Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Estate of Calderwood v. ACE Group International LLC

Supreme Court of New York, First Department

December 14, 2017

Estate of Alexander Calderwood, Plaintiff-Appellant,
v.
ACE Group International LLC, et al., Defendants-Respondents.

          Ball Janik LLP, Portland, OR (James T. McDermott and Ciaran P.A. Connelly of the bar of the State of Oregon, State of Washington, State of Idaho and District of Columbia, admitted pro hac vice, of counsel), for appellant.

          Squire Patton Boggs (US) LLP, New York (Richard L. Mattiaccio and Paul Myung Han Kim of counsel), for respondents.

          David Friedman, J.P., Sallie Manzanet-Daniels, Karla Moskowitz, Barbara R. Kapnick, Troy K. Webber, JJ.

          OPINION

          KAPNICK, J.

         Plaintiff appeals from the orders of the Supreme Court, New York County (Shirley Werner Kornreich, J.), entered March 1, 2016, which, to the extent appealed from as limited by the briefs, granted defendants' motion to dismiss the first (declaratory judgment/injunction that plaintiff is a Member of AGI), second (declaratory judgment that defendants owe fiduciary duties to plaintiff), fourth (access to AGI's books and records under Delaware law), fifth (accounting), and sixth (constructive trust) causes of action in the amended complaint (AC), and denied plaintiff's motion to include in the second amended complaint the causes of action in the AC that had been to declare upon the first cause of action that plaintiff is not a member of AGI with all the rights that the decedent held under AGI's LLC Agreement, to declare upon the second cause of action that defendants do not owe fiduciary duties to plaintiff.

         In November 2013, nonparty Alexander Calderwood (Alex) died unexpectedly at age 47, intestate, and his father, Thomas B. Calderwood, was appointed the personal representative of Alex's Estate, the plaintiff in this action (the Estate). During his lifetime, Alex apparently enjoyed much success as an entrepreneur, including in the boutique hotel industry. He was the founder and creator of the Ace brand of boutique hotels, which had hotels located in New York, Seattle, Palm Springs and London. In 2011, Alex sought to buy out his then business partners, but needed capital to do so. Thus, in conjunction with defendant Ecoplace LLC (Ecoplace), a company controlled by defendant Stefanos Economou (Economou), he formed ACE Group International LLC (AGI), a Delaware limited liability company. AGI was formed as a management company with its primary assets being the management contracts it has with the various Ace hotel properties, as well as rights to the Ace brand and related intellectual property.

         Pursuant to the AGI limited liability agreement (LLC Agreement), Ecoplace invested $10, 000, 000 into AGI, and in exchange, received a 33.33% interest in the company with a $10, 000, 000 preferred return and veto rights over certain "major decisions." Alex retained a 66.67% interest in AGI along with control of AGI's day-to-day operations. Alex later transferred a portion of his interest to certain AGI executives, leaving him, at the time of his death, with a 51.74% majority stake in AGI.

         Following Alex's death, the Estate sought to value the interests that Alex held in AGI in order to file an accurate accounting for estate tax purposes. Counsel for the Estate wrote to AGI, requesting access to its books and records for this purpose. Apparently, however, AGI did not provide the information that the Estate needed.

         In April 2014, the Estate also was in conversation with counsel for Ecoplace regarding its offer to buy the Estate's entire ownership interest for $200, 000. Counsel's letter stated that AGI "is likely to shortly require a substantial infusion of capital in order to (i) properly operate the Business and (ii) remedy certain disruptions to the Business resulting from Alex's unfortunate passing." The letter further explained that "[a]lthough the Estate is entitled to distributions from the Company in certain circumstances, given the current financial position of the Company and, more importantly, the fact that ECOPLACE is entitled to receive its initial investment amount of $10, 000, 000 (plus any additional capital contributions made pursuant to the above) before the Estate receives any such distributions, we do not believe that the Estate will realize any sort of financial benefit from its ownership interest in the foreseeable future (if ever)."

         The Estate refused Ecoplace's offer and, in January 2015, commenced this lawsuit. On March 6, 2015, the Estate filed an amended complaint (AC) asserting six causes of action, seeking (1) a declaration that the Estate is a member of AGI with all of Alex's rights; (2) a declaration that defendants owe the Estate fiduciary duties; (3) a declaration that the Estate may share AGI's financial and business information, for purposes of pursuing this litigation, with existing and prospective investors, lenders or other sources of capital; [1] (4) an order requiring defendants to provide the Estate with AGI's books and records; (5) an accounting of AGI; and (6) the imposition of a constructive trust on Ecoplace's membership interests in AGI and on AGI's assets, for the benefit of the Estate. Defendants answered, but then moved to dismiss, pursuant to CPLR 3211(a)(7), for failure to state a claim. Thereafter, the Estate moved for leave to file a supplemental amended complaint (SAC), in which some of the causes of action were the same or similar to those in the AC, while others were new causes of action, including claims for breach of contract.

         The motion court dismissed the claims for a declaration that the Estate is a member of AGI with all of Alex's rights, a declaration that defendants owe the Estate fiduciary duties, an accounting, and the imposition of a constructive trust, for failure to state a claim. The motion court also dismissed the claim for an order requiring defendants to provide the Estate with access to AGI's books and records as moot, because to the extent the Estate was entitled to financial information in order to value its assets in the probate action, it was being dealt with in discovery. [2]

         Ultimately, the parties disagree on the Estate's rights and status under the LLC Agreement [3]. The Estate contends that it stepped into Alex's shoes upon his death, and that it possesses all of his rights and privileges as a Member under the LLC Agreement. Defendants, on the other hand, contend that under the terms of the LLC Agreement, the Estate is considered the successor in interest of a Withdrawing Member (Alex) with rights only to potential distributions, and no rights to control or participate in the running of the company. In support of their argument, defendants point to section 9.7(b) of the LLC Agreement, which provides, in relevant part, that "[u]pon the death or disability of a Member... (the " Withdrawing Member "), the Withdrawing Member shall cease to be a Member of the Company and the other Members and the Board shall... have the right to treat such successor(s)-in-interest as assignee(s) of the Interest of the Withdrawing Member, with only such rights of an assignee of a limited liability company interest under the Act as are consistent with the other terms and provisions of this Agreement and with no other rights under this Agreement. Without limiting the generality of the foregoing, the successor(s)-in-interest of the Withdrawing Member shall only have the rights to Distributions provided in Sections 4 and 10.3, unless otherwise waived by the other Members in their sole discretion."

         Thus, according to defendants, under the terms of the LLC Agreement, at the time of Alex's death he became a "Withdrawing Member" and "cease[d] to be a Member of the Company" and his successor in interest, the Estate, retained only the rights to distributions.

         The Estate, however, argues that § 18-705 of the Delaware Limited Liability Company Act (LLC Act) is a mandatory provision pursuant to which the personal representative of a deceased member may exercise all of the member's rights, notwithstanding the limitations contained in the LLC Agreement. Section 18-705 provides that "[i]f a member who is an individual dies... the member's personal representative may exercise all of the member's rights for the purpose of settling the member's estate or administering the ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.