Resorts Grp. v. Cerberus Capital Mgmt.

• Decision Date: 27 December 2021
• Docket Number: INDEX 653777/2020
• Citation: 2021 NY Slip Op 32797 (U)
• Parties: RESORTS GROUP, INC., Plaintiff, v. CERBERUS CAPITAL MANAGEMENT, L.P., CERBERUS PARTNERS II, L.P., CERBERUS INSTITUTIONAL REAL ESTATE PARTNERS IV, L.P., CI II MF ECHO, LLC.CRE ECHO GROUP, LLC, CERBERUS INSTITUTIONAL PARTNERS VI, L.P., CRE NIAGARA MANAGEMENT HOLDINGS, LLC, CRE NIAGARA MANAGER, LLC.CRE BUSHKILL GROUP, LLC.CRE NIAGARA HOLDINGS, LLC.CRE NIAGARA PARTICIPATION HOLDINGS, LLC.CLUB EXPLORIA, LLC Defendants. MOTION SEQ. No. 001 002
• Court: New York Supreme Court

2021 NY Slip Op 32797(U)

RESORTS GROUP, INC., Plaintiff, v. CERBERUS CAPITAL MANAGEMENT, L.P., CERBERUS PARTNERS II, L.P., CERBERUS INSTITUTIONAL REAL ESTATE PARTNERS IV, L.P., CI II MF ECHO, LLC.CRE ECHO GROUP, LLC, CERBERUS INSTITUTIONAL PARTNERS VI, L.P., CRE NIAGARA MANAGEMENT HOLDINGS, LLC, CRE NIAGARA MANAGER, LLC.CRE BUSHKILL GROUP, LLC.CRE NIAGARA HOLDINGS, LLC.CRE NIAGARA PARTICIPATION HOLDINGS, LLC.CLUB EXPLORIA, LLC Defendants.

MOTION SEQ. No. 001 002

INDEX No. 653777/2020

Supreme Court, New York County

December 27, 2021

Unpublished Opinion

DECISION + ORDER ON MOTIONS

HON JENNIFER G. SCHECTER JUSTICE

The following e-filed documents, listed by NYSCEF document number (Motion 001) 22, 23, 24, 25, 26, 27, 28, 29, 34, 35, 36, 37 38, 39, 40, 41, 42, 43, 44, 45, 46, 47, 48, 49, 50, 51, 52 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63, 64, 65, 66, 67 68, 69, 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 84, 137, 138, 139, 140, 141, 142, 143, 144, 145, 159, 162, 163, 164, 165, 166, 167, 168, 169, 170, 171, 172, 173, 174, 175, 176, 193, 194, 195 were read on this motion to/for DISMISS.

The following e-filed documents, listed by NYSCEF document number (Motion 002) 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 85, 86, 87, 88, 89, 90, 91, 92, 93, 94, 95, 96, 97, 98, 99, 100, 101, 102, 103, 104, 105, 106, 107, 108, 109, 110, 111, 112, 113, 114, 115, 116, 117, 118, 119, 120, 121, 122, 123, 124, 125, 126, 127, 128, 129, 130, 131, 132, 133, 134, 135, 136, 158, 177, 178, 179, 180, 181, 182, 183, 184, 185, 186, 187, 188, 189, 190, 191, 192 were read on this motion to/for DISMISS.

Upon the foregoing documents, it is ORDERED that the motions to dismiss the amended complaint by defendants Cerberus Capital Management, L.P., Cerberus Partners II, L.P., Cerberus Institutional Real Estate Partners IV, L.P., CI II MF Echo, LLC, Cerberus Institutional Partners VI, L.P., CRE Niagara Management Holdings, LLC, and CRE Niagara Manager, LLC's (collectively, the Cerberus Defendants) and by defendants CRE Niagara Holdings, LLC (CRE Niagara Holdings), Club Exploria, LLC (Club Exploria), CRE Niagara Participation Holdings, LLC (CRE Niagara Participation), CRE Bushkill Group, LLC (CRE Bushkill), and CRE Echo Group, LLC (CRE Echo; collectively with CRE Niagara, Club Exploria, CRE Participation and CRE Bushkill, the CRE Defendants) are GRANTED IN PART.

Cerberus Defendants

The Cerberus Defendants are not parties to any of the subject contracts so they cannot be sued for breach (Randall's Island Aquatic Leisure, LLC v City of New York, 92 A.D.3d 463 [1st Dept 2012]). Nor can they be held liable by piercing their corporate veils since plaintiff merely alleges that the Cerberus Defendants dominated and caused their subsidiaries, the CRE Defendants, to breach the contracts (EBG Holdings LLC v Vredezicht's Gravenhage 109 B. V., 2008 WL 4057745, at *12 [Del Ch Sept. 2, 2008] ["the requisite element of fraud under the alter ego theory must come from an inequitable use of the corporate form itself as a sham, and not from the underlying claim"]; see Capone v Castelton Commodities Intl. LLC, 148 A.D.3d 506, 507 [1st Dept 2017]). This is not a basis for piercing the corporate veil under applicable Delaware law (id.; see Klein v CAVI Acquisition, Inc., 57 A.D.3d 376, 377 [1st Dept 2008] ["the issue of whether the corporate veil of (defendant), a Delaware corporation, should be pierced is governed by Delaware law"]).*

Likewise, the allegation that a parent, motivated by economic incentives to protect its interest in its subsidiary, caused the subsidiary to breach, does not support a valid claim for tortious interference based on the economic interest doctrine (White Plains Coat & Apron Co. v Cintas Corp., 8 N.Y.3d 422, 426 [2007]; see Ruha v Guior, 277 A.D.2d 116 [1st Dept 2000] [allegation that malice was sole motivation rebutted by "plaintiffs' own claims that defendants' actions were financially motived"]). The fraud claim, moreover, fails for lack of particularity about misrepresentations with scienter made by the Cerberus Defendants rather than by the CRE Defendants (CPLR 3016[b]; see RKA Film Fin., LLC v Kavanaugh, 171 A.D.3d 678 [1st Dept 2019]). When a sophisticated party sells to a private equity company and contracts, as is ordinarily the case, with subsidiaries formed for the limited purpose of acquiring and operating the company, one cannot seek to hold the parent private equity company liable if the parent is not made a party to the agreement. Concerns about solvency of the subsidiary are often ameliorated with a guarantee. Indeed, the decision not to contract with "a more solvent parent entity is an agreement to take counterparty credit risk" (Capone, 2016 WL 1222163, at ^[*]8).

CRE Defendants

Plaintiffs newly-asserted claims (contained for the first time in the amended complaint) for breach of the Unit and Asset Purchase Agreement (Dkt. 14 [the UAPA]) must be dismissed in favor of the Delaware action based on the broad Delaware forum selection clause contained in that agreement.

There is no basis, however, to dismiss this entire action in favor of the Delaware one. Three of the four agreements that were allegedly breached-the Servicing Agreement with CRE Bushkill (Dkt. 17), the Participation Agreement with CRE Bushkill as Holder (Dkt. 18), and the Supplemental Agreement with CRE Bushkill and CRE Niagra Participation (Dkt. 19)-contain broad mandatory New York forum selection clauses applicable to all claims related to these agreements (Dkt. 17 at 36; Dkt. 18 at 35; Dkt. 19 at 4). The fourth agreement at issue, the PSQ Agreement with CRE Bushkill (Dkt. 20), lacks a forum selection clause but is related to the Servicing Agreement. The UAPA's forum selection clause does not apply to the breach claims related to these agreements because they do not principally concern the UAPA and only relate to it tangentially to the extent that the agreements were executed as part of a larger transaction. While the UAPA's forum selection clause would apply if the subject contracts themselves altogether lacked a forum selection clause, these sophisticated parties, being well aware that they agreed to litigate all claims arising from the UAPA in Delaware nonetheless also expressly agreed to litigate claims related to the subject agreements in New York. This deliberate drafting decision must be given effect and the specific forum selection clauses at issue here choosing New York must be enforced. Otherwise, those clauses would be rendered completely meaningless (see Alvogen Group Holdings LLC v Bayer Pharma AG, 176 A.D.3d 551 [1st Dept2019]).

Nor will dismissal in favor of a prior pending action be granted as a matter of discretion where, as here, the parties specifically agreed to a New York forum (see Sebastian Holdings, Inc. v Deutsche Bank AG, 78 A.D.3d 446, 456 [1st Dept 2010]). Discovery, of course, will be coordinated with the Delaware action to maximize efficiency.

Additionally only those of the CRE Defendants that are parties to the subject contracts may be sued for their breach (Randall's Island, 92 A.D.3d at 463). Thus, the claims for breach of...