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First Hill Partners, LLC v. BlueCrest Capital Management Ltd.

United States District Court, S.D. New York

September 30, 2014

FIRST HILL PARTNERS, LLC, Plaintiff,
v.
BLUECREST CAPITAL MANAGEMENT LIMITED, et al., Defendants

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For First Hill Partners, LLC, Plaintiff: Evan K. Farber, Reed Smith (NYC), New York, NY.

For BlueCrest Capital Management Limited, BlueCrest Capital International Master Fund Limited, BlueCrest Capital Management (New York) L.P., Defendants: Christoph Carl Heisenberg, LEAD ATTORNEY, Hinckley & Heisenberg, LLP, New York, NY.

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Opinion And Order

RICHARD J. SULLIVAN, United States District Judge.

Plaintiff First Hill Partners, LLC (" First Hill" ) brings this diversity action against BlueCrest Capital Management Limited, BlueCrest Capital International Master Fund Limited, and BlueCrest Capital Management (New York) L.P. (collectively, " BlueCrest" or " Defendants" ), asserting fraud, fraudulent inducement, conversion, unjust enrichment, and tortious interference with contract in connection with an asset sale between third parties Skinit, Inc. (" Skinit" ) and Proveho Capital, LLC (" Proveho" ). Now before the Court is Defendants' motion to dismiss this action in its entirety pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the reasons set forth below, the motion is granted in part and denied in part.

I. Background

A. Facts

Skinit is a California-based customization company that developed a tool to help consumers personalize -- or " skin" -- their mobile devices with images, text, and symbols. (Compl. ¶ ¶ 2, 28.)[1] In April 2011, Skinit entered into a Loan and Security Agreement (the " LSA" ) with BlueCrest, a London-based hedge fund. ( See id. ¶ 29.) BlueCrest lent Skinit $10 million -- to be repaid in 48 monthly installments -- in exchange for a senior security interest in Skinit's assets and two observer seats on Skinit's Board of Directors. ( See id.)

First Hill alleges that in early 2013, Skinit defaulted on its obligations to BlueCrest by failing to pay back the loan. ( See id. ¶ 7.) On February 27, 2013, Skinit and BlueCrest amended the LSA to restructure Skinit's payment obligations. ( See id. ¶ 31.) As a secured lender, BlueCrest retained its right to foreclose on collateral from the loan ( i.e., Skinit's assets) and conduct a foreclosure sale. ( See id. ¶ 7.)

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First Hill further alleges that in February 2013, Skinit began to explore the possibility of selling its assets. ( See id. ¶ 32.) On March 14, 2013, Skinit executed an agreement (the " Skinit Engagement Agreement" ) engaging First Hill as exclusive advisor to Skinit regarding the sale of its assets. ( See id. ¶ 37.) Pursuant to the Skinit Engagement Agreement, First Hill would, among other things, locate parties interested in acquiring Skinit's assets, assist Skinit in evaluating potential acquirers, and represent Skinit during negotiations with the objective of " maximiz[ing] the value of Skinit's asset sale." ( Id. ¶ 40.) In return, First Hill would receive a $5,000 monthly cash retainer, a cash success fee upon the successful completion of a sale, and reimbursement of all out-of-pocket expenses. ( See id. ¶ 41.) Although First Hill alleges that BlueCrest " knew of and consented to" the Skinit Engagement Agreement, BlueCrest was not a party to the contract. ( Id. ¶ 37.)

First Hill alleges that in April 2013, about one month into the Skinit Engagement Agreement, one of Skinit's investors discontinued funding the corporation. ( See id. ¶ 44.) This adversely affected Skinit's financial position and transformed the potential asset sale into a " fire sale" in which " the timeline for the sale became highly accelerated, the list of potential counterparties shifted and, with diminished sell-side leverage . . . negotiations with potential counterparties became far more difficult." ( Id.) Rather than seeking out a distressed sale specialist, " Skinit and BlueCrest ultimately decided to continue working only with First Hill . . . ." ( Id. ¶ 46.) After several months of research, meetings, advising sessions, and due diligence, First Hill identified Proveho as a potential acquirer, and then facilitated information exchanges and negotiations between Proveho and Skinit, making sure that BlueCrest was fully informed of the deal's progress and actively involved in the negotiations. ( See id. ¶ ¶ 52-58.)

First Hill alleges that on or around June 22, 2013, during a meeting devoted to reviewing the status of the offers from potential buyers, Skinit and BlueCrest concluded that Proveho's bid was the " optimal choice." ( Id. ¶ 72.) Thereafter, Proveho submitted a final proposal of acquisition via a " Letter of Intent," which Skinit signed, with BlueCrest's approval, on June 28, 2013. ( See id. ¶ ¶ 76-78.) However, on or around July 22, 2013, Proveho became unresponsive to First Hill's communications ( see id. ¶ 84), and on August 1, 2013, Proveho told First Hill that it would negotiate directly with BlueCrest, cutting First Hill out of the negotiations entirely ( see id. ¶ 87).

On August 5, 2013, BlueCrest, as senior secured creditor, foreclosed on Skinit's assets. BlueCrest then sold the collateral in a private foreclosure sale to Proveho under Article 9-610(a) of the UCC. ( See id. ¶ 90.) The terms of the foreclosure sale were " virtually identical" to the terms of the deal orchestrated by First Hill. ( See id. ¶ 91.) As a result of the foreclosure sale, First Hill did not receive the cash success fee it would have received had Skinit sold its assets directly to Proveho. ( See id. ¶ 92.)

B. Procedural History

On October 25, 2013, First Hill filed the Complaint in this action bringing claims for fraud, fraudulent inducement, unjust enrichment, tortious interference with contract, and conversion.[2] First Hill seeks to

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recover the fair market value of the services it provided to BlueCrest during the period of negotiations with Proveho, as well as the cash success fee, the retainer fee, expenses, attorneys' fees, and punitive damages. ( See Compl. ¶ ¶ 113, 121-22, 136.) On January 8, 2014, the Court held a pre-motion conference to discuss BlueCrest's contemplated motion to dismiss. On February 21, 2014, BlueCrest moved to dismiss the Complaint in its entirety for failure to state claims on its various causes of action. (Doc. No. 22.) The motion was fully briefed on April 4, 2014.

II. Legal Standard

To survive a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, a complaint must " provide the grounds upon which [the] claim rests." ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007); see also Fed.R.Civ.P. 8(a)(2) (" A pleading that states a claim for relief must contain . . . a short and plain statement of the claim showing that the pleader is entitled to relief . . . ." ). To meet this standard, a plaintiff must allege " enough facts to state a claim to relief that is plausible on its face." Bell A. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). " A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). In reviewing a Rule 12(b)(6) motion to dismiss, a court must accept as true all factual allegations in the complaint and draw all reasonable inferences in favor of the plaintiff. ATSI Commc'ns, 493 F.3d at 98. However, that tenet " is inapplicable to legal conclusions." Iqbal, 556 U.S. at 678. Thus, a pleading that offers only " labels and conclusions" or " a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555.

III. Discussion

A. Choice of Law

Before addressing the merits of First Hill's claims, the Court must first resolve what law is applicable to each claim. The parties exclusively referenced New York law in their pre-motion letters ( see Doc. Nos. 12, 15) and during the discussion at the pre-motion conference ( see generally Transcript of Jan. 8, 2014 Pre-Motion Conf., Doc. No. 31 (" Pre-Motion Conf. Tr." )). While BlueCrest still argues that the Court should apply New York law ( see Mem. at 20), First Hill now contends that California law should govern ( see Opp. at 6-9).[3]

A federal court sitting in diversity applies the choice-of-law principles of the state in which it sits. See Banker v. Nighswander, Martin & Mitchell, 37 F.3d 866, 871 (2d Cir. 1994). In New York, " the first question to resolve in determining whether to undertake a choice of law analysis is whether there is an actual conflict of laws." Curley v. AMR Corp., 153 F.3d 5, 12 (2d Cir. 1998). An " actual conflict" exists where " the applicable law from each jurisdiction provides different substantive rules" and those differences are " relevant ...


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