The opinion of the court was delivered by: Rom n, J.
Morpheus Capital Advisors LLC v UBS AG
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 March 12, 2013
SUPREME COURT, APPELLATE DIVISIONFirst Judicial Department
Peter Tom,J.P. Richard T. Andrias Karla Moskowitz Nelson S. Roman, JJ. Index 650335/09
Plaintiff appeals from the judgment of the Supreme Court, New York County (Barbara R. Kapnick, J.), entered March 18, 2011, dismissing the complaint with prejudice, and from the order, same court and Justice, entered January 4, 2011, granting defendants' motion to dismiss the complaint.
In 2008, during the financial crisis that left many financial services companies holding billions of dollars in "toxic assets" (undervalued and underperforming assets), plaintiff and defendant UBS Real Estate Securities, Inc. (UBSRE) entered into an agreement whereby plaintiff was to act as UBSRE's "financial advisor and investment banker in the proposed sale of certain of [UBSRE's] student loan warehouse loan facilities (the Transaction')." The agreement gave plaintiff the "exclusive right to solicit counterparties for any potential Transaction involving the Student Loan Assets during the term of this Agreement." Moreover, according to the agreement, upon the closing of "the Transaction," plaintiff would be paid a success fee for its services, which would be calculated as a percentage of the "Transaction Amount," "defined as the agreed value of the Student Loan Assets which are transferred or sold to a third party, or in respect to which the risk of first loss is assumed by a third party, in one or a series of transactions" (emphasis added).
Alleging that defendants breached the agreement, plaintiff sued, claiming, inter alia: "On October 16, 2008, during Morpheus' exclusivity period, Defendant UBS AG reached an agreement with the Swiss National Bank ( SNB') and a third party fund (the Stabilization Fund') whereby the student loan assets [held by UBSRE] would be sold to the Stabilization Fund. This deal . . . relieve[d] UBS AG and UBSRE of the risk of any further loss with respect to those assets . . . [and that] [b]y entering into that agreement . . . UBSRE . . . breached the Agreement with Morpheus" (emphasis added).
Defendants moved for pre-answer dismissal of the complaint pursuant to CPLR 3211(a)(1) and (a)(7). Holding that defendants had established both a frustration of purpose defense and that the complaint failed to state a cause of action against UBS AG, the motion court granted defendants' motion in its entirety. Plaintiff appealed, and upon a review of the record, we conclude that the motion was erroneously granted to the extent it sought dismissal of the claims asserted against UBSRE.
The motion court erred in dismissing the complaint pursuant to CPLR 3211(a)(1) (defense founded on documentary evidence) on the ground that the purpose of the parties' agreement was frustrated by SNB's creation of the Stabilization Fund (Fund) into which UBSRE could deposit its allegedly toxic assets and free itself of the risk involved in maintaining such debt on its books, and that UBSRE was thus relieved of any duty to pay the success fee.
"The doctrine [of frustration of purpose] applies when a change in circumstances makes one party's performance virtually worthless to the other, [thereby] frustrating his purpose in making the contract" (PPF Safeguard, LLC v BCR Safeguard Holding, LLC, 85 AD3d 506, 508  [internal quotation marks omitted]). However, the defense is not available when the event preventing performance was foreseeable (Warner v Kaplan, 71 AD3d 1, 6 , lv denied 14 NY3d 706 ), or where the party asserting the defense "through the conduct of its principals, was responsible for the events which transpired" (VJK Prods., Inc. v Friedman/Meyer Prods., Inc., 565 F Supp 916, 921 [SDNY 1983]).
A motion to dismiss premised on documentary evidence "may be appropriately granted only where the documentary evidence utterly refutes plaintiff's factual allegations, conclusively establishing a defense as a matter of law" (see Goshen v Mutal Life Ins. Co. of N.Y., 98 NY3d 314, 326 ).Here, while defendants aver that the creation of the Fund frustrated the purpose of the agreement, they nevertheless fail to establish that defense with documentary evidence. The very documents defendants submit in support of their motion establish that the creation of the Fund was in fact foreseeable and contemplated by the parties in the agreement. Specifically, the agreement contains a provision compensating plaintiff in the event ofa transaction where the risk of loss was, as alleged here, assumed by a third party. Accordingly, in premising plaintiff's compensation on the sale, transfer or, as here, assumption of UBSRE's student loan assets by another, the Fund's creation and UBSRE's transfer of its assets thereto was foreseeable.
Furthermore, the documents submitted by defendants in support of their motion also fail to establish that the creation of the fund was, in and of it itself, the event which frustrated the purpose of the agreement. Specifically, these documents fail to conclusively establish that the creation of the Fund, rather than defendants' decision to avail themselves of it, rendered plaintiff's performance under the agreement -- finding a purchaser for the very assets that UBSRE transferred into the Fund -- "virtually worthless" to ...