Southern Advanced Materials, LLC, Plaintiff-Appellant-Respondent,
Robert S. Abrams, Individually and as the Trustee of Robert S. Abrams Living Trust, et al., Defendants-Respondents-Appellants, John Does 1-10, Defendants. Robert S. Abrams Living Trust, Plaintiff, Robert S. Abrams, Plaintiff-Respondent,
Southern Advanced Materials, LLC, Defendant-Appellant.
Schulte Roth & Zabel LLP, New York (Robert J. Ward of
counsel), for appellant-respondent/appellant.
Piper LLP, New York (Joseph G. Finnerty III of counsel), for
Renwick, J.P., Richter, Feinman, Gische, Kahn, JJ.
Supreme Court, New York County (Saliann Scarpulla, J.),
entered September 29, 2016, which, to the extent appealed
from as limited by the briefs, upon defendants Robert S.
Abrams and Robert S. Abrams Living Trust's (collectively
the Abrams parties) motion to dismiss (under index No.
650773/15), sustained plaintiff Southern Advanced Materials,
LLC's (SAM) first cause of action, ruled that § 14.4
of the Operating Agreement is inapplicable, and dismissed the
second and sixth causes of action; and, upon the Abrams
plaintiffs' motion to dismiss (under index No.
650795/15), dismissed SAM's first counterclaim,
unanimously modified, on the law, to vacate the ruling that
§ 14.4 of the Operating Agreement is inapplicable, and
otherwise affirmed, without costs.
actions concern a dispute over the proper payout to SAM, an
investor in a company called CV Holdings, LLC (CVH), as a
result of a sale of CVH to a third party (the Wendel
motion court correctly sustained the first cause of action,
which alleges breach of §§ 9.7 and 13.3 of the
Operating Agreement. While the Abrams parties claim that the
Wendel transaction was an equity sale under § 14.4 of
the agreement, SAM contends that it was a
"[d]issolution" of CVH (as defined under §
13.1 of the agreement) entitling it to a 10% preferred return
under §§ 9.7 and 13.3 of the agreement. As the
motion court found, the nature of the transaction at this
point is unclear. Further, SAM has sufficiently shown that,
as defined in the agreement, the transaction could be a
"disposition" of substantially all of CVH's
assets (i.e., a "dissolution"), given SAM's
allegations that the Abrams parties transferred to themselves
assets worth substantial amounts, including one of the four
subsidiaries held by CVH, under the "Pre-Closing
Restructuring" of CVH before nonparty Wendel S.A.'s
purchase of the remaining equity interests.
extent § 14.4 may still apply, we agree with the motion
court that § 14.4 does not require, as a condition
precedent to obtaining a fairness opinion on the Wendel
transaction, that all Class B Common Members and Preferred
Members jointly request such an opinion. Nevertheless, we
vacate the court's ruling to the extent it found §
14.4 inapplicable as a matter of law. While SAM alleged that
it had requested a fairness opinion, the Abrams parties had
argued before the court that none of the Class B Common
Members or Preferred Members had requested one. These
conflicting claims raise an issue of fact as to whether the
condition precedent had been satisfied and therefore whether
§ 14.4 is applicable.
motion court correctly dismissed the second cause of action,
which alleges breach of the "Promoter Agreement"
against Abrams individually. This claim is barred by the
integration clause in the Operating Agreement. The agreements
were between the same parties (CVH and SAM) and covered the
same subject matter (SAM's right to its Preferred Return)
(see ESG Capital Partners II, LP v Passport Special
Opportunities Master Fund, LP, 2015 WL 9060982, *11,
2015 Del Ch LEXIS 302, *34-35 [Del Ch, Dec. 16, 2015, C.A.
No. 11053-VCL]). SAM's argument that the agreements
involve different parties because Abrams signed the Promoter
Agreement individually, and not on behalf of CVH, is belied
by a reading of the agreement. SAM's remaining arguments
regarding the integration clause are unavailing. In any
event, even if not barred, SAM fails to state a claim against
Abrams individually, as Abrams did not enter into the
motion court correctly dismissed the sixth cause of action,
which alleges breach of the "Make Good Agreement"
against Abrams individually. Under the agreement, SAM was to
receive additional preferred shares equal to one half of the
number of additional shares obtained by another preferred
investor, Smart Plastics. SAM alleges that additional
preferred shares had been issued to Smart Plastics, but no
such shares had been issued to SAM. However, even according
SAM the benefit of every possible favorable inference
(see Leon v Martinez, 84 N.Y.2d 83, 87-88 ),
SAM's vague allegation that it believed, based solely on
"the size of the payments made to Smart Plastics in
connection with the Wendel Transaction, " that Smart
Plastics had been issued additional shares is too speculative
to support the breach of contract claim. Similarly, SAM's
claimed discovery of an undisclosed $5.3 million "side
note" is also too speculative to support its claim that
Smart Plastics had been issued additional shares.
motion court correctly dismissed SAM's counterclaim
alleging that Abrams had fraudulently induced it into
forgoing its "True-Up Option" by misrepresenting
the distributions that the other preferred investors had
received from the Wendel transaction. Under Delaware law,
which applies here, "[c]ommon law fraud can be
demonstrated in three ways: 1) overt misrepresentation; 2)
silence in the face of a duty to speak; or 3) deliberate
concealment of material facts" (Bay Center
Apartments Owner, LLC v Emery Bay PKI, LLC, 2009 WL
1124451, *11, 2009 Del Ch LEXIS 54, *41 [Del Ch, April 20,
2009, C.A. No. 3658-VCS]). SAM fails to state a claim under
any of these theories.
particular, SAM failed to show that the Seller Payoff
Schedule submitted by the Abrams parties as part of the
information package contained overt misrepresentations.
Further, as the Retained Claims Agreement requires Abrams to
disclose only information on the terms of the Wendel
transaction, and did not require disclosure of payments made
pursuant to ancillary agreements he may have had with the
other investors, his providing of the Seller Payoff Schedule
did not create a false impression that required the
submission of additional qualifying information (see
Wal-Mart Stores, Inc. v AIG Life Ins. Co., 901 A.2d 106,
115 [Del 2006]; Corporate Prop. Assoc. 14 Inc. v CHR
Holding Corp., 2008 WL 963048, *6, 2008 Del Ch LEXIS 45,
*24 [Del Ch, April 10, 2008, C.A. No. 3231-VCS]). Nor has SAM
alleged any affirmative acts to support a fraud claim under
an active concealment theory (see Bay Ctr. Apartments
Owner, LLC v Emery Bay PKI, LLC, 2009 WL 1124451, *12,
2009 Del Ch LEXIS 54, *47-48 [Del Ch, April 20, 2009, C.A.
No. 3658-VCS]). SAM's reliance ...