Northmarq Capital, LLC v. Kabani

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NORTHMARQ CAPITAL, L.L.C., Plaintiff and Counterclaim Defendant, v. FARHAN KABANI, Defendant and Counterclaimant.

No. 24-cv-00073-SH

United States District Court, N.D. Oklahoma

October 10, 2024

OPINION AND ORDER

Before the Court is Northmarq's motion to dismiss all but one of Kabani's counterclaims.^[1] The Court finds Kabani has failed to plead any claim of fraud, and the fraud claims will be dismissed without prejudice with leave to amend. Northmarq's motion is otherwise denied.

Background

Taking the factual allegations in the counterclaim as true and viewing them in the light most favorable to the nonmoving party, Counterclaimant Farhan Kabani (“Kabani”) alleges as follows:

Kabani & Four Pillars' Original Agreements

Kabani is a loan originator who assists clients with sourcing and selecting loan options, processing and closing loans, and servicing loans after they close. (Ctrcl. ¶ 3.^[2]) In 2021, he partnered with SJCO-Holdings, L.L.C. (“SJCO”) to form Four Pillars Capital Markets L.L.C. (“Four Pillars”). (Id. ¶ 5.) Four Pillars “provided debt and equity financing solutions” for commercial real estate investment properties. (Id.) In July 2021, Kabani executed a Membership Subscription Agreement, Operating Agreement Independent Contractor Agreement, and Promissory Note defining the scope of his relationship with Four Pillars. (Id. ¶¶ 6-11; see also ECF No. 2-1 at 8-14^[3] (Independent Contractor Agreement), ECF No. 2-1 at 15-17 (Promissory Note).^[4]) Under the terms of the original Promissory Note, if Four Pillars terminated Kabani without good reason and not for cause as defined in the Operating Agreement, the outstanding amounts owed under the Promissory Note would be forgiven. (Ctrcl. ¶ 12; ECF No. 2-1 at 15-16 § 2(c)(1).) Kabani then began work as a “Partner” for Four Pillars, leading a team of over a dozen loan originators, analysts, and administrative support staff. (Ctrcl. ¶ 13.) Under the Independent Contractor Agreement, Kabani earned commission and fees based upon the “Gross Fee” earned by his sales team. (Id. ¶ 15; ECF No. 2-1 at 9 § 4.1.)

The Sale of Four Pillars to Northmarq

In August 2022, Kabani learned that Four Pillars and SJCO would be sold to Counterclaim Defendant Northmarq Capital, L.L.C. (“Northmarq”). (Ctrcl. ¶ 16.) On August 30, 2022, Kabani signed an agreement to sell his units in Four Pillars to SJCO. (Id. ¶ 17.) This agreement became effective immediately prior to the closing of the securities purchase agreement between Northmarq, Four Pillars, and SJCO (the “SPA”). (Id.) As a result of this agreement, Kabani would cease to be a member of Four Pillars. (Id.) The SPA closed in mid-October 2022. (Id. ¶ 32.)

Pre-Sale Negotiations Between Kabani and Northmarq

During the period from August 2022 to the closing of the SPA, Kabani had discussions about his post-SPA role. (Id. ¶ 18.) Kabani “was advised by persons knowledgeable about the SPA negotiations that he would be offered a managerial role with” Northmarq. (Id. ¶ 19.)

On September 2, 2022, Kabani met with Jeff Erxleben, Northmarq's President of Debt & Equity (“Erxleben”). (Id. ¶ 20.) During that meeting, Erxleben told Kabani that, following the SPA, (1) Kabani and his team would continue to serve the Tulsa, Oklahoma market; (2) loan originators like Kabani would have to pay higher referral fees to investment sales brokers; (3) loan originators like Kabani would be paid a lower percentage, or split, of the fees collected; but (4) Kabani would receive servicing fees, that is a portion of the periodic loan payments made during the course of a mortgage, which would offset the higher referral fees. (Id. ¶¶ 22-25.)

Prior to the closing of the SPA, other “agents and/or apparent agents” of Northmarq told Kabani that: (1) Northmarq believed that net leases have a national marketplace;^[5] (2) Four Pillars loan originators would retain both internal and external clients; (3) Four Pillars loan originators would continue to receive support from a team that included two analysts in Chicago and a third to be hired; (4) Northmarq intended to support and maintain the existing Four Pillars team to preserve the business it generated; (5) Northmarq supported the recruitment of the new senior analyst; and (6) Northmarq did not require loan originators to work from the office. (Id. ¶ 26.)

Based on these representations, on September 24, 2022, Kabani executed a Second Addendum to the Independent Contractor Agreement (the “ICA Addendum”) and an Addendum to the Promissory Note (the “Note Addendum”) with Four Pillars.^[6] (Id. ¶¶ 27, 29; see also ECF No. 11-1 (the ICA Addendum), ECF No. 2-1 at 18 (the Note Addendum).)

The ICA Addendum provided for a retention payment to Kabani and several amendments to the Independent Contractor Agreement. (ECF No. 11-1.) Following these amendments, Kabani would continue his engagement with Four Pillars “subject to the terms of” the Independent Contractor Agreement, as amended.^[7] (Ctrcl. ¶ 28(a); ECF No. 11-1 at 1.) The addendum clarified a reference to the “Broker Policy Manual,” but otherwise Kabani would be entitled to the same percentage of the “Gross Fee” as before- “Salesperson's remaining terms and conditions will remain consistent with Salesperson's current practices and standards in effect immediately prior to the closing of the SPA.” (Ctrcl. ¶ 28(b); ECF No. 11-1 § 2.) The term of the Independent Contractor Agreement was now four years from the date of the ICA Addendum, and either Four Pillars or Kabani could terminate it at any time for any reason by providing written notice to the other party. (Ctrcl. ¶ 28(c); ECF No. 11-1 § 3.)

Northmarq's Post-Sale Representation to Kabani

Kabani alleges one purportedly fraudulent representation that occurred after he signed the ICA and Note Addenda-“After the SPA closed, Erxleben again told Kabani he would receive servicing fees.” (Ctrcl. ¶ 34.) Kabani obtained business for Northmarq on the expectation that he would receive such fees. (Id. ¶ 35.)

Four Pillars and Northmarq's Post-Sale Actions & Kabani's Resignation

After the SPA, Kabani reported to Erxleben and Lauren Breskey, Northmarq's Managing Director of Debt & Equity (“Breskey”). (Id. ¶ 33.) “Breskey and/or Erxleben required Kabani to work in a certain location, observe certain hours, and follow various directives” all in “departure from the practices and standards in effect at [Four Pillars] immediately prior” to the SPA's closing. (Id. ¶ 36.) Kabani also had to pay higher referral fees and was given an inferior title of “Senior Vice President.” (Id. ¶¶ 37, 44.) Northmarq denied Kabani access to information available to other originators, allocated his support staff and resources to others, and terminated certain members of his team. (Id. ¶¶ 38, 48-50.) In departure from prior Four Pillars' practices and standards, Northmarq restricted Kabani's access to internal investment sales agents, limited him to working smaller deals internally, and encouraged or instructed internal investment sales brokers not to work with him. (Id. ¶¶ 39-41.) Also in departure from prior practices, Erxleben assigned the Tulsa market to other loan originators. (Id. ¶ 42.) Finally, in departure from prior practices, Northmarq required Kabani to work with an inferior in-house marketing employee and forced Kabani to directly incur marketing costs. (Id. ¶¶ 45-46.) Erxleben repeatedly encouraged Kabani to leave Northmarq and, after inviting Kabani to raise his concerns, failed to address them. (Id. ¶¶ 43, 47.) In April 2023, Erxleben told Kabani he would not receive servicing fees, even though other loan originators were receiving them. (Id. ¶ 51.) After Kabani questioned this, Erxleben told Kabani they would not speak again, and Kabani had no more meaningful interactions with Erxleben or Bresky. (Id.) “Kabani felt compelled to resign effective September 6, 2023.” (Id. ¶ 52.)

Procedural Background

On January 11, 2024, Northmarq sued Kabani for breach of the Promissory Note, as amended. (ECF No. 2-1.) Kabani has counterclaimed, asserting fraudulent inducement (Count I); fraud (Count II); fraud by failure to disclose (Count III); promissory estoppel (Count IV); breach of independent contractor agreement (Count V); “constructive discharge breach of contract” (Count VI); quantum meruit (Count VII); and unjust enrichment (Count VIII).^[8] (Ctrcl. ¶¶ 55-97.) Northmarq seeks dismissal of all claims except Count V. (ECF No. 13 at 5.)

Analysis

I. Legal Standard

“The court's function on a Rule 12(b)(6) motion is not to weigh potential evidence that the parties might present at trial, but to assess whether the [pleading] alone is legally sufficient to state a claim for which relief may be granted.” Peterson v. Grisham, 594 F.3d 723, 727 (10th Cir. 2010) (quoting Miller v. Glanz, 948 F.2d 1562, 1565 (10th Cir. 1991)).

The Court accepts all well-pleaded allegations as true and views them in the light most favorable to Kabani, the nonmoving party. Id.

“A pleading that states a claim for relief must contain . . . a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). To satisfy Rule 8, detailed factual allegations are not required, but a plaintiff must provide “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007). This is more than “labels and conclusions” or “a formulaic recitation of the elements” of the claim. Id. at 555. “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.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). This standard “asks for more than a sheer...