and analysis of the business of the Companies, and acknowledges that it has been provided adequate access to . . . records and other documents . . . of Seller . . .. Buyer has taken full responsibility for determining the scope of its investigations of the business of the Companies and for the manner in which such investigations have been conducted . . .. Buyer has relied solely upon its own investigation and the express representations and warranties of the Seller set forth in this Agreement and in general, and in particular Article IV of the Agreement . . . and (b) none of Sellers or any other person has made any representation or warranty as to Sellers, except as expressly set forth in this Agreement, in general . . ..
BSM filed a Chapter 11 petition for relief under Title 11 of the United States Code (the "Bankruptcy Code") on August 30, 2016 (the "Bankruptcy Case"). Each of the Sellers filed a claim (the "Sellers' Claims") against the estate based on BSM having guaranteed Donnelly's promise to pay, and the Secured Promissory Notes. BSM, as the Debtor, filed objections to the Sellers' Claims on June 29, 2017 which are currently pending. Dkt. Nos. 98 - 102.
On July 14, 2017, Donnelly filed this Adversary Proceeding. The Amended Complaint was filed following the Defendants' initial motion to dismiss and brings ten separate causes of action. Generally, Donnelly alleges that the Defendants engaged in a conspiracy to conceal information from him involving BSM's debts, including its debt owed under the PMN Agreement, and BSM's debts to various landlords. Donnelly also alleges that the Defendants did not disclose all books and records as required under the agreements and actively prevented him from reviewing all of the books and records of BSM.
The First Claim is an alter ego claim brought against Oordt. Oordt is the former CEO of BSM, but held no ownership interest in BSM at the time of the 2016 Sale Agreement. Donnelly alleges that Oordt exercised actual control over SE and is the direct beneficiary of payments to SE pursuant to the 2016 Sale Agreement. Further, Donnelly alleges that through SE, Oordt continued to exercise control over BSM despite not having an ownership interest. The claim seeks a judgment finding that Oordt is liable to Donnelly for any damages caused to Donnelly by SE.
The Second, Third and Sixth Claims (the "Contract Claims") each request rescission of the 2016 Sale Agreement, the secured promissory notes and Donnelly's personal guaranty, as well as monetary damages owed to Donnelly. The Second Claim is a breach of contract claim brought against all Defendants. This claim alleges that the Defendants breached the LOI and the 2016 Sale Agreement by not providing Donnelly with unrestricted access to all books and records. Additional allegations include breach of the 2016 Sale Agreement by failure to inform Donnelly of pending litigation against BSM as well as other undisclosed matters. The Third Claim alleges a breach of the implied covenant of good faith and fair dealing, tied specifically to the LOI and the 2016 Sale Agreement, also based on alleged misrepresentations and concealing information. The Sixth Claim is unjust enrichment against all of the Defendants, based on their alleged concealment of material facts to induce Donnelly to enter the 2016 Sale Agreement.
The Fourth, Fifth, Seventh, and Eighth Claims (the "Tort Claims") each request monetary damages to be paid to Donnelly. The Fourth Claim alleges fraud against the Defendants, based on allegations that the Defendants took steps to actively conceal information regarding BSM from Donnelly, and Donnelly justifiably relied on the representations made by the Defendants regarding BSM's financial status. The Fifth Claim is for negligent misrepresentation, based onrepresentations made by the Defendants that were allegedly false and without a reasonable basis, and made to induce Donnelly to enter the 2016 Sale Agreement. The Seventh Claim is breach of fiduciary duties of good faith and loyalty, alleging that the Defendants, as majority owners of BSM, owed and breached a duty to Donnelly as a minority owner. The Eighth Claim is civil conspiracy, alleging that the Defendants conspired to tortuously injure Donnelly through a common scheme to defraud.
The Ninth and Tenth Claims request declaratory judgments (the "Declaratory Judgment Claims"). The Ninth Claim requests that this Court find that there was no consideration for the release or the Promissory Notes, and that each are void and unenforceable. The Tenth Claim seeks reduction of the amounts owed by Donnelly to the Sellers under the 2016 Sale Agreement, based on the additional liabilities owed by BSM.
On September 19, 2017, the Sellers filed this Motion. Dkt. No. 26. Oordt filed a joinder to the Motion. Dkt. No. 27. The Motion points out that the Debtor BSM is not a party to this action, and makes several broad arguments as to why this Adversary Proceeding should be dismissed. The Sellers' primary argument is that the 2016 Sale Agreement is governed by a forum selection clause which bars Donnelly from bringing claims two through ten in this Court. Accordingly, the Sellers argue, these claims can only be brought in a court in the State of New York. The Sellers next argue that the release...
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