Obra Pia Ltd. v. Seagrape Inv'rs LLC

OBRA PIA LTD., KIT CAPITAL, LTD.,OBRA PIA (US) FEEDER, LP,AND KALEIL ISAZA TUZMAN, Plaintiffs, v. SEAGRAPE INVESTORS LLCAND EDWARD V. MULLEN, Defendants.

No. 19-CV-7840 (RA)

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

September 25, 2020

OPINION & ORDER

RONNIE ABRAMS, United States District Judge:

Plaintiffs Obra Pia Ltd. ("Obra Pia"), Obra Pia (U.S.) Feeder, LP ("OP Feeder"), KIT Capital, Ltd. ("KIT Capital"), and Kaleil Isaza Tuzman ("Tuzman") bring this action against Defendants Seagrape Investors LLC ("Seagrape") and its principal, Edward Mullen, asserting claims for breach of fiduciary duty, breach of contract, breach of the covenant of good faith and fair dealing, and fraud, as well as for a declaratory judgment as to certain terms contained in the parties' agreements. Now before the Court is Defendants' motion to dismiss the First Amended Complaint and Obra Pia's cross-motion for domestication of a foreign judgment issued in the British Virgin Islands. For the reasons that follow, Defendants' motion is granted, and Plaintiff's cross-motion is denied.

BACKGROUND

I. Factual Background

Unless otherwise noted, the following facts are drawn from Plaintiffs' First Amended Complaint (the "FAC" or "Complaint"), Dkt. 19, and are assumed to be true for the purpose of this motion. See Stadnick v. Vivint Solar, Inc., 861 F.3d 31, 35 (2d Cir. 2017).

A. Convento Obra Pia

The instant dispute arises out of a series of investment agreements related to the development of a luxury hotel project in Cartagena, Colombia, known as "Convento Obra Pia" (the "Development" or the "Project"). See FAC ¶ 1. The Development "involves the historic restoration of the 17th century Obra Pia Franciscan Covent, located in a UNESCO World Heritage zone, to create a 102-room hotel with amenities." Id. ¶ 2. Obra Pia—a British Virgin Islands ("BVI") company, id. ¶ 16—assembled, through its local branch in Colombia known as Obra Pia Sucursal Colombia, Ltda. ("OP Colombia"), five "separate, adjacent parcels" for the Development. See id. ¶ 3. These parcels were purchased between 2009 and 2014, and "'Phase 1' restoration of the covenant and construction of the Development was completed between 2014 and 2016." Id. ¶ 4. Plaintiffs assert that "Obra Pia holds all of the necessary entitlements, construction license and development rights to complete the construction and fit-out of the Development." Id. According to the Complaint, the Development had been "appraised in excess of [$34 million] on an 'as is'/land appraisal basis and in excess of [$50 million] on a feasibility/discounted cash-flow basis."¹ Id. ¶ 3.

B. The Parties

As noted, Plaintiff Obra Pia is a company formed under the laws of the BVI. See id. ¶ 16. Plaintiff OP Feeder is a limited partnership also organized under the laws of the BVI, see id. ¶ 17, and Plaintiff KIT Capital is a company organized under the laws of Dubai, see id. ¶ 19. Tuzman, an individual, appears to own, manage and/or control the Obra Pia and KIT Capital entities. See, e.g., FAC Ex. 2 at 9 (Tuzman signs on behalf of himself, Obra Pia, OP Feeder, KIT Capital, and KIT Media); FAC Ex. 3 at 4 (Tuzman signs on behalf of himself, Obra Pia, OP Colombia, OP Manager, and KIT Nevis); FAC Ex. 4 at 5 (Tuzman signs on behalf of OP Feeder).

Mullen—on his own and through Seagrape—invested in the Development through a "complicated series of 'investment' and 'credit' agreements beginning in 2013 and continuing through 2016." See id. ¶ 7; see also id. ¶¶ 5, 11. At some point during this time, Plaintiff asserts, "Mullen conveyed his equity interests into an entity known as Seagrape Investors, LLC . . . and replaced Seagrape Investors, LLC as a party to the investment agreements." Id. ¶ 11.

According to Plaintiffs, Mullen and Tuzman had a "long-standing business and personal relationship." Id. ¶ 6. They assert, for instance, that prior to Mullen's investment in the Development, he—both individually and through his entity Oaktree Partners, LLP ("Oaktree")—invested in companies "related to" Tuzman, such as one known as KIT Media, Ltd. ("KIT Media"). Id. ¶ 27. Plaintiffs contend that these prior investments "generated capital proceeds which Mullen and Oaktree [then] elected [to] contribute to KIT Media for purposes of investing in the Development." Id. ¶ 28.

C. Key Agreements Related to the Development

1. The Agreements In General

Mullen and/or Seagrape entered into various agreements with Plaintiffs between 2013 and 2016. In general, Plaintiffs contend that these agreements "interchanged equity interests and 'credit obligations,'" which "commingl[ed] not only the capital amounts associated with these interests but also the respective rights of the parties as to these investments." Id. ¶ 12. They assert that, pursuant to the various agreements, Defendants "held financial interests as equity interests in the Development," "sought to treat those equity interests as debt," and "subordinated those interests to the rights of" another entity, GACP Cartagena LLC ("GACP" or the "Senior Lender"). Id. ¶¶ 13, 97. Plaintiffs maintain further that the parties "understood that the Development would take years to complete and reach operational status." Id. ¶ 67. As such, Mullen allegedly expressed to Tuzman, "both orally and in writing, that he actually viewed his investment as being 'tantamount to equity' and did not expect [his, or Seagrape's] investment to be redeemed by the respective dates set forth" in the relevant agreements. Id. ¶ 68.

2. Investment Agreement

On May 1, 2013, Mullen, Oaktree, Tuzman, and KIT Media entered into the Investment Agreement. Id. ¶¶ 30-31 & FAC Ex. 1 ("Investment Agreement").² Mullen and Oaktree were identified as "Investors," while KIT Media was listed as the "Recipient" and Tuzman was listed as the "Guarantor." FAC ¶ 31. Pursuant to the Investment Agreement, "Mullen and Oaktree agreed to convert their prior[] net investment in KIT Media in the amount of $1,885,513 into an investment in the Development," as well as to "invest additional capital in the amount of $1,850,000." Id. ¶ 30 & Investment Agreement at 1. Thus, through this agreement, Mullen invested a total of $3,735,513 in the Development. See FAC ¶ 35. As security for his investments, Tuzman agreed to grant Mullen a first mortgage on two properties—identified as the "Collateral"—in Cannes, France and Park City, Utah. See Investment Agreement §§ 1.1, 5.1 & FAC ¶ 32.

The Investment Agreement provided for "redemption and return of Mullen's and Oaktree's investment on or before December 31, 2013" (the "Due Date"). FAC ¶ 33; see also Investment Agreement § 3.1 (providing that the investment amounts "shall be redeemed by [KIT Media] to [Mullen and Oaktree] in full . . . on or before December 31, 2013," along with a "guaranteed return on [the $1,885,513 investment]" and a "return based on a 20% share in [KIT Media's] profits" as to the $1,850,000 investment). Plaintiffs maintain, however, that the Investment Agreement did not provide Mullen with any "control over the terms of redemption and/or return on the investment principal." FAC ¶ 36. Rather, Plaintiffs assert, the Investment Agreement makes clear that "redemption or return of capital investment is controlled solely by the recipient with the sources of funding likely to be either a capital transaction or cashflow from the Development." Id. ¶ 37.

In the event of a default under the Investment Agreement, the "sole remedy" for Mullen and Oaktree was "to foreclose upon [their] interest in the collateral securing the investment." Id. ¶ 38. Plaintiffs assert that neither Mullen nor Oaktree ever "declared a default under the [] Investment Agreement," nor "took any action with respect to the [C]ollateral." See id. ¶¶ 39-40.

The Investment Agreement contains a New York choice-of-law provision, which provides that the Agreement "shall be governed by and construed in all respects in accordance with the laws of the State of New York." Investment Agreement § 11.

3. Investment Addendum

On September 19, 2014, the parties entered into an "Addendum to Investment Agreement" (the "Addendum"). See FAC ¶ 41 & FAC Ex. 2 ("Addendum"). Pursuant to the Addendum, Seagrape replaced Mullen and Oaktree as the "Investor" and OP Feeder replaced KIT Media as the "Recipient." FAC ¶ 42. Tuzman remained listed as a "Guarantor," although KIT Capital and Obra Pia were also added as "Guarantors." See id. The Collateral in Cannes, France and Park City, Utah were replaced with "New Collateral," defined as four properties in Cartagena de Indias, Colombia that Obra Pia owned and that KIT Capital beneficially owned. See Addendum §§ 3.1, 3.2 & FAC ¶ 57. The Addendum noted that the Investment Agreement was "incorporated by reference into this Addendum," and provided in particular that "[a]ny terms in the [Investment] Agreement not explicitly changed or overwritten by this Addendum will continue to apply to the business dealings between the Parties." Addendum at 1.

Plaintiffs allege that, at the time of the execution of the Addendum, "Mullen's shares in KIT Media had not been transferred to KIT Capital," as required by the Investment Agreement, FAC ¶ 43, and that neither Mullen nor Seagrape had contributed any "additional funds to Obra Pia" between the execution of the Investment Agreement and the execution of the Addendum, see id. ¶ 44.

The Addendum acknowledged that, in January 2014, KIT Capital had made a "partial redemption" to Seagrape in the amount of $50,000. See Addendum at 2 & FAC ¶ 45. Pursuant to the Addendum, OP Feeder "was obligated to redeem from [Seagrape]" (1) the $1,885,513 investment, plus a guaranteed return, for a total redemption of $2,161,492, and (2) the $1,850,000 investment, "plus an additional 20% on [that] amount," for a total redemption of $2,200,000. See Addendum at 3 & FAC ¶¶ 46-47. In light of the $50,000 partial redemption, the total "2013 Amount Due" was calculated as $4,331,492. See Addendum at 3 & FAC ¶ 49....