United States District Court, S.D. New York
WILLIAM T. OBEID, directly and derivatively on behalf of GEMINI REAL ESTATE ADVISORS LLC, et al., Plaintiff,
CHRISTOPHER LA MACK, et al., Defendants, and GEMINI REAL ESTATE ADVISORS LLC, et al., Nominal Defendants.
MEMORANDUM OPINION AND ORDER
TAYLOR SWAIN, UNITED STATES DISTRICT JUDGE
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.
has moved to dismiss all of the counterclaims for lack of
standing and failure to state a claim.
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.
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.
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.)
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:
. . .
18.104.22.168 Taking any action that would make it impossible to
carry on the ordinary business of the Company.
. . .
22.214.171.124 The sale or other disposition of a Project.
126.96.36.199 The borrowing of funds, including a refinance of
existing indebtedness, or the pledging of any assets of the
Company, in excess of $250, 000.
188.8.131.52 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
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.)
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.
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.)
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.)
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
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.
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.)
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 184.108.40.206 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.)
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.
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.
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.)
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.)
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. ¶¶ 146-159.) The
Individual Defendants allege that the inside information
included detailed analyses of proprietary Gemini data that
were provided to assist Arcade with ...