Matt Egnotovich, Michael Weinsz, David Goldrath as Trustee of the Joan Barbara Goldrath GST Exempt Marital Trust f/b/o David E. Goldrath, Janet Loeb as Trustee of The Joan Barbara Goldrath GST Exempt Marital Trust f/b/o Janet Loeb, Jess Mogul, And Richard Scheck, Plaintiffs,
Katten Muchin Zavis & Roseman LLP, Defendant.
This case is not published in a printed volume and its disposition appears in a table in the reporter.
For Plaintiffs: Menaker & Hermann LLP Richard G. Menaker
For Defendant: Bingham McCutchen LLP Ted Poretz, Joshua Dorchak,
John P. Son.
Bernard J. Fried, J.
Plaintiffs are former founding members of nonparty Havens, Inc. (Havens), a resort destination club in the business of acquiring vacation properties to be used by the club members. Funding for these property acquisitions was to be generated principally through the financial contributions of the founding members. To become founding members, plaintiffs were required to sign a membership agreement, and to pay $150,000 in membership dues. A portion of the membership dues was to be held as a deposit in escrow. Defendant Katten Muchin Rosenman LLP, sued here as Katten Muchin Zavis & Roseman LLP (Katten), acted as escrow agent for the escrow account. In 2006, Havens failed as a going concern, and is now apparently without funds to pay damages suffered by plaintiffs. Plaintiffs then brought this action against Katten seeking return of their deposits, and alleging wrongful release of escrowed funds and furtherance of fraud by the club's sponsors. Katten now moves for summary judgment dismissing the amended complaint  on the ground that it fails to state a cause of action, and is contradicted by clear and unambiguous documentary evidence.
For the reasons set forth below, Katten's motion is granted.
Havens was a start-up vacation destination resort company. It intended to limit membership to 400, and to acquire individual residence units like houses or individual apartments in desirable vacation areas. Membership in Havens entitled the member to a certain number of days annually at a certain number of Havens resort properties (Aff. of Merril Mironer, 2).
Members, like plaintiffs, were not shareholders and acquired no equity interest upon joining Havens. Rather, the membership deposits paid by Havens members, including plaintiffs, were in the nature of membership fees ( id.).
Membership in Havens was governed by three documents: a Member Application, a Membership Handbook (sometimes referred to as the Membership Plan), and a Deposit Repayment Bond Certificate. The Member Application refers to these three documents (collectively, the Membership Agreement Documents or the Membership Agreement) as the "entire agreement" between Havens and each member (Member Application, 7 [Aff. of Ted Poretz, Exh D]).
The Membership Agreement Documents address the member deposits, the refund of which is what plaintiffs seek in this action. None of the Membership Agreement Documents refers to Katten, the Escrow Agreement, or the existence of an escrow account.
The Member Application has two provisions relating to membership deposits. In section 2, the Member Application provides that deposits may be used "to fund the acquisition of real estate," as well as to pay for "capital improvements to real estate, including furnishings" (Member Application, 2). Section 6 provides that upon termination of a member's interest in Havens, the member is entitled, under certain circumstances, to the refund of the deposit "in accordance with the terms and conditions of the Membership Handbook" (id., 6).
The Membership Handbook addresses member deposits only in section 7.2, and provides that upon resignation of a member, the member shall be placed on a waiting list for the refund of a member's deposit, if the member is otherwise eligible for refund (Membership Handbook, 7.2 [Poretz Aff., Exh E]).
The Deposit Repayment Bond Certificate provides only that membership deposits are subject to refund 30 years from the date of the Certificate, and "pursuant to and subject to the terms and conditions of the Membership Agreement and the Membership Plan" (Certificate, 1 [Poretz Aff., Exh F]). The Deposit Repayment Bond Certificate provides expressly that the refund right "is backed by and subject to the availability of the assets of [Havens]" (id., 2).
In late July 2004, Katten was asked to draft an escrow agreement for Havens to provide to members or prospective members, and it was later asked to draft two other escrow agreements (Mironer Aff., 3).
The amended complaint attaches three different versions of the escrow agreement. The three versions of the escrow agreement are dated October 22, 2004, November 8, 2004 and February 1, 2005. The October version is identical to the February 1, 2005 version, except for the fact that the February 1, 2005 escrow agreement included two additional Authorized Purposes, one of which was the leasing of vacation properties, whereas the earlier version did not allow for leasing (Mironer Aff., 22). Both versions allowed escrow funds to be disbursed for purposes ancillary but "directly related" to an express Authorized Purpose (id., 10).
None of the plaintiffs paid any deposit money to Katten prior to the effective date of the February 1, 2005 escrow agreement (id., 19-20). Katten contends that there should be no dispute that each plaintiff's deposit was governed by the terms of the escrow agreement in effect at the time the payment was made, and indeed, plaintiffs agree that the terms of the February 1, 2005 escrow agreement control the outcome of this dispute ( see Transcript of 10 /5/07 Oral Argument, at 16).
Each of the escrow agreements is an agreement between Katten and Havens, whereby Katten agreed to (1) hold deposits sent to it by Havens members, and (2) to disburse monies it was holding only at Havens' specific request, for purposes specifically authorized by the escrow agreement (Mironer Aff., 6). The three escrow agreements are identical in most respects.
The October 22, 2004 escrow agreement (the First Escrow Agreement [Mironer Aff., Exh A]) is an agreement only between Havens and Katten. It requires Havens to deliver to Katten 80% of the membership fee paid by each "Founding Member" of Havens, to be held in escrow and disbursed to Havens only for purposes specified in section 3 of the First Escrow Agreement.
Like all of the escrow agreements, the First Escrow Agreement highlights the fact that Katten's role as escrow agent "is solely ministerial and [Katten] shall have no duties or obligations other than those expressly imposed on it herein" (First Escrow Agreement, 2.2 [emphasis added]). Katten's only obligation was to disburse funds at Havens' request for any expenditure allowed by the escrow agreement. Therefore, Havens and Katten agreed that Katten:
may rely upon any paper or other document which may be submitted to it in connection with its duties hereunder and which it believes to be genuine and to have been signed or presented by the proper party or parties and shall have no liability or responsibility thereto with respect to the form, execution or validity thereof. [Katten] shall not be liable for ...