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Randolph Equities, LLC v. Carbon Capital

March 26, 2007


The opinion of the court was delivered by: Honorable Paul A. Crotty, United States District Judge


On December 30, 2005, Plaintiffs commenced this action alleging that Defendants breached their promise to provide a mezzanine mortgage loan in connection with Plaintiffs' contemplated acquisition and development of three apartment buildings in Florida. The Complaint, which was amended on March 1, 2006, includes claims for breach of contract, fraud, intentional interference with prospective business advantage, and estoppel. On April 4, 2006, Defendants moved to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. After an adjournment for settlement discussions, which were unsuccessful, the parties agreed to proceed. Oral argument was held on January 10, 2007. For the reasons set forth below, the Court grants AFC's motion to dismiss in its entirety, and denies Carbon Capital, Inc. and BlackRock, Inc.'s motions (with the exception of the fraud claim as to BlackRock).


Plaintiff Randolph Equities, LLC ("Randolph") is a Chicago-based real estate development and investment firm whose principals are Plaintiff Adam Sharif and Tierney Sharif (together "Plaintiffs"). (Am. Compl. ¶¶ 12-13.) Defendant Carbon Capital, Inc. ("Carbon") is a New York-based private real estate debt fund. Defendant BlackRock, Inc. ("BlackRock") is a large, publicly traded investment management company that "manages Carbon." (Am. Compl. ¶ 15.) Defendant AFC Realty Capital, Inc. ("AFC") is a New York-based consulting firm that arranges debt and equity capital to real estate investors and developers. (Am. Compl. ¶ 17.)

Randolph was a partner of Treasures Holdco L.P. ("Treasures") (Am. Compl. ¶ 1.) In 1999, Treasures purchased three ten-story apartment buildings in Florida ("the Property"), (Am. Compl. ¶ 20) but the partners became engaged in a dispute which led to a petition in Illinois state court for dissolution of the partnership. (Am. Compl. ¶¶ 21-22.) The partners submitted competing bids, and the Illinois court approved Plaintiffs' offer to purchase the Property for $51 million. (Am. Compl. ¶¶ 23-26.)

In order to finance the purchase, Plaintiffs selected Ohio Savings Bank to provide the first mortgage of approximately $34.4 million and Carbon and BlackRock to provide a mezzanine loan*fn1 of $10.8 million. (Am. Compl. ¶ 27.) Plaintiffs allege that Carbon insisted that Plaintiffs retain Carbon's asset manager, AFC, for the deal, despite Plaintiffs' protests. (Am. Compl. ¶ 28.) Plaintiffs also allege that they agreed to this arrangement only because Carbon and AFC falsely assured them that they had worked on many deals in the past, that they had a deal firmly in place to achieve judicial approval of the sale, and that Plaintiffs would not be responsible for any more fees than those called for in the Letter of Intent. (Am. Compl. ¶¶ 3-4, 30-31, 108.)

Carbon, AFC and Randolph executed a Letter of Intent on August 4, 2003 establishing that Carbon would provide a mezzanine loan to Randolph for "[t]he lesser of $10.82 million . or 86.5% of the budgeted project costs." (Am. Compl. ¶¶ 35-37.)

On August 18, 2003, the Illinois state court approved the sale of the Property to Randolph, but conditioned on the removal of all contingencies, other than survey, title, legal opinion and loan documentation, from the lender commitments. (Am. Compl. ¶ 45.) Plaintiffs allege that Defendants then agreed to waive all pre-closing conditions, except for survey, title, legal opinion and loan documentation. (Am. Compl. ¶ 48.)

On August 27, 2003, Plaintiffs and Carbon executed a Commitment Letter, which reflected the discussions between Carbon and Adam Sharif relating the loan. This Letter was revised on September 10, 2003 ("Second Commitment Letter") stating that the Letter would be terminated, if Randolph was not awarded the Property by September 10, 2003, but that Carbon could extend the agreement. (Am. Compl. ¶¶ 58-60.)

Plaintiffs allege that Defendants expressly waived the pre-closing conditions on numerous other occasions, including the September 10, 2003 letters, and during a court proceeding on September 13, 2003 concerning the sale of the Property.

(Am. Compl. ¶¶ 63-64, 67-71, 73-74, 101-03.) When Defendants agreed to waive these conditions, they effectively modified the Second Commitment Letter and the Second Letter of Intent-the alleged contract.

Plaintiffs allege that shortly after the September 13, 2003 hearing, Carbon/BlackRock began to "undertake certain measures purposefully designed to negate their obligation to provide financing and prevent the parties from closing the loan." (Am. Compl. ¶¶ 79-86.) For example, Defendants insisted on substantially higher asset management fees and expenses to AFC than had been set forth in the Letter of Intent (Am. Compl. ¶ 75); and Defendants demanded "additional and extraneous information from Plaintiffs." (Am. Compl. ¶¶ 79-86.) Allegedly, Carbon/BlackRock and AFC were experiencing internal problems concerning the financing of the acquisition and consequently Defendants wanted out of the deal. (Am. Compl. ¶¶ 10, 86.)

On October 9, 2003, Plaintiffs allege that all pre-closing conditions, except for "housekeeping matters" were met five days in advance of the judicially ordered October 14, 2003 closing date. (Am. Compl. ¶¶ 8-10, 81, 84, 101-04.) The same day, Defendants informed Plaintiffs that they would not be proceeding with the deal. (Am. Compl. ¶¶ 88-90, 101, 105.) Plaintiffs allege that as a result of "Defendant's breach," the closing did not take place and Plaintiffs were unable to acquire the Property, resulting in their injury. (Am. Compl. ¶¶ 93-100.)


Rule 12(b)(6) Standard The district court may dismiss a claim under Federal Rule of Civil Procedure 12(b)(6) only if "it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 249-50 (1989) (citing Hishon v. King & Spalding, 467 U.S. 69, 73 (1984)). The Court must accept as true all well-pleaded factual allegations in the complaint, and view them in the light most favorable to the plaintiff. See De Jesus v. Sears, Roebuck & Co., 87 F.3d 65, 70 (2d Cir. 1996). Despite the Rule's liberal standard, "conclusory allegations or legal conclusions masquerading as factual conclusions" are not sufficient to withstand a motion to dismiss. Id.

The Court's consideration is normally limited to facts alleged in the complaint, documents appended to the complaint or incorporated in the complaint by reference, and to matters of which judicial notice may be taken. See Allen v. WestPointPepperell, Inc., 945 F.2d 40, 44 (2d Cir. 1991).

I. Breach of Contract*fn2

To establish breach of contract claim under New York law, a plaintiff must plead: 1) the existence of a contract; 2) breach by the other party; and 3) damage suffered as a result of the breach. See ...

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