Offshore Expl. & Prod. v. De Jong Capital, LLC

2023 NY Slip Op 50502(U)

Offshore Exploration and Production, LLC, Plaintiff, v. De Jong Capital, LLC, Defendant.

Index No. 653659/2021

Supreme Court, New York County

May 24, 2023

Unpublished Opinion

Robert R. Reed, J.

The following e-filed documents, listed by NYSCEF document number (Motion 002) 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29 30, 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 41, 42, 43, 44 45, 46, 47, 48, 49, 50, 63, 64, 65, 66, 67, 68, 69, 70, 71 72, 75, 89, 95 were read on this motion to DISMISS.

Plaintiff Offshore Exploration and Development (OEP) alleges that it and defendant De Jong Capital, LLC (DJC) formed a partnership to purchase and operate an oil and gas business in Peru. Plaintiff asserts that defendant unlawfully usurped the partnership's opportunity to acquire the business, in order to use plaintiff's proprietary information to purchase the business on its own. Defendant moves to dismiss the complaint pursuant to CPLR 3211. Defendant contends that a partnership did not exist as the parties never agreed on the final terms of a partnership agreement.

I. Allegations in the Complaint

Unless otherwise indicated, these events took place in 2020. Each party is incorporated in Delaware and has a principal place of business in Houston, Texas. Throughout the parties' dealings, Brent De Jong acted as defendant DJC's principal and Brent Kallop did the same for plaintiff OEP.

In 2009, plaintiff sold nonparty Offshore International Group (OIG) to the national oil

companies of Colombia and South Korea. One of the sales terms was that $150 million of the $1.3 billion purchase price would be held in escrow for the purpose of settling post-closing indemnity obligations potentially owed by plaintiff. Plaintiff was to receive any amounts remaining in the escrow account after resolution of the indemnity obligations. At the time that this complaint was filed, $36.5 million remained in the escrow account.

In 2014, plaintiff learned that OIG was for sale and began planning to repurchase it, a process that included research and discussions with potential investors, including defendant. In 2016, the parties began discussing the possibility of together buying OIG. Plaintiff considered offering defendant "an equity interest in a joint venture in exchange for... entering the sale process on behalf of a partnership between" the parties (NYSCEF 20, complaint, ¶ 20). Defendant had no material knowledge or understanding of OIG's operations or potential. Plaintiff "walked De Jong through the basics" of OIG (id., ¶ 22). The parties agreed that defendant would request admission to the sales process "on behalf of the partnership" (id., ¶ 26). OIG's agent admitted defendant to the sales process in August 2020, and defendant relied heavily on the information provided by plaintiff to navigate the sales process. Potential buyers of OIG were allowed to gain access to confidential information about its operations via a virtual data room. Defendant executed a confidentiality agreement which enabled access to the virtual data. Defendant and plaintiff then drafted their own confidentiality agreement.

The parties agreed that they would form a partnership with a 90/10 equity split. The larger part belonged to plaintiff, because its proprietary knowledge of OIG would be the principal asset of the partnership and it was providing the capital. Defendant "would not contribute capital, but instead earned its 10% equity stake by spearheading the bidding process" (NYSCEF 20, ¶ 35). Defendant said that it would not do the deal without plaintiff. "This statement was a key milestone in the De Jong-OEP partnership, giving OEP the assurance that De Jong would not circumvent OEP and inducing OEP to share additional valuable confidential information for the benefit of the partnership. Relying on that promise, OEP shared with De Jong extensive analyses of [OIG]'s business activity and invaluable proprietary, nonpublic information" (id., ¶ 37).

In September, defendant began secret efforts to augment its equity by falsely representing to plaintiff that, under the terms of defendant's confidentiality agreement with OIG, plaintiff and defendant had to be 50/50 partners for defendant to share information from the virtual data room with plaintiff. Plaintiff rejected the suggestion of an equal partnership. Plaintiff learned that defendant had misrepresented OIG's confidentiality agreement, which allowed information to be shared with plaintiff without a 50/50 partnership. Plaintiff became "wary of sharing" information with defendant and stopped sharing information and analysis, "for a time" (NYSCEF 20, ¶ 42).

Plaintiff gained admission to the sales process and obtained access to OIG's virtual data room. Defendant "struggled to understand both the opportunity and the mechanics of the business without [plaintiff]'s further assistance, causing the deal to stall" (NYSCEF 20, ¶ 44). Eventually, OIG's agent notified defendant that its participation in the sales process was terminated and requested that defendant delete all files downloaded from the virtual data room. "Instead of deleting the files, DJC concocted a story in an attempt to utilize OEP's proprietary information to revive efforts to acquire the business" (id., ¶ 45). Defendant told the agent that it would be willing to complete the transaction if the escrow account could be assigned to defendant. As the escrow account was plaintiff's property, it could only be assigned to defendant if the parties were in a partnership.

Plaintiff expressed concern to defendant that the latter had made an unauthorized proposal about the escrow to OIG's agent. Defendant again assured plaintiff that it would not buy OIG without plaintiff and countersigned the parties' confidentiality agreement. The agreement is dated September 15.

In November, the sales process opened for nonbinding proposals to buy OIG and the parties drew up a nonbinding offer. Plaintiff's input included substantial proprietary information about OIG. On November 19, defendant submitted the nonbinding offer to OIG's agent on behalf of the partnership. Plaintiff also drafted a nonbinding offer and submitted the offer on behalf of the partnership. Defendant said to plaintiff that they had a verbal agreement to work as partners, and they worked together on finalizing a partnership agreement.

OIG's agent invited the parties to submit binding offers. In reliance on defendant's assertion that they were partners, plaintiff continued to share its extensive analysis of OIG to draft the binding offer.

On November 30, the deadline for submitting binding offers, shortly after 2 p.m., defendant sent plaintiff an outline of possible offers. Plaintiff expressed reservations and the parties agreed to talk later in the day. At 6:30 p.m., during an online meeting, defendant presented plaintiff an unauthorized bid structure with alternate proposals. One proposal reflected the deal that the parties had worked on together. The other proposal did not reflect the deal that the parties had worked on together and involved the possibility of a third-party investor. Defendant promised to call back shortly after reviewing the final draft of the partnership agreement sent by plaintiff. Defendant did not call back or answer plaintiff's messages.

November 30, at 9:19 p.m., defendant emailed plaintiff that defendant had submitted the unauthorized offer and that, if OIG accepted the offer, the partnership documentation would only need to be "tweaked." Plaintiff was "alarmed" by the change of plans and defendant's failure to respond to text messages the previous day. To protect its own interests, plaintiff submitted a binding offer the same night. This offer reflected the offer that the "partnership had worked on together." Plaintiff submitted this bid fully intending to honor its partnership with defendant if the offer were accepted. Later that night, defendant sent plaintiff the partnership agreement with some "minor edits."

On December 4, plaintiff called defendant and offered additional financial support for the purchase of OIG in the form of collateral security from a plaintiff affiliate in Peru. In mid-December, plaintiff asked defendant about any feedback from OIG, but defendant did not tell of any developments. In late December, at OIG's agent's request, plaintiff submitted a revised binding offer fully intending to honor the partnership if it were accepted.

Although the partnership agreement was not signed, all material terms had already been negotiated and agreed to. Defendant expressly asserted that the parties had a "verbal deal," and stated in writing (before and after the submission of binding offers) that the parties had a 90/10 split. In January 2021, OIG announced that defendant had purchased it. Defendant revealed that it had found a new partner, who had put in the capital for the purchase. Defendant admitted that it had told plaintiff that it would not do the deal without plaintiff and that it used plaintiff's confidential information to bring the transaction with its new partner to fruition.

II. The Partnership Agreement

The parties never signed the partnership agreement that they drafted. The parties exchanged ten drafts of the "Collaboration and Interim Investors Agreement," the title for all the drafts. The parties' emails variously referred to the agreement as a partnership agreement or a JV agreement. "Partnership" and "joint venture" do not appear in any of the agreements.

It seems that the first version was drafted by De Jong who sent it to plaintiff on November 14. Each party made material amendments to the agreements. Plaintiff's attorney revised the last draft, which plaintiff sent to defendant on December 3 (NYSCEF 49). No more...