Cambridge Capital LLC v. Ruby Has LLC

675 F.Supp.3d 363

CAMBRIDGE CAPITAL LLC, Plaintiff, v. RUBY HAS LLC, Defendant.

20-cv-11118 (LJL)

United States District Court, S.D. New York

Signed June 2, 2023

Robert Allen Glunt, Mandel Bhandari LLP, New York, NY, Shomik Ghosh, Sprio Harrison, New York, NY, Rishi Bhandari, New York, NY, for Plaintiff.

Elizabeth Cassidy Conway, Jacqueline Gail Veit, Kelsey Davis, Golenbock Eiseman Assor Bell & Peskoe LLP, New York, NY, for Defendant.

OPINION AND ORDER

LEWIS J. LIMAN, United States District Judge:

This case arises from failed negotiations for the acquisition of an e-commerce fulfillment company during the midst of the COVID-19 pandemic.

Plaintiff Cambridge Capital LLC ("Cambridge" or "Plaintiff") moves for summary judgment pursuant to Federal Rule of Civil Procedure 56, adjudging Defendant Ruby Has LLC ("Ruby Has" or "Defendant") liable for Cambridge's claims for breach of a contractual provision requiring exclusivity in negotiations and for breach of the duty to negotiate in good faith. Cambridge also moves for summary judgment dismissing Ruby Has's counterclaims of fraud and breach of a nondisclosure agreement. Dkt. No. 114. Ruby Has moves for partial summary judgment striking Cambridge's request for expectation or lost profit damages on its claim for breach of the duty to negotiate in good faith and dismissing Cambridge's claims for the breach of the exclusivity agreement. Dkt. No. 123.

For the following reasons, Cambridge's motion for summary judgment is granted in part and denied in part and Ruby Has's motion for partial summary judgment is granted.

BACKGROUND

Familiarity with the facts of the case from this Court's two prior Opinions and Orders, dated September 30, 2021 and June 24, 2022, is presumed. Dkt. No. 63 ("September 2021 Opinion"); Dkt. No. 102 ("June 2022 Opinion"). The Court draws all reasonable inferences in favor of the non-movant.

I. The Parties

Cambridge is a private equity firm, organized under the laws of Delaware with its principal place of business in Florida. Dkt. No. 115 ¶¶ 2-3. It invests in supply-chain related companies. Id. ¶ 3. It is what is commonly described as a "fundless sponsor," otherwise known as an "independent sponsor," which is an entity that raises capital on a deal-by-deal basis from outside investors. Dkt. No. 131-7 at 215; Dkt. No. 131-8 at 138; Dkt. No. 131-9 at 63; Dkt. No. 151-61 at 24-26. In practice, Cambridge would at times invest its own money and also had recurring partners that funded deals with Cambridge. Dkt. No. 151-61 at 25.

Cambridge was founded by Benjamin Gordon ("Gordon"). Dkt. No. 115 ¶ 3. For all relevant time periods, Gordon was the Managing Partner of Cambridge and Matt Smalley ("Smalley") was a Principal of Cambridge. Id. ¶ 4. Both reside in Florida. Id.

Ruby Has, the acquisition target, is a limited liability company organized under the laws of New York with its principal place of business in New York. Id. ¶ 5; Dkt. No. 155 ¶ 1. It is an ecommerce fulfillment company in the business of storing, packing, and shipping its retailer customers' products as they are ordered online by end consumers. Dkt. No. 115 ¶ 6; Dkt. No. 155 ¶ 2. Ruby Has's headquarters and one of its warehouses are in New York. Dkt. No. 115 ¶ 7; Dkt. No. 155 ¶ 11. The remaining warehouses are in New Jersey, Nevada, and Kentucky. Dkt No. 115 ¶ 7; Dkt. No. 155 ¶ 11.

Ruby Has was founded in 2011 by Rafael Zakinov ("Zakinov"). Dkt. No. 115 ¶ 8; Dkt. No. 155 ¶ 2. For all relevant time periods, Zakinov owned approximately 50% of Ruby Has, and Eliyahu ("Eliyahu") and Avrami Mermelstein ("Avrami," and together with "Eliyahu," the "Mermelsteins") owned the other 50% through an entity known as Hameah LLC ("Hameah"). Dkt. No. 115 ¶ 9; Dkt. No. 144 ¶ 9. For all relevant time periods, Avrami was Ruby Has's Chief Financial Officer, and Esther Kestenbaum ("Kestenbaum") served as Ruby Has's President. Dkt. No. 144 ¶¶ 8, 10. Kestenbaum was not an owner of Ruby Has but possessed vested options in the business. Id. ¶ 10. She was primarily responsible for "sales, marketing, partnerships, and driving the growth curve." Dkt. No. 142-15 at 14-16.

II. Discussions Prior to April 2020

In August 2018, Kestenbaum, at the recommendation of her long-time acquaintance in the supply chain industry, Richard Sherman, reached out to Cambridge in connection with a potential investment. Dkt. No. 121-21; Dkt. No. 131-2 at 7, 25, 27. At the time, Ruby Has was in the process of raising financing through an offering of convertible notes to friends and family of the company. Dkt. No. 121-21; Dkt. No. 142-15 at 30. Following her outreach, Kestenbaum had a conversation with Gordon in summer 2018. Dkt. No. 121-22. On April 3, 2019, Dave Stubbs ("Stubbs"), at the time a non-salaried partner at Cambridge, followed up on that conversation to see if Kestenbaum and Zakinov would meet with Cambridge at the eCommerce Ops Summit taking place the following week. Id.; Dkt. No. 121-54 at 36. Kestenbaum, forwarding Stubbs's email invitation to Zakinov, stated "Look up ben gordon he's the guru of 3pl [third-party logistics] financing." Dkt. No. 121-22. Before forwarding Stubbs's email, Kestenbaum looked up Gordon and vetted his history. Dkt. No. 142-15 at 32-33. She testified that she "had been told by Richard Sherman that Ben Gordon had a reputation of being very active in our space" and that Stubbs's email "felt meaningful." Id. at 32. She had "looked [Gordon] up and ... saw that he had made some investments, that there were some investments connected to him," and she also "saw that there was some ... events that he led and sometimes in our industry that in itself is meaningful in terms of being connected." Id. at 33.

Kestenbaum, Zakinov, and Stubbs all met on April 10, 2019, at the E-commerce Ops Summit concerning a potential investment. Dkt. No. 121-23; Dkt. No. 121-59 ¶ 12. Stubbs then followed up later that same day via email, both praising the business and stating that "[r]ecognizing you are talking to potential financial partners; it would be good to see if we would be a good fit for your next stage." Dkt. No. 121-23. The email included a nondisclosure agreement ("NDA"), a presentation deck on Cambridge, and a request for a follow-up meeting. Id. Stubbs emailed again on April 18, 2019, to follow up and set up another meeting with Kestenbaum. Id.

In late April 2019, the parties exchanged documents, information, and agreements to explore a potential investment by Cambridge in Ruby Has. On April 22, 2019, Ruby Has provided Cambridge with an investor deck containing information about Ruby Has's business. It then provided Cambridge access to an "e-room" with more detailed information on the business on April 30, 2019. Dkt. No. 121-24; Dkt. No. 121-25; Dkt. No. 121-59 ¶¶ 26, 28, 29; Dkt. No. 142 at 44-46. Zakinov also returned an executed NDA to Cambridge on April 23, 2019. Dkt. No. 121-25 at ECF p. 3; Dkt. No. 121-59 ¶ 14. That NDA, dated April 11, 2019, indicated that it "shall terminate one year from the date hereof." Dkt. No. 22-1.

Cambridge and Ruby Has had an in-person meeting in New York City on or about May 21, 2019. Dkt. No. 144 ¶ 17. Following that meeting, Cambridge sent Ruby Has a proposed Letter of Intent ("LOI") on or about May 23, 2019 ("2019 LOI"). Dkt. No. 115 ¶ 11; Dkt. No. 121-27; Dkt. No. 144 ¶ 19. Among its terms, the 2019 LOI proposed that Cambridge would invest $17.5M to acquire 63% of the equity of Ruby Has, in which a portion of the investment would be used for growth, with the remaining portion used to purchase equity from the shareholders. Dkt. No. 121-27 at ECF p. 6. The 2019 LOI was subject to the condition that the 2019 unadjusted earnings before interest, taxes, depreciation, and amortization ("EBITDA") for the company would be at least $5 million. Id. The 2019 LOI also proposed that Ruby Has would pay Cambridge a quarterly management fee in cash of 10% of EBITDA. Id. Ruby Has rejected the 2019 LOI, because the price was too low. Dkt. No. 115 ¶¶ 12-13; Dkt. No. 144 ¶ 20. After the 2019 LOI, Ruby Has sent updated financial information to Cambridge on June 23, 2019 and November 6, 2019. Dkt. No. 121-59 ¶¶ 36, 42; Dkt. No. 144 ¶ 21.

III. Negotiations in April 2020 and the June 2020 LOI

The parties entered negotiations for a subsequent LOI in April 2020. Those negotiations culminated in June 2020 with an executed LOI. During these negotiations in 2020, Zakinov and the Mermelsteins resided in and primarily negotiated from New York, and Gordon and Smalley resided in and negotiated from Florida. Dkt. No. 130 ¶ 25.

On April 23, 2020, Stubbs emailed Kestenbaum to ask how the COVID-19 pandemic had affected Ruby Has's business. Kestenbaum replied that the COVID-19 pandemic had been helpful for business, and the two set up a phone call. Dkt. No. 121-54 at 83; Dkt. No. 130 ¶ 5; Dkt. No. 131-4; Dkt. No. 144 ¶ 23. After several subsequent calls and email exchanges between Cambridge and Ruby Has, on May 18, 2020, Gordon sent Kestenbaum and Zakinov another proposed letter of intent ("May 2020 LOI") with differing terms from the 2019 LOI, including an increased valuation. Dkt. No. 115 ¶ 14; Dkt. No. 121-6; Dkt. No. 121-59 ¶ 47. The May 2020 LOI proposed, inter alia, that Cambridge would invest $38 million into Ruby Has in exchange for a 51% ownership stake in the company. Dkt. No. 121-6 at ECF p. 4. The parties then continued to discuss and negotiate terms of the May 2020 LOI. Dkt. No. 144 ¶ 25. During these calls, Gordon conveyed that Cambridge had $40 million that had been already "raised and [was] essentially in a bank account," Dkt. No. 145 ¶ 28, and that "they were eager to deploy the capital to get it to work," Dkt. No. 142-14 at 75-76, "either by investing in Ruby Has or another company in that sector," Dkt. No. 145 ¶ 28. Cambridge conveyed that it was "money in [Cambridge's] coffers" and not "invested in some other fashion." Dkt. No. 142-14 at 76-77. The understanding was that Ruby Has "would be able to...