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Patoma Partners LLC v. MB1 Capital Partners, LLC

United States District Court, E.D. New York

August 15, 2014

PATOMA PARTNERS LLC, Plaintiff,
v.
MB1 CAPITAL PARTNERS, LLC, MB1 BELMAR, LLC, and MB1 MARCY, LLC, Defendants.

Donald F. Schneider, Mark E. Klein, Silverman Sclar Shin & Byrne PLLC, New York, NY, Attorneys for Plaintiff.

Philip C. Korologos, Christopher Daniel Belelieu, Boies, Schiller & Flexner LLP, New York, NY, Attorneys for Defendants.

ORDER

JOAN M. AZRACK, Magistrate Judge.

The parties' familiarity with the basic facts underlying this dispute is assumed. Defendants contributed $390, 000 (65%) towards the parties' joint venture and Patoma contributed $210, 000 (35%). Patoma maintains that, upon the sale of the Ground Leases by the four Limited Liability Companies ("LLCs"), Patoma is entitled to more than the 35% share attributable to its capital contribution. Defendants assert that the distribution of the proceeds should be in accordance with the parties' capital contributions.

For the reasons stated below, the Court finds in favor of defendants. The proceeds from the sale of the Ground Leases shall be distributed according to the parties' respective capital contributions.

A. The New York LLC Law

New York's Limited Liability Company Law (the "NYLLCL") provides that

Distributions of cash or other assets of a limited liability company shall be allocated among the members, and among classes of members, if any, in the manner provided in the operating agreement, which may, among other things, establish record dates for distributions. If the operating agreement does not so provide, distributions shall be allocated on the basis of the value, as stated in the records of the limited liability company, if so stated, of the contributions of each member, but not including defaulted obligations to make contributions, to the extent they have been received by or promised to the limited liability company and have not been returned to any such member.

NYLLCL § 504 (emphasis added). Section 503 of the NYLLCL concerning sharing of "profits and losses" contains similar language.

B. The "Promote" in Exhibit A Does Not Constitute a Binding Agreement

Patoma contends that the "Promote" provision contained in Exhibit A of the parties' April 25, 2013 Agreement governs the parties' dispute over how the proceeds from the sale of the Grounds Leases should be distributed.[1] The parties' September 3, 2013 Agreement, which memorialized the parties' joint venture, states that the parties "intend to continue to prepare the documentation, including an Operating Agreement, for their joint venture to ground lease for development and operation, the Property. The Operating Agreement shall include substantially the terms stated in Exhibit A." The parties, however, never agreed on an operating agreement.

Nevertheless, Patoma asserts that the parties agreed to be bound by the Promote. The Court disagrees. Patoma has failed to establish that the parties, which never agreed on an operating agreement, are bound by the Promote contained in Exhibit A. See Brown v. Cara, 420 F.3d 148, 153-159 (2d Cir. 2005) (discussing differences between Type I preliminary agreements and Type II preliminary agreements).

Additionally, the Court notes that Patoma alleged, in its complaint, that the parties' agreements are silent concerning "essential terms" such as "compensation... of the proposed joint venturers" because, inter alia, "with respect to [the Promote] there is no provision regarding profits and losses (as opposed to return on equity), distribution of cash from operations, sales or refinancing, or tax credits." Compl. ¶ 39(ii) (emphasis added). After the parties filed their briefs, Patoma filed an amended complaint omitting key portions of this language. The parties then exchanged pre-motion conference letters concerning the propriety of Patoma's amended complaint. Even assuming that Patoma's amended complaint is procedurally permissible and that Patoma's argument is not barred by principles of judicial estoppel-both somewhat doubtful propositions-Patoma is still left with the fact that the Promote does not address distribution of cash from sales.[2]

In sum, the parties did not agree to be bound by the Promote in Exhibit A, particularly with respect to the early ...


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