Kortright Capital Partners LP v. Investcorp Inv. Advisers Ltd., 16cv7619

327 F.Supp.3d 673

KORTRIGHT CAPITAL PARTNERS LP, et al., Plaintiffs,

v.INVESTCORP INVESTMENT ADVISERS LIMITED, Defendant.

16cv7619

United States District Court, S.D. New York.

Signed August 13, 2018

Jason Michael Halper, Jared Jon Stanisci, Todd Blanche, Cadwalader, Wickersham & Taft LLP, New York, NY, for Plaintiffs.

Christopher Michael Joralemon, Mark Adam Kirsch, Peter Michael Wade, Alison Leigh Wollin, Gibson, Dunn & Crutcher, LLP, New York, NY, for Defendant.

OPINION & ORDER

WILLIAM H. PAULEY III, Senior United States District Judge:

This action arises out of a failed investment venture involving plaintiffs Kortright Capital Partners LP and its co-founders Matthew Taylor and Ty Popplewell (collectively, "Kortright") and defendant Investcorp Investment Advisers Limited ("Investcorp"). Following dismissal of the majority of Kortright's contract and tort claims, Kortright now moves to amend to add an additional breach of contract claim based on new information allegedly unearthed at the eleventh hour during discovery. Kortright also moves to strike Investcorp's jury demand based on jury waiver provisions contained in the applicable contracts between the parties. Finally, each side moves for sanctions against the other. For the reasons that follow, Kortright's motion to amend is denied, Kortright's motion to strike Investcorp's jury demand is granted, and both motions for sanctions are denied.

BACKGROUND

The facts of this case are more fully detailed in the Opinion & Order granting in part and denying in part Investcorp's motion to dismiss, familiarity with which is presumed. Kortright Capital Partners LP v. Investcorp Inv. Advisers Ltd., 257 F.Supp.3d 348 (S.D.N.Y. 2017). Nonetheless, a brief recapitulation of the relevant background is warranted.

I. Factual Background

In November 2013, Kortright and Investcorp entered into a Project Agreement, under which Investcorp promised to invest $50 million of proprietary capital and $40 million of its clients' capital in Kortright funds and market those funds to new investors in exchange for certain economic benefits it would receive as a seed investor. In January 2015, Plaintiffs began discussions with Man Group plc ("Man Group")—an asset management company and competitor of Investcorp's—about moving the Kortright funds into Man Group's organization or having Taylor and Popplewell join Man Group as employees while winding down the Kortright fund. In April 2016, Investcorp expressed its preference for moving the Kortright funds into Man Group (as opposed to winding down the funds) and proposed that it leave its clients' investment with Kortright while withdrawing its proprietary investment. Kortright sent Investcorp an email summarizing the contours of this discussion; namely, that Kortright's funds would be moved to Man Group, that Investcorp would maintain a certain level of investment for six quarters to maintain revenue sharing benefits, and that Investcorp would immediately redeem its proprietary investment while leaving its clients' capital invested.

Contemplating Investcorp's participation, Kortright and Man Group entered into the Man Transaction Agreement on June 16, 2016, the closing of which was expressly conditioned on Kortright maintaining a certain quantum of Investcorp capital. At the same time, Kortright and Investcorp entered into a Termination Agreement, which ended their relationship under the Project Agreement. Kortright and Investcorp also entered into a Revenue Sharing Agreement ("RSA"), under which Investcorp would continue to share revenue, but which included a termination provision triggered if Investcorp redeemed capital exceeding a certain amount. In relevant part, § 5.2 of the RSA also provided that "[t]his Agreement is conditional on the occurrence" of the closing of the Man Transaction and that if the Man Transaction did not close "by September 30, 2016, this Agreement shall not come into effect and shall be null and void ...." (Memorandum of Law in Support of Plaintiffs' Motion to Amend the Complaint and for Sanctions, ECF No. 67 ("Motion to Amend"), Ex. 1 ("Proposed Amended Complaint"), Ex. 2 ("RSA") § 5.2.)

On June 17, 2016, Kortright informed its investors by letter of the Man Transaction and sought their consent to transfer their investments to Man Group. The letter also indicated that Investcorp planned to continue its partnership with Kortright. Investcorp returned its consent forms as an investor of Kortright's. But shortly thereafter, Investcorp revoked its consent, claiming that it was required to obtain its own clients' consent, and because they did not consent, Investcorp was required to redeem its clients' investment. Consequently, because a closing condition for the Man Transaction was not satisfied, Man Group was relieved of its obligation to close the transaction.

II. Procedural History

Kortright brought various claims for negligent misrepresentation, negligence, breach of contract, breach of the implied covenant of good faith and fair dealing, and promissory estoppel. Following Investcorp's motion to dismiss, this Court pruned Kortright's claims, leaving only the negligent misrepresentation claims arising from Investcorp's April 2016 promises to leave its clients' capital invested in Kortright while omitting the need for client consent.

After fact discovery closed, Kortright filed a pre-motion letter seeking leave to file the instant motions. In particular, Kortright seeks to amend its complaint to add a claim for breach of the RSA based on information unearthed near the close of fact discovery—namely, that Investcorp's stated rationale for revoking its consent (i.e., because Investcorp needed but could not obtain its clients' consent) was fabricated. According to Kortright, Investcorp did not need its clients' consent at all, and its executives ultimately made the decision to redeem its clients' capital. In essence, Kortright claims that it did not originally assert a claim for a breach of the RSA because it believed—erroneously—that the failure of a condition precedent in the RSA (i.e., the closing of the Man Transaction) was caused by Investcorp's client and not Investcorp itself.

DISCUSSION

I. Motion to Amend

Although Rule 15 of the Federal Rules of Civil Procedure exhorts courts to "freely give leave when justice so requires," see Fed. R. Civ. P. 15(a)(2), it is well-settled that a court has discretion to deny leave to amend even under this liberal standard if, for example, the amendment would be futile, if the movant acted with undue delay, bad faith, or a dilatory motive, or if granting leave would result in prejudice to the opposing party. Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962).¹

Here, the parties' disagreement centers on whether amendment would be futile. An amendment is futile "if the proposed claim could not withstand a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6)." Lucente v. Int'l Bus. Machs. Corp., 310 F.3d 243, 258 (2d Cir. 2002). To survive a Rule 12(b)(6) motion, a pleading "must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). A claim "has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. In resolving a motion under Rule 12(b)(6), a court accepts a plaintiff's allegations as true and draws all reasonable inferences in its favor. Gonzalez v. Hasty, 802 F.3d 212, 219 (2d Cir. 2015). However, this "tenet is inapplicable to legal conclusions, and threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Mastafa v. Chevron Corp., 770 F.3d 170, 177 (2d Cir. 2014) (quotation mark omitted).

In considering whether an amended complaint states a claim, a court considers "the proposed amendment[s] ... along with the remainder of the complaint." Pyskaty v. Wide World of Cars, LLC, 856 F.3d 216, 225 (2d Cir. 2017). Although a court generally may not consider documents or other evidence outside of the complaint, it may review documents attached to the pleading or incorporated by reference. E. Materials Corp. v. Mitsubishi Plastics Composites Am., Inc., 307 F.Supp.3d 52, 57-58 (E.D.N.Y. 2018) ; BLT Rest. Grp. v. Tourondel, 855 F.Supp.2d 4, 15 (S.D.N.Y. 2012).

For this motion, the parties' quarrel as to whether Kortright's proposed breach of contract claim could survive a motion to dismiss centers on the threshold question of the validity and enforceability of the RSA,² which in turn implicates two issues:

(1) whether § 5.2 of the RSA creates a condition precedent to formation of the contract or a condition precedent to Investcorp's performance; and (2) whether the prevention doctrine applies to excuse the nonoccurrence of the RSA's condition precedent.

A. Type of Condition Precedent Created by RSA § 5.2

The RSA contains a choice-of-law provision memorializing the parties' agreement to apply New York law. (RSA § 5.14(a).) New York contract law recognizes two distinct types of conditions precedent, as explained by the New York Court of Appeals in Oppenheimer & Co. v. Oppenheim, Appel, Dixon & Co., 86 N.Y.2d 685, 636 N.Y.S.2d 734, 660 N.E.2d 415 (1995). On one hand, conditions precedent to performance "describe acts or events which must occur before a party is obliged to perform a promise made pursuant to an existing contract." Oppenheimer, 636 N.Y.S.2d 734, 660 N.E.2d at 418. On the other hand, "condition[s] precedent to the formation or existence of the contract itself" are conceptually distinct, and "no contract arises ‘unless and until the condition occurs.’ " Oppenheimer, 636 N.Y.S.2d 734, 660 N.E.2d at 418 (citation omitted).

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