Puig v. Seminole Night Club, LLC

• Decision Date: 29 July 2011
• Docket Number: C.A. No. 5495-VCN
• Parties: LOUIS PUIG, Plaintiff, v. SEMINOLE NIGHT CLUB, LLC, a Delaware limited liability company, MACROVEST SEMINOLE VENTURES, LLC, a Delaware limited liability company, and SEMINOLE CLUB INVESTMENT PARTNERS, LLC, a Delaware limited liability company, Defendants.
• Court: Court of Chancery of Delaware

LOUIS PUIG, Plaintiff,

v.SEMINOLE NIGHT CLUB, LLC,

a Delaware limited liability company,

MACROVEST SEMINOLE VENTURES, LLC,

a Delaware limited liability company,

and SEMINOLE CLUB INVESTMENT PARTNERS, LLC,

a Delaware limited liability company, Defendants.

C.A. No. 5495-VCN

COURT OF CHANCERY OF THE STATE OF DELAWARE

Date Submitted: April 12, 2011

Date Decided: July 29, 2011

MEMORANDUM OPINION

Richard D. Kirk, Esquire, Stephen B. Brauerman, Esquire, and Vanessa R. Tiradentes, Esquire of Bayard, P.A., Wilmington, Delaware, Attorneys for Plaintiff.

Carolyn S. Hake, Esquire and Andrew D. Cordo, Esquire of Ashby & Geddes, Wilmington, Delaware, and John A. Ross, Esquire and Abram J. Pafford, Esquire of Pafford Lawrence & Ross PLLC, Washington, D.C., Attorneys for Defendants.

NOBLE, Vice Chancellor

I. INTRODUCTION

This action arises out of Plaintiff Louis Puig's ("Puig") investment in and employment by a nightclub at the Seminole Hard Rock Hotel & Casino in Hollywood, Florida (the "Seminole Hard Rock"). In the First Amended Verified Complaint (the "Amended Complaint"), he seeks rescission of certain contractual agreements he entered into when he invested $400,000 in the nightclub venture.

Defendants Seminole Night Club, LLC ("SNC" or the "Company"), Macrovest Seminole Ventures, LLC ("Macrovest"), and Seminole Club Investment Partners, LLC ("SOP") have moved to dismiss the Amended Complaint under Court of Chancery Rule 9(b) and Rule 12(b)(6). They contend that dismissal is appropriate because (1) Puig's claims are time barred; (2) the Amended Complaint fails to state a claim for which relief can be granted under either Delaware or New York law; and (3) Puig's claims for equitable relief are barred by various principles of equity, including (i) the Court's inability to return the parties to the status quo ante, (ii) Puig's acceptance of benefits under the contractual agreements, (iii) the Amended Complaint's failure to establish that Puig does not have an adequate remedy at law, and (iv) Puig's unreasonable delay in seeking rescission.

II. BACKGROUND¹

SNC, a Delaware limited liability company, was formed in May 2004 for the purpose of operating a nightclub at the Seminole Hard Rock. Of the Company's three membership classes, SCIP holds all of the Class A interests, Macrovest holds all of the Class B interests, and Puig holds all of the Class C interests. SNC has four directors—Eric H. Douglas ("Douglas"), John S. Nargiso ("Nargiso"), Max B. Osceola III ("Osceola"), and Theodore V. Fowler ("Fowler"). Puig alleges that Macrovest's members are Douglas, Nargiso, and Osceola, while SOP is controlled by Fowler.

In August 2004, Nargiso approached Puig because of his involvement in the Florida nightclub industry. Nargiso introduced Puig to Douglas, Osceola, and Fowler and solicited his interest in helping to launch a new nightclub at the Seminole Hard Rock. Around that time, Puig also met with Max Osceola, Jr., the Seminole tribal representative for the Seminole Hard Rock. Although he had some reservations based on competition from other nightclubs at the Seminole Hard Rock and the sufficiency of parking at the hotel, Puig ultimately entered into certain agreements to become involved in the project both as an investor and as an operator. In the Amended Complaint, he asserts that that decision was the result ofnumerous meetings and some purportedly misleading statements regarding regulatory approval of the Seminole Hard Rock's full gambling license and the nightclub's right to remain open later than others at the hotel.

Puig's rights and obligations in the Seminole Hard Rock nightclub venture are memorialized in three documents, all dated September 22, 2004—the SNC amended and restated limited liability company agreement (the "LLC Agreement"), a stock purchase agreement (the "SPA"), and the SNC operating agreement (the "Operating Agreement") (collectively, the "Governing Agreements"). He contends that these three documents jointly "set forth the terms and conditions upon which [he] would develop SNC's multi-level, multi-room night club in the 'Paradise' entertainment section of the [Seminole] Hard Rock named Club Spirits . . . . "²

Under the SPA, Puig purchased all of the Class C interests of SNC—a class that affords him neither voting rights nor a seat on the SNC board of directors—for $400,000. Through the Operating Agreement, however, he claims to have certain management rights that govern his ability to develop the nightclub and his terms of employment. Specifically, he contends that the Operating Agreement entitles him to receive a salary of $2,000 per week (in addition to a portion of the nightclub's monthly revenues) for operating the nightclub during the ten-year term of thatagreement and that his employment can only be terminated "for cause," as defined by that agreement.

After executing the Governing Agreements, Puig oversaw the development of the nightclub from some point in 2004 until its public launch in October 2005. He alleges that, although the nightclub became profitable nearly a year later, Fowler—on behalf of SNC—purported to terminate him for cause in a letter delivered around September 28, 2006. Puig contends that no basis for termination was specified in that letter and that he received no prior notice of any breaches, which was required under the Operating Agreement.

Puig suggests that his experiences with SNC are representative of an ongoing trend at the Seminole Hard Rock in business transactions involving Osceola, Nargiso, Douglas, and their affiliates within the Seminole Tribe; specifically, entrepreneurs are fraudulently induced to open businesses at the Seminole Hard Rock and, once they become profitable, the operating principals— like Puig—are removed from those businesses.³

Because of his failed business relationship with SNC, Puig filed suit in Florida state court on November 15, 2006, and alleged various causes of action based on the Governing Agreements—Counts III and IV sought analogous relief tothat requested here.⁴ In its consideration of a motion to dismiss the Florida Complaint, the court appears to have determined that any claims implicating the LLC Agreement had to be brought in Delaware under that agreement's mandatory forum selection clause.⁵ Thereafter, Puig filed an amended complaint,⁶ which curtailed the number of claims raised but still referenced the LLC Agreement.⁷ At an April 2008 hearing before the Florida court, Puig's counsel agreed to withdraw some of the claims asserted in the Amended Florida Complaint.⁸ More importantly, in May 2008, the Florida court entered an order dismissing other of Puig's claims that were asserted in that complaint (the "May 2008 Dismissal Order");⁹ of relevance to the issues confronted here is the court's dismissal of Count III.¹⁰ That claim, grounded in tortious interference, seemingly implicated the LLC Agreement and, thus, was likely dismissed based on the Florida court's earlier reasoning that the LLC Agreement's forum selection clause required that claim to be brought in this Court.¹¹ Although some claims in the Amended Florida Complaint were dismissed voluntarily and others were dismissed by operation ofthe May 2008 Dismissal Order, Puig's claims relating to breach of contract and the payment of wages under the Operating Agreement remain viable and are still being litigated before the Florida court.

After the May 2008 Dismissal Order was entered, there appears to have been no further prosecution of the claims implicating the LLC Agreement until this action was filed on May 14, 2010. That filing was preceded by an April 16, 2010 order of the Florida court where Puig was instructed that he "ha[d] thirty (30) days to make th[e Florida] court aware that suit ha[d] been filed or transferred in Delaware or case [sic] will be dismissed."¹² After Puig filed his initial complaint in this action, the Defendants moved to dismiss under Court of Chancery Rules 12(b)(4), 12(b)(5), 12(b)(6), and 23.1. In response, Puig filed the Amended Complaint on November 30, 2010, which is the focus of the Defendants' current motion.

III. ANALYSIS

Before considering the Defendants' other arguments for dismissal, the Court first considers whether the claims raised in the Amended Complaint are time barred.¹³

The Defendants argue that the three-year statute of limitations under 10 Del. C. § 8106 applies by analogy to the claims raised here; the Amended Complaint, according to the Defendants, seeks rescission of the SPA and the LLC Agreement because of the Defendants' purportedly fraudulent statements that induced Puig to enter into those agreements. Where fraudulent inducement is alleged, the Defendants contend that the cause of action accrues at the time the misrepresentation induced the execution of the contract. For that reason, they assert that Puig's claims at issue here accrued on September 22, 2004—the date he signed the SPA and the LLC Agreement (along with the Operating Agreement)— and, as a result, the analogous limitations period expired on September 22, 2007. Moreover, although related claims were originally brought in the Florida proceeding, his claims in this action cannot be saved by Delaware's Savings Statute;¹⁴ the Florida court dismissed certain counts related to the LLC Agreement in the May 2008 Dismissal Order and, as a result, any savings period that may have existed expired on May 9, 2009.

In response, Puig asserts that his claims were timely filed and that the Defendants' contentions fail for two reasons. First, because his claims are equitable, and, thus, not directly governed by a limitations period, the Court need not apply the analogous statute of limitations. He suggests that certain factors—forexample, procedural complexity in the Florida litigation, delay outside of his control, and the lack of prejudice to the Defendants—counsel against applying the analogous limitations period. Second, even if a statute of limitations is applied, this...