Sarachek v. Fortgang
| Decision Date | 17 December 2008 |
| Docket Number | No. 16785/08.,16785/08. |
| Court | New York Supreme Court |
| Parties | Joseph SARACHEK, Indivdually and on Behalf of Triax Capital Advisors, LLC, Plaintiffs, v. Chaim FORTGANG, Galvex Capital, LLC, Galvex Holdings Limited, Galvex Estonia OU, Galvex Intertrade OU, Galvex Trade Limited, Galvex Services OU, Alvarez & Marsal Europe Ltd., Silver Point Capital, L.P., Silver Point Europe LLP and Silver Point Group, LLP, Defendants. |
The following papers numbered 1 to 9 read on this motion:
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¦Papers ¦Numbered ¦
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¦Notice of Motion/Order to Show Cause/ Petition/Cross Motion ¦1–5, 6–8 ¦
¦and Affidavits (Affirmations) Annexed ¦ ¦
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¦Opposing Affidavits (Affirmations) ¦9 ¦
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¦Reply Affidavits (Affirmations) ¦ ¦
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¦Affidavit (Affirmation) ¦ ¦
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¦Other Papers ¦ ¦
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Upon the foregoing papers, the motion by defendants Silver Point Capital, L.P. (SPC), Sliver Point Europe, LLP (SPE), and Silver Point Group, LLP (SPG) (together, Silver Point), Alvarez & Marsal Europe, Ltd (A & M), and Chaim Fortgang (Fortgang) (collectively, the Silver Point Defendants) for an order, pursuant to CPLR 3211(a)(7) and (8), dismissing the complaint insofar as asserted against them is granted and the cross motion by plaintiffs Joseph Sarachek, individually and on behalf of Triax Capital Advisors, LLC for an order granting summary judgment in their favor pursuant to CPLR 3212 is denied.
Plaintiffs allege that, on October 7, 2005, they entered into an oral agreement with David Bain, the President and Chief Executive Officer of the Galvex Defendants (Galvex),1 to find a lender within 72 hours that would provide $12–15 million in financing for those companies so that they could stave off creditors. In exchange for this service, plaintiffs allege that Galvex agreed to pay them 10% of the money financed, but in no event less than $1.5 million. Plaintiffs assert that they fulfilled their obligations under this “finder's agreement” by introducing Galvex to Silver Point and/or Fortgang which agreed to furnish such financing to Galvex. In the first cause of action of their complaint and in accordance with the alleged oral contract, plaintiffs seek a $1.5 million finder's fee from Galvex, as well as from Silver Point, A & M and Fortgang. In ten additional causes of action,2 plaintiff's seek a $14.4 million finder's fee in connection with a subsequent $144 million debt purchase by Silver Point.
In their motion, the Silver Point Defendants assert that plaintiffs' first cause of action against them for breach of contract is not legally cognizable because Silver Point was not a party to the agreement with Galvex, nor is Silver Point liable for the obligation of Galvex to pay such a fee pursuant to Galvex's contract with plaintiffs. With respect to the additional finder's fee sought by plaintiffs, Silver Point contends that plaintiffs have not alleged the existence of any agreement to pay an amount beyond the original engagement to find financing in exchange for $1.5 million. Silver Point adds that, in any event, the complaint against SPE, A & M and SPG should be dismissed because the court lacks jurisdiction over SPE and A & M and because SPG does not exist.
Silver Point notes the following:
1.Plaintiffs do not allege that they entered into an agreement for the payment of the $1.5 million finder's fee with anyone other than Galvex;
2.Insofar as plaintiffs allege any claim against A & M, they assert only that A & M “was retained by Deutsche Bank, the primary creditor of the Galvex Defendants, to report the internal and financial affairs of the Galvex Defendants and to be responsible for the payment of all liabilities of the Galvex Defendants.”
3.With respect to Silver Point and Fortgang, plaintiffs only allege that they “purchase[d] the debt of the Galvex Defendants held and/or controlled by Deutsche Bank and Goldman Sachs and became responsible for the payment of the liabilities of Galvex” and
4.Plaintiffs assert that they also “have earned fees which are customarily paid within the debt financing industry on any additional monies secured over and above the original amount secured which fees are calculated at three percent of the additional sums thus financed.”
More specifically, as to each of the causes of action, the parties' contentions are, as follows:
Breach of Contract (First Cause of Action)
The Silver Point Defendants fault plaintiffs for failing to allege that there was ever any contract entered into with Silver Point, A & M or Fortgang. They further assert that an alleged oral finder's fee agreement is void under the Statute of Frauds. Although Joseph Sarachek is an attorney and oral agreements to pay compensation to an attorney fall outside the Statute of Frauds, the Silver Point Defendants maintain that the exception does not apply here since the alleged contract was not to pay an attorney (Sarachek), but a corporation (Triax Capital Advisors, LLC) whose president is an attorney.
Plaintiffs concede that there was no written contract for them to act as a liaison between Galvex and Silver Point, but they assert that the oral agreement is enforceable because Sarachek is excluded from the requirements of a writing by virtue of GOL § 5–701(a)(10), even if he was not acting as an attorney in the transaction at issue. Plaintiffs further argue that it is unnecessary to allege any privity between Silver Point and Fortgang, on the one hand, and plaintiffs on the other “once they undertook control and ownership of the Galvex Defendants.”
In reply, the Silver Point Defendants point out that the complaint does not allege that Silver Point or Fortgang exercised any form of control over Galvex, only that they loaned it money, and, therefore, a breach of contract cause of action against them is not viable. They also note that it has never been their suggestion that the Statute of Frauds bars Sarachek's breach of contract claims, only those of Triax Capital Advisors, LLC.
According to the allegations of the complaint, the Silver Point Defendants are liable to plaintiffs under a breach of contract theory because said defendants “purchase[d] the debt of the Galvex Defendants ... and became responsible for the payment of the liabilities of Galvex”. Although one entity may be held liable for the obligations of another where those in control of the corporate enterprise have not treated it as a distinct legal entity, in this case, the Silver Point Defendants merely loaned money to the separately incorporated Galvex Defendants. Nowhere in the complaint is there an allegation that the Silver Point Defendants exercised any form of control over Galvex. ( see Almonte v. Western Beef, Inc ., 21 AD3d 514 [2005] ). Accordingly, the first cause of action is dismissed.
In arguing that plaintiffs are not entitled to $14.4 million as fees “customarily paid within the debt financing industry or any additional monies secured over and above the original amount [of $12–15 million],” the Silver Point Defendants fault plaintiffs for failing to assert that a contract exists with anyone with respect to that claim.
Insofar as they seek additional sums as a result of an alleged breach of contract, plaintiffs rely upon “[t]he custom and usage within the business and profession ... that, where an introduction is made, all monies generated from that introduction, whether in a single or multiple transactions, are subject to payment of the fees originally agreed upon with the person or company who obtains the financing or makes the introduction.”
In reply, Silver Point asserts that no legal support exists for plaintiffs' position that “custom and usage” entitles them to a $14.4 million finder's fee; rather, according to Silver Point, custom and usage may only be admitted to assist a fact finder in construing a contractual ambiguity.
If ambiguities exist in a contract in either the language employed or the intent and circumstances surrounding its execution, extrinsic evidence may be offered by the contracting parties ( see Wing Ming Properties [U.S.A.] Ltd. v. Mott Operating Corp., 148 Misc.2d 680, 684 [1990] ). Evidence may be considered concerning the actions of the parties which reflect their understanding of the agreement, as well as concerning the prevalent custom and usage of an industry as incorporated in the choice of certain terms within the document, in order to ascertain the intent of the parties at the time of the contract's execution ( see generally,22 N.Y. Jur2d, Contracts, §§ 187–209). In this case, plaintiffs are not merely seeking to clarify the terms of a contract based upon custom and usage within the debt financing industry; rather, they argue that a contract to pay fees in addition to the original $1.5 million arose out of such custom and usage. This they may not do. Therefore, the second cause of action is dismissed.
The Silver Point Defendants contend that plaintiffs have not set forth what performance they rendered in connection with the $144 million financing or how said defen...
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