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Obeid v. La Mack

United States District Court, S.D. New York

March 31, 2017

WILLIAM T. OBEID, directly and derivatively on behalf of GEMINI REAL ESTATE ADVISORS LLC, et al., Plaintiff,
v.
CHRISTOPHER LA MACK, et al., Defendants, and GEMINI REAL ESTATE ADVISORS LLC, et al., Nominal Defendants.

          MEMORANDUM OPINION AND ORDER

          LAURA TAYLOR SWAIN, UNITED STATES DISTRICT JUDGE

         Plaintiff, William T. Obeid (“Obeid” or “Plaintiff') filed suit against Defendants Christopher La Mack and Dante A. Massaro (together, “Individual Defendants”), along with others, asserting various claims including breach of contract, breach of fiduciary duty, Lanham Act violations, Computer Fraud and Abuse Act violations, and state law claims. On February 2, 2016, Individual Defendants filed Amended Counterclaims (docket entry no. 336) against Plaintiff, asserting eight counterclaims: (1) violation of the Computer Fraud and Abuse Act (“CFAA”), 18 U.S.C. § 1030, et seq.; (2) violation of the Stored Communications Act (“SCA”), 18 U.S.C. § 2701, et seq.; (3) violation of Federal Wiretap Act (“FWA”), 18 U.S.C. § 2511, et seq.; (4) fraud; (5) breach of contract; (6) breach of the implied covenant of good faith and fair dealing; (7) breach of fiduciary duty; and (8) unfair and deceptive trade practices, under N.C. Gen. Stat. § 75-1.1, et seq. The Court has subject matter jurisdiction of this action pursuant to 18 U.S.C. §§ 1331 and 1367.

         Plaintiff has moved to dismiss all of the counterclaims for lack of standing and failure to state a claim.

         The Court has carefully reviewed the papers, and for the following reasons, the Plaintiff's motion to dismiss is granted in part and denied in part.

         Background

         The following is a summary of the allegations contained in the Amended Counterclaims. The Court assumes the Individual Defendants' factual allegations to be true for the purposes of this motion practice.

         In April 2003, Obeid and the Individual Defendants formed Gemini Real Estate Advisors, LLC (“GREA”) in order to acquire, own, operate, improve, manage and dispose of commercial real estate. (Counterclaims ¶ 15.) GREA is a closely held Delaware limited liability company. (Id. ¶ 10.) Obeid and the Individual Defendants entered into an initial Operating Agreement for the governance of GREA in 2004, which was subsequently amended in 2009 (“Amended Operating Agreement”). (Id. ¶¶ 16, 18.) Pursuant to the Amended Operating Agreement, the Individual Defendants and Obeid each hold an one-third interest in GREA. (Id. ¶ 19.) In July 2012, Obeid and the Individual Defendants formed Gemini Equity Partners LLC (“GEP, ” and together with GREA, “Gemini”), and entered into the GEP Operating Agreement, which regulates GEP's governance. (Id. ¶ 22.) GEP is a closely held Delaware limited liability company. (Id. ¶ 11.) At all times, Obeid and the Individual Defendants each had a one-third interest in GEP. (Id. ¶ 24.)

         The Amended Operating Agreement for GREA provides, in Section 4.2 (Actions Requiring Approval of Members), that:

4.2.1 Except as otherwise provided in this Agreement, the approval of a Majority in Interest of Members shall be required in order for any of the following actions to be taken on behalf of the Company:
. . .
4.2.1.3 Taking any action that would make it impossible to carry on the ordinary business of the Company.
. . .
4.2.1.9 The sale or other disposition of a Project.
4.2.1.10 The borrowing of funds, including a refinance of existing indebtedness, or the pledging of any assets of the Company, in excess of $250, 000.
4.2.1.11 The pledging of any assets of the Company with a value in excess of $250, 000.

(Am. Op. Agmt., Pencu Decl. Ex. B, Docket Entry No. 367-2, at 7-8.)

         Section 5.16 of the Agreement (Operating Manager), provides, inter alia, that “[t]he Operating Manager shall have the power to act on behalf of the Company and to execute any and all documents, instruments and agreements, including, but not limited to, deeds, promissory notes, deeds of trust, financing documents and the like, provided the execution of such documents has been approved by the Managers.” (Id. at 16.) Obeid served as Operating Manager of Gemini at certain relevant times. (E.g., Counterclaims ¶¶ 5, 6.)

         In the Amended Counterclaims, the Individual Defendants allege that Obeid is engaged in ongoing misconduct in connection with his role as a manager of Gemini, including “blocking the sales of Gemini's assets; encumbering Gemini's assets with liens and encumbrances; unilaterally entering into letters of intent to sell Gemini properties without authorization; surreptitiously using Gemini employees to advance projects for an entirely separate company owned and controlled exclusively by Obeid; using Gemini employees to funnel inside information to Obeid regarding properties he sought to purchase from Gemini; and unauthorized spying on Individual Defendants and Gemini employees in order to gain an advantage in the instant litigation.” (Id. ¶ 2.)

         Among the deals Obeid allegedly unilaterally caused Gemini to enter into in violation of the Amended Operating Agreement was the acquisition of a hotel in Miami, Florida (the “Miami Hotel Deal”). (Id. ¶ 33.) Obeid, without seeking or obtaining approval from the Individual Defendants and knowing that it was a highly risky investment, caused Gemini to pay a non-refundable deposit of $250, 000 towards the purchase of the hotel. (Id.) The Individual Defendants were unaware of the Miami Hotel Deal until approximately two weeks prior to the scheduled closing date, at which point Obeid “attempted to coerce the Individual Defendants into personally co-signing for a $1, 000, 000 line of credit from Bank of America in order to fund the additional required deposit.” (Id. ¶ 35.) As a result, the Individual Defendants' only choice was to execute loan documents on behalf of Gemini and allow the Miami Hotel Deal to close, because otherwise Gemini would lose its deposit. (Id. ¶ 36.) Obeid misrepresented to the Individual Defendants that they would need invest a total of $500, 000 to preserve the $250, 000 deposit; in fact Obeid invested a total of $1, 078, 000 of Gemini's funds without the authorization or consent of the Individual Defendants. (Id. ¶ 39.) Bank loans for the Miami Hotel Deal are currently in default due to Obeid's alleged mismanagement of the project. (Id. ¶ 40.)

         The Individual Defendants also allege that, on numerous occasions, Obeid hired and fired employees of Gemini, including senior managers, without informing, consulting, or obtaining the approval of the Majority in Interest (i.e., the Individual Defendants). (Id. ¶ 42.) Obeid hired people to work for Gemini without consulting the Individual Defendants, including employees who were not qualified for the jobs for which they were hired. (Id. ¶¶ 43-45.)

         On July 1, 2014, Obeid called a meeting of Gemini's member-managers for the purpose of demanding that the Individual Defendants provide him with a restructuring proposal to increase his ownership in Gemini. (Id. ¶ 51.) That same day, the Individual Defendants voted to remove Obeid as the Operating Manager of GREA pursuant to the Amended Operating Agreement, allegedly in order to protect GREA and stop Obeid from acting unilaterally and without regard to Individual Defendants' and GREA's rights. (Id. ¶ 53.) Obeid filed this lawsuit on August 14, 2014.

         Almost immediately after Obeid was terminated as Gemini's Operating Manager, he formed a company, Arcade Capital LLC (“Arcade”), that soon competed with Gemini. (Id. ¶ 55.) Obeid used Arcade to further projects that benefitted only Obeid and harmed the Individual Defendants and Gemini, including attempting to coerce the sale of properties from Gemini to Arcade at below-market prices, causing Gemini employees to work on Arcade projects while employed and paid by Gemini, and contacting investors and lenders to sabotage deals the Individual Defendants sought to pursue. (Id. ¶ 57.) The Individual Defendants also allege that Obeid continued to interfere with Gemini's business, including filing frivolous motions and using litigation hold letters in the instant lawsuit to jeopardize specific prospective transactions (see id. ¶¶ 58-67), and refusing to sign a loan modification agreement “solely for the purpose of interfering with Gemini's business” (id. ¶¶ 68-71).

         More specifically, the Individual Defendants allege that Obeid, through Arcade, “in an attempt to preempt the [public] marketing process [for certain Gemini hotel properties] and cause it to terminate prematurely, made offers to purchase the Best Western Seaport Hotel for $36 million and the Bryant Park Development Site for $24.0 million” and thereafter approached the investors in those properties “in an effort to persuade them to put pressure on Gemini to accept his offers, rather than proceed to the final call for offers.” (Id. ¶¶ 87-88.) Gemini subsequently received higher offers from other parties on the Best Western Seaport Hotel, and accepted the highest offer in the amount of $38 million, and accepted the highest offer of $25.5 million for the Bryant Park Development Site. (Id. ¶¶ 92, 96.) In April 2015, GREA made an agreement to sell the Greenwich Village Hotel, and began to market the sale of the Wyndham Flatiron Hotel (together with the Best Western Seaport Hotel, Bryant Park Development Site, and Greenwich Village Hotel, the “Hotel Properties”). (Id. ¶¶ 104, 107.) The Individual Defendants allege that Obeid, in connection with a separate lawsuit he brought in the Supreme Court for New York County, filed unjustified Notices of Pendency to disrupt the marketing and/or sale of the Hotel Properties. (See id. ¶¶ 108-14.) As a result of the filing of the Notices of Pendency, the market for the Hotel Properties was chilled and the deals Gemini planned to enter into collapsed. (Id. ¶ 114.)

         On or about June 28, 2015, Obeid executed a Letter of Interest (“LOI”) under which Marcolink Holding Co. Ltd. (“Macrolink”) would purchase the Wyndam Flatiron Hotel from Gemini. (Id. ¶ 121.) The Individual Defendants allege that Obeid's unilateral action in executing the LOI violated Section 4.2.1.9 of the Amended Operating Agreement, which required majority approval for any sale of Gemini property. (Id. ¶ 123.) According to the Individual Defendants, Marcolink's offer was not bona fide, and Obeid entered into the LOI in an effort to further interfere with Gemini's marketing effort of its hotel assets. (Id. ¶ 122.) On or about June 24, 2015, unbeknownst to the Individual Defendants, Obeid executed three Non-Circumvent Non-Disclosure and Fee Agreements (the “Commission Agreements”) purportedly on behalf of Gemini, under which Gemini would be obligated to pay to SRM Management, LLC (“SRM”) a commission of 1% of the sale price for the Greenwich Village Hotel, the Wyndham Flatiron Hotel, and the Holiday Inn Express Boston. (Id. ¶ 125.) The Commission Agreements purport to obligate Gemini to pay millions of dollars in commissions to SRM. (Id.)

         The Individual Defendants also allege that Obeid unlawfully spied on the Individual Defendants and other Gemini employees through the use of sophisticated spy software designed to track keystrokes and take real-time video snapshots of computer desktops like a surveillance camera. (Id. ¶ 127.) Obeid allegedly engaged in this conduct for the purpose of advancing his interests in the instant litigation and obtaining inside information about the Hotel Properties. (Id.)

         The email accounts of each of Gemini's three member-managers and employees are maintained on a server hosted by third-party information technology provider Madison Technology (“Madison”). (Id. ¶ 128.) Gemini maintains a strong set of security measures to protect against unauthorized access to Gemini's documents and individual member-managers' emails, including a password-encrypted server, password-encrypted email accounts with a separate password for each employee, and locked file cabinets with keys provided on a “need-to-know” basis. (Id. ¶ 129.) The Individual Defendants and other targeted Gemini employees did not consent to allowing Obeid to access their emails. (Id. ¶ 130.) In or about June 2014, Obeid contacted Madison to install spy software allowing Obeid access to all information passing through the server, including the contents of the Individual Defendants' password-protected emails and email accounts of other targeted Gemini employees. (Id. ¶ 131.) Obeid instructed Madison to remove the software on or about August 25, 2014. (Id. ¶ 134.)

         On or about August 27, 2014, the Individual Defendants instructed Madison that any future changes to Gemini's servers would require approval by Massaro, as the new Operating Manager of Gemini. (Id.) Moreover, after discovering that the spy software had been installed on their machines, the Individual Defendants told Madison that no one was authorized to spy on any Gemini member or employee and that all such software must be removed. (Id.) Despite the removal of the spy software and Massaro's explicit instruction to Madison, Obeid made multiple visits to Madison's New York offices, including in December 2014, where he downloaded materials from Gemini's document and email server onto his personal laptop computer. (Id. ¶ 109.) Obeid made two multi-hour visits to Madison's offices where he obtained unrestricted access to the email accounts of the Individual Defendants and other targeted Gemini employees. (Id. ¶ 135.) During these visits, Obeid downloaded information, including privileged and confidential email correspondence between Individual Defendants and their counsel, and privileged and confidential email correspondence related to the representation of Gemini in this lawsuit. (Id. ¶ 137.)

         Obeid allegedly used the information he obtained to disrupt settlement negotiations and to “obtain inside information regarding the Hotel Properties” in order to assemble his bids for those properties, which in turn “upset the carefully constructed sealed-bid process Gemini used to ensure it received the highest possible bids for the Hotel Properties.” (Id. ¶ 140.) Obeid also allegedly threatened to disseminate the information he obtained, unless the Individual Defendants consented to Obeid's litigation demands. (Id. ¶ 141.) The Individual Defendants incurred “increased litigation costs and losses associated with Obeid's prevention of the sales of the Hotel Properties” and “costs to re-secure Gemini's servers and otherwise repair the damage Obeid caused to the integrity and availability of their documents and information and Gemini's data, computer programs, systems and information.” (Id. ¶ 169.) Within less than one year's time, the Individual Defendants have incurred substantial damages in excess of $5, 000.00. (Id. ¶ 170.)

         The Individual Defendants also allege that Obeid “formed a faction of insiders within Gemini . . . that leaked information to him in order to facilitate Arcade's attempts to purchase the Hotel Properties from Gemini at below-market prices and flip those properties to investors” and also used those employees to assist him and Arcade with deals in which Gemini had no involvement, with Gemini paying for the employees' work. (Id. ¶ 145; see id. ΒΆΒΆ 146-159.) The Individual Defendants allege that the inside information included detailed analyses of proprietary Gemini data that were provided to assist Arcade with ...


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