United States District Court, S.D. New York
OPINION AND ORDER
ABRAMS, United States District Judge.
Najjar Group, LLC brings this diversity action against
Defendant West 56th Street Hotel, LLC ("West 56th")
for breaching the terms of an agreement to operate a New York
hotel. Plaintiff moves for leave to file a third amended
complaint. For the reasons set forth below, Plaintiffs motion
December 15, 1997, Plaintiffs predecessor-in-interest, the
Najjar Group, Ltd., sold and conveyed to Defendant its right
to purchase a parcel of property located at 15 West 56th
Street in New York, New York. TAC ¶ 14. In exchange,
Defendant granted the Najjar Group, Ltd. a twenty percent
membership interest in BDC 56 LLC ("BDC"), the
remaining eighty percent of which was owned by Defendant. TAC
¶ 14. Najjar Group, Ltd. and Defendant also entered into
an operating agreement (the "Operating Agreement")
to own and operate a hotel on the property. TAC ¶ 14;
see SAC Ex. A § 2.6. Defendant thereafter
constructed and opened the Chambers Hotel, which has been
operating and open to the public since 2002. TAC ¶ 15.
In or around April 2005, Defendant amended and restated the
Operating Agreement. TAC ¶ 21.
Operating Agreement contains several terms relevant to this
dispute. First, additional members may not be added to BDC
without the prior written consent of Najjar Group, Ltd., if
their admission would dilute Najjar Group Ltd.'s interest
in BDC or adversely affect its distributions from BDC. TAC
¶ 19. Second, BDC must deliver financial statements to
each of its members as soon as practicable after the close of
each fiscal year. TAC ¶23; Operating Agreement §
4.1.1. Third, Defendant, as manager of BDC, is responsible
for securing funds necessary to pay for startup expenses,
estimated to be four million dollars. TAC ¶ 29;
Operating Agreement §§ 6.1-6.2. Defendant must
arrange third-party financing to cover these expenses to the
extent that it is able to do so, but it may not dilute
Najjar's interest in BDC through either third-party
financing or any of its own capital contributions to cover
start-up expenses. TAC ¶ 29; Operating Agreement
§§ 6.1-6.2. Fourth, net cash flow from operations
is to be distributed on a monthly basis in the following
order of priority: (1) to each member of BDC in an amount
that provides the member a ten percent rate of return,
compounded annually, on its outstanding capital
contributions, and (2) to the members in accordance with
their equity interests. See TAC ¶¶27,
31-32; Operating Agreement § 7.1.1.
raises several objections to Defendant's management of
BDC. Plaintiff primarily challenges Defendant's decision
to contribute fifteen million dollars-far greater than the
four million dollars estimated in the Operating Agreement-as
additional capital contributions for startup expenses, rather
than borrowing these funds from banks or other lenders at a
lower rate of interest. See TAC ¶¶ 38-39.
Plaintiff also alleges that Defendant misclassified funds as
its own capital contributions or additional capital
contributions, when in fact those funds were provided by
non-members. See TAC ¶ 45. In effect, Plaintiff
claims that Defendant has admitted additional members to
BDC-thus diluting Plaintiffs interest-without Plaintiffs
consent. See TAC ¶ 46. In addition, Plaintiff
claims that Defendant violated "the explicit terms"
of the Operating Agreement by misclassifying repayments of
capital as returns on capital, failing to deduct repayments
of capital from the applicable capital accounts, and
improperly accruing interest on capital contributions and
additional capital contributions. See TAC ¶ 48.
action follows Plaintiffs pursuit of two similar actions
against Defendant in New York state court. In 2007, Plaintiff
brought an action against Defendant and three of its members
in the Supreme Court of New York. See Aff of Steven
G. Sonet in Opp'n to PL's Mot. ("Sonet
Aff") ¶ 4, Ex. B (ECF No. 64). In 2012, the Supreme
Court granted summary judgment in favor of the defendants and
dismissed Plaintiffs amended complaint. See Sonet
Aff. ¶ 6, Ex. D. In 2013, the Appellate Division of the
Supreme Court, First Judicial Department, affirmed.
See Sonet Aff. ¶ 7, Ex. E. In 2011, Plaintiff
brought a derivative action against Defendant, its individual
members, and other entities in the Supreme Court of New York.
See Sonet Aff. ¶ 8, Ex. F. The Supreme Court
dismissed Plaintiffs complaint in 2012, see Sonet
Aff. ¶ 9, Ex. G, and the First Department affirmed the
following year, see Sonet Aff. ¶ 10, Ex. H.
September 4, 2014, Plaintiff filed a complaint in this action
against Defendant and three of its individual members.
See Compl. (ECF No. 1). On September 15, 2014, the
Court ordered Plaintiff to amend the complaint to allege the
citizenship of each party and to specify whether Defendant
had any members other than the individual defendants.
See Order (Sept. 15, 2014) (ECF No. 3).
September 29, 2014, Plaintiff filed its First Amended
Complaint. See First Am. Compl. ("FAC")
(ECF No. 5). The First Amended Complaint added the
jurisdictional allegations the Court requested and asserted
eight causes of action: (1) breach of contract, (2) breach of
fiduciary duty, (3) breach of the implied covenant of good
faith and fair dealing, (4) common law fraud, (5) deceptive
acts or practices, (6) tortious interference, (7) accounting,
and (8) involuntary judicial dissolution. See FAC
¶¶ 83-156. Plaintiff requested damages and
equitable relief. See FAC ¶¶(aMg).
October 21, 2014, West 56th and the individual defendants
moved to dismiss all claims except Plaintiffs claim for
breach of contract. See Mot. to Dismiss (ECF No.
10). On November 5, 2014, Plaintiff voluntarily dismissed,
without prejudice, all its claims against the individual
defendants and all but its breach of contract claim against
West 56th under Federal Rule of Civil Procedure 41(a)(1).
See ECF No. 16.
November 9, 2014, Plaintiff filed a Second Amended Complaint
("SAC") against West 56th. See SAC (ECF
No. 22). The Second Amended Complaint asserted only a breach
of contract claim. See SAC ¶¶ 79-115. West
56th filed an answer on December 1, 2014. See Answer
(ECF No. 23). Over the course of the next year, the parties
engaged in fact and expert discovery. See generally
Joint Letter of Jan. 22, 2016 (ECF No. 39); Tr. of May 13,
2016 Conf (ECF No. 62).
21, 2016, Plaintiff moved for leave to file a Third Amended
Complaint ("TAC"). ECF No. 51. Plaintiffs proposed
Third Amended Complaint adds three claims to the breach of
contact claim asserted in the Second Amended Complaint: (1)
accounting, (2) breach of fiduciary duty, and (3) breach of
the implied covenant of good faith and fair dealing.
See TAC ¶¶ 50-67, 73-76. The proposed
Third Amended Complaint also adds two new factual
allegations: (1) an accounting discrepancy, alleged in
support of Plaintiff s claim for accounting, see TAC
¶ 55, and (2) the assignment to Plaintiff of all causes
of action, claims, or other rights arising from its
membership in BDC from Plaintiffs predecessor, Najjar Group
Ltd., see TAC ¶ 11. On June 27, 2016, the ...