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Cobalt Partners, L.P., et al v. Gsc Capital Corp.

May 1, 2012

COBALT PARTNERS, L.P., ET AL., PLAINTIFFS-APPELLANTS,
v.
GSC CAPITAL CORP., DEFENDANT, GSCP (NJ), L.P., ET AL., DEFENDANTS-RESPONDENTS.



The opinion of the court was delivered by: Moskowitz, J.

Cobalt Partners, L.P. v GSC Capital Corp.

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This opinion is uncorrected and subject to revision before publication in the Official Reports.

Decided on May 1, 2012

SUPREME COURT, APPELLATE DIVISION First Judicial Department

David B. Saxe,J.P. James M. Catterson Karla Moskowitz Leland G. DeGrasse Sheila Abdus-Salaam, JJ.

Plaintiffs appeal from an order of the Supreme Court, New York County (Charles E. Ramos, J.), entered February 2, 2009, which granted the motion of defendants GSC Group, Inc. and GSCP (NJ), L.P. to dismiss the second amended complaint as against them. Seward & Kissel LLP, New York (M. William Munno and Walter A. Naeder of counsel), for appellants. Davis Polk & Wardwell LLP, New York (Robert F. Wise, Jr., Jonathan D. Martin and Sarah M. Egan of counsel), for respondents. MOSKOWITZ J.

On August 31, 2010, subsequent to oral argument, but while the case was sub judice, defendants filed for bankruptcy and therefore this case became subject to the automatic stay of litigation pursuant to section 362 of the Bankruptcy Code. On March 28, 2012, the parties notified this court that the United States Bankruptcy Court for the Southern District of New York had lifted the stay. Thus, we may now release our decision.

Because this is an appeal from the grant of a motion to dismiss and plaintiffs have alleged facts sufficient to meet the strict standard for piercing the corporate veil under New York law, we reverse so much of the order below as dismissed the cause of action for breach of written contract against GSC Group, Inc. (Group). We affirm in all other respects.

We derive the facts from the allegations in the second amended complaint and other documents in the record. Plaintiffs bring this action to rescind the private placement purchase of $4 million of restricted shares of defendant GSC Capital Corp. (the Fund), a real estate investment trust (REIT). Defendant GSCP (NJ), L.P. owns a minority of the Fund's stock and is its investment adviser. GSCP is an affiliate or subsidiary of defendant Group, that also has a minority investment in the Fund.

Around June 6, 2005, Wayne Cooperman on behalf of plaintiffs met with nonparties Fred Horton, Thomas Inglesby, Daniel Castro and Joe Wender at plaintiffs' office in New York City. At the time of the meeting, Group employed Horton, Inglesby and Castro. Wender was a member of Group's advisory board.

At the meeting, Group's employees solicited Cooperman to purchase restricted shares of the Fund in a private placement. Horton, Inglesby, Castro and Wender allegedly represented that they would "cause a registration statement to be filed" for the Fund within six months of the private placement and would use commercially reasonable efforts to cause the registration statement to become effective. This representation was material because, once effective, registration would enable purchasers to sell their shares on a national securities exchange. Allegedly in reliance on this promise, plaintiffs agreed to purchase $4 million of the Fund's restricted shares.

In connection with the meeting, Cooperman received a copy of a preliminary offering memorandum dated May 31, 2005. In the preliminary offering memorandum, only the Fund agreed to file a registration statement within 181 days of the closing of the offering and to use commercially reasonable efforts to cause the registration statement to become effective.

Subsequently, Cooperman received an offering memorandum dated June 23, 2005. This second offering memorandum contained the same promise as the preliminary offering memorandum concerning the registration statement. Notably, the offering memorandum describes GSCP, GSC Partners (the predecessor to Group) and the Fund as closely related entities, and, at one point, describes "GSC Partners" as the " doing business as' name of several related entities, including GSCP." The offering memorandum also states that initially the Fund would have no employees, but ...


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