Kulick v. Gamma Real Estate LLC
| Decision Date | 23 September 2022 |
| Docket Number | 1:20-cv-03582-MKV |
| Parties | RICHARD KULICK, Plaintiff, v. GAMMA REAL ESTATE LLC, GRE JV SLP LLC, GAMMA FUNDING SPECIAL LIMITED PARTNER LLC, JV MANAGEMENT LLC, N. RICHARD KALIKOW, JONATHAN KALIKOW, JOHN ILLUZZI, and VAN NGUYEN, Defendants. GAMMA REAL ESTATE LLC, GRE JV SLP LLC, GAMMA FUNDING SPECIAL LIMITED PARTNER LLC, JV MANAGEMENT LLC, Counterclaim- Plaintiffs/Third-Party Plaintiffs, v. RICHARD KULICK, Counterclaim-Defendant, BEACON REAL ESTATE GROUP LLC and CARLOS E. IMERY Third-Party Defendants. |
| Court | U.S. District Court — Southern District of New York |
Plaintiff Richard Kulick brought this action for damages in relation to Defendants' alleged scheme to freeze him out of a real estate investment business called GRE JV SLP LLC (“SLP”) that they had jointly operated for several years. Central to these claims, Kulick seeks to recover fees he alleges Defendants wrongfully withheld or diverted from him following his not-for-cause termination from the joint venture. Specifically, Kulick claims that he retained an economic interest in income earned by SLP, but that Defendants manufactured a reason to retroactively assign “cause” to his termination, in a brazen attempt to acquire his membership interests for a penny. Kulick further claims that following his termination, Defendants wrongfully diverted to SLP payments due to him as a member of other investment vehicle LLCs.
Defendants counterclaimed seeking a declaratory judgment that they acted in accordance with the terms of the SLP operating agreement when they assigned “cause” to Kulick's termination and redeemed his membership interests. In support, Defendants contend that Kulick spent his final month of employment-a grace period after being notified of his termination- advancing the interests of a new (and competing) company by misappropriating SLP's resources, soliciting its investors, and usurping its corporate opportunities. Defendants further contend that Kulick's misconduct during this final month gives rise to claims for breach of fiduciary duty, breach of contract, and unfair competition. Defendants also filed third-party claims against Kulick's new company and business partner.
In support his Motion for Summary Judgment, Kulick filed a Memorandum of Law [ECF No. 82] (“Pl. Br.”), a Declaration of Richard Kulick [ECF. No. 79] (“Kulick Decl.”), a Declaration of Aaron M. Zeisler [ECF. No 78] (“Zeisler Decl.”), and a Rule 56.1 Statement [ECF No. 81] (“Pl. Facts”). In opposition Defendants filed a Memorandum of Law [ECF No. 86] (“Def. Opp.”), a Rule 56.1 Counterstatement [ECF No. 87] (“Def. Counter”), and a Declaration of Darlene Fairman [ECF No. 85] (“Fairman Decl Opp.”). Plaintiffs filed a Memorandum of Law in reply [ECF No. 95] (“Pl. Reply”).
Before the Court are the parties' cross-motions for summary judgment.[1] [ECF Nos. 72, 77]. For the reasons that follow, the motion made by Kulick and the Third-Party Defendants is denied in its entirety. The motion made by Defendants is granted in part and denied in part.
Richard Kalikow and Jonathan Kalikow own Defendant Gamma Real Estate LLC (“Gamma”) and control Gamma's real estate development and financing businesses. Def. Facts ¶ 1. Kulick joined Gamma as “Chief Investment Officer, Multifamily” in 2015. Pl. Facts ¶ 1; Def. Facts ¶ 17. Around that same time, Kulick and the Individual Defendants-Richard and Jonathan Kalikow, John Illuzzi, and Van Nguyen-agreed to form a real estate investment venture directed at multifamily properties in the Southeastern United States. Def. Facts ¶ 16.
As part of their joint venture, Kulick and the Individual Defendants formed Defendant SLP and executed a Limited Liability Company Agreement. Zeisler Decl., Ex. 15 (“SLP Agreement”). As set forth in the SLP Agreement, the members of SLP were Kulick and Defendants Gamma Funding Special Limited Partner LLC (“Gamma Funding”) and JV Management LLC (“JVM”). Pl. Facts ¶ 24. Gamma Funding is controlled by the Kalikows while JVM is controlled by Illuzzi and Nguyen. Pl. Facts ¶ 24.
The membership interests in SLP were divided into three classes: (i) Class A Members have a Management Interest, or “right to participate in the management of the business and affairs of the Company as a Member, expressed as a percentage”; (ii) Class B Members have a Fee Income Economic Interest, or “right, expressed as a percentage, to share in the distributions of Fee Income Available for Distribution”; and (iii) Class C Members have a Carried Interest Income Economic Interest, or “the right, expressed as a percentage, to share in distributions of Carried Interest Income Available for Distribution.” SLP Agreement Art. II, § 6.1. SLP's Fee Income (with respect to Class B) is made up of proceeds from a one-time acquisition fee for each investment and an asset management fee. Def. Facts ¶ 40. The Carried Interest Income (with respect to Class C) comprises the profit share (or “promote fee”) earned when an investment property is sold or substantially refinanced. Def. Facts ¶ 41-42.
Gamma Funding and JVM each held 43.75 percent of the Class A, B and C interests, and Kulick held the remaining 12.5 percent of each interest. Pl. Facts ¶¶ 26-27. Gamma Funding and JVM provided capital contributions (totaling $425,000) for their share. Def. Facts ¶ 31. Kulick contributed no capital, but earned his share through his role as SLP's “Administrative Member,” tasked with day-to-day management of the company and with “implement[ing] the decisions of the Class A Members.” SLP Agreement § 5.10(a); Def. Facts ¶ 31.
The SLP Agreement provides that “the sole business of the Company shall be to receive certain fees and profits interests from Platform Investments and to pay certain expenses of the Company and the Members and their Affiliates in connection with such Platform Investments.” SLP Agreement § 1.3. The term “Platform Investments” is defined as “multifamily real estate projects located in the Southeastern United State[s] and other secondary markets that the Company determines to directly or indirectly sponsor with the approval of a Supermajority in Interest.” SLP Agreement Art. II.
During Kulick's tenure at Gamma and SLP, Defendants invested in eighteen multifamily properties: Elan, Parmer, Carrington, Windsor Falls, Highland Lake, Pavilion at Lake Eve, The Cove, The Clarion, Aventine, Springfield, Laurel View, Stone Ridge, Whitehall, Bartram Springs, Waverly Station, Pencil Factory, Park at Three Oaks and Trailside at Reedy Point. Pl. Facts ¶ 4-5. With each investment came the formation of a property specific general partner or managing limited liability company (the “Manager LLCs”). Pl. Facts ¶ 7. Each of these entities had a membership consisting of a combination of Kulick and all or some of the Individual Defendants. Pl. Facts ¶ 9. The agreements covering the formation of these entities set forth how proceeds from the investments would flow to investors, members, and participants in the deal. Pl. Facts ¶ 22.
The SLP Agreement provides for voluntary and involuntary withdrawal from SLP, with special rules applying to Kulick. An involuntary withdrawal occurs for Kulick upon “his resignation as an employee of [Gamma] or its Affiliate or the termination by [Gamma] or its Affiliate of his employment for any reason or no reason.” SLP Agreement Art. II. A voluntary termination for Kulick occurs, by contrast, only if he both resigns as an employee and “affirmatively voluntarily withdraws as a Member of the Company.” SLP Agreement Art. II. Upon a withdrawal from SLP, whether voluntary or involuntary, Class A and Class B interests held by Kulick automatically terminate. SLP Agreement § 8.1(a)-(b). Upon voluntary withdrawal, Kulick's Class C interests also terminate. SLP Agreement § 8.1(c).
In the case of an Involuntary Withdrawal, however, Kulick's Class C interests “shall automatically be converted into an Economic Interest,” defined as “the right, expressed as a percentage, to share in the allocation of one or more of the Company's allocable items . . . including Carried Interest Income Economic Interests.” SLP Agreement Article II, § 8.1(c). In this event, the other Class A Members “shall have the right to cause the Company to purchase” Kulick's Class C interests “for the Fair Market Value of the Carried Interest Income Economic Interest.” SLP Agreement § 8.2.
But there is an important caveat: If Kulick's Involuntary Withdrawal arises from the termination of his employment “for Cause,” then his “Class C Membership Interest shall be terminated and redeemed by the Company for the price of $0.01.” SLP Agreement § 8.1(c). The SLP Agreement provides that “Cause” as it relates to Kulick's employment includes in pertinent part: (i) “[Kulick's] unethical conduct in the performance of his duties”; (ii) [Kulick's] breach of this Agreement or negligence in the performance of his duties . . . or if [Kulick] is determined to be in violation of [SLP's] or [Gamma's] employment or operations manuals”; and (iii) “breach of any of the provisions of Section 9.4 hereof.” SLP Agreement Article II.
Pursuant to Section 9.4, “each Member agrees that he or she will not at any time, whether during his or her employment with the Company or thereafter, disclose to anyone (other than in furtherance of the business of the Company) any Confidential Information, or utilize such Confidential Information for his or her own benefit, or for the benefit of third parties.” SLP Agreement § 9.4(a).
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