Red Fort Capital, Inc. v. Guardhouse Prods. LLC

397 F.Supp.3d 456

RED FORT CAPITAL, INC, Plaintiff,

v.GUARDHOUSE PRODUCTIONS LLC et al., Defendants.

19 cv 686 (PKC)

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

Signed August 13, 2019

John P. Alexander, Anthony Mathias Candido, Clifford Chance US, LLP, New York, NY, for Plaintiff

Brandon Winston, Malibu, CA, Rocco Lamura, Tosolini & Lamura LLP, New York, NY, for Defendants

OPINION AND ORDER

P. Kevin Castel, United States District Judge

Pending before the Court are plaintiff Red Fort Capital, Inc. ("Red Fort") and defendants Russel Dilley and Surya Iacono's cross-motions to dismiss the Complaint and Counterclaims and a motion for judgment on the pleadings with respect to Red Fort's breach of contract claim. (Docs 73, 76.) For the foregoing reasons, the motions will be granted in part and denied in part.

BACKGROUND

I. Allegations in the Complaint

In 2018, Guardhouse Studios Management Limited, Guardhouse Studios Italy S.R.L., and Guardhouse Studios Scotland Ltd. ("Guardhouse"), which are co-owned by Dilley and Iacono (collectively, "Defendants"), sought to develop two full service television and studio complexes in Milan, Italy and Edinburgh, Scotland. (Compl. ¶¶22, 27; Doc 5.) Defendants claimed that they would finance the project with proceeds from a forthcoming $400 million bond offering to be made in December 2018 with the help of the private equity firm SDI Capital. (Id. ¶¶ 30, 34.) Defendants engaged a commercial real estate loan broker, JCAP Global Co., to find a party willing to extend bridge financing to Guardhouse in the interim period to cover expenses and costs. (Id.) Guardhouse claimed it would repay any bridge financing with an outstanding invoice for €2,371,823 that they had issued in May 2018 to a French company, L'Operateur Partenaire Social ("L'Operateur") due on October 15, 2018. (Id. ¶¶31, 34.) JCAP solicited Chris Messina at The Capital Group to find a lender. (Id. ¶36.) Messina contacted plaintiff, Red Fort, a private equity firm that engages in large specialty finance projects. (Id. ¶¶40, 44.)

Red Fort and Guardhouse executed a Letter of Intent on August 20, 2018. (Id. ¶¶47, 48.) Red Fort sought additional guarantees for the loan. Ms. Iacono provided Red Fort with a "Personal Finance Breakdown" from Dilley's personal accountant, Curtis W. Dankert, which stated that Dankert reviewed Iacono's assets and they included a home in Rome worth €5.6 million and an interest in an $8.7 million trust. (Id. ¶57.) Iacono provided an Italian property registry document confirming her ownership interest in the Rome property. (Id. ¶60.) Iacono provided Red Fort with powers of attorney to authorize Red Fort to take a mortgage against her Rome property. (Id. ¶67.) Red Fort asserts on information and belief that Iacono does not own the Rome Property and the documents showing Iacono's ownership of the Rome Property were forged by the Guardhouse Companies, Dilley, and Iacono. (Id. ¶¶58, 61.) Dankert has confirmed that he did not prepare any financial statement for Iacono. (Id. ¶116.)

Dilley emailed a copy of a postdated personal check to Red Fort on October 7, 2018 providing security for his personal guarantee. (Id. ¶¶74.) On or about October 9, 2018, Dilley personally gave Red Fort's CEO, Parminder Singh, a second personal postdated check in the amount of $2,732,340 as partial security. (Id. ¶¶73-75.) Red Fort also received confirmation from L'Operateur on October 8, 2018 that it would pay its amount due in the invoice directly to Red Fort on November 15, 2018. (Id. ¶¶76, 77.)

The parties finalized their loan agreement on either October 9 or 10, 2018 (the "Agreement").¹ (Id. ¶¶82-84.) Iacono signed a redline version of the Agreement on October 9 and initialed each page. (Id. ¶82.) The October 9 version contained a principal of €2,550,000 which included an initial disbursement of €1,750,000 and a fee of €500,000. (Id.) Red Fort sent an execution version to Iacono the next day containing identical disbursement amounts and Iacono signed the signature page and returned it to Messina. (Id. ¶83 and Ex. 6.) Messina sent it to Red Fort, who added the date, corrected the table of contents, and emailed a fully executed version back to Iacono. (Id. ¶83 and Ex. 7.) Iacono was named as a guarantor. (Doc 5-7 (Execution Version); Preamble.) Dilley acceded to the Agreement as a guarantor by Letter of Accession as required pursuant to Section 3.1(j) of the Agreement. (Compl. ¶84; see Doc 85-10 (Dilley Accession Letter).) Guardhouse was required to direct L'Operateur to pay Red Fort proceeds from its invoice directly. (Compl. ¶91 (citing Agreement § 2.1(d), 3.1(i).) The loan's maturity date was January 15, 2019. (Compl. ¶87.) The Agreement further stated that "[i]n the event Borrowers fail to repay the outstanding principal of the Loan by November 15, 2018, interest thereon or any other amounts due" shall accrue at a first extension rate of 2.00% per month. (Agreement, Ex. 7 § 1.3(b)). On October 10, Red Fort disbursed €1,750,000 to Guardhouse. (Compl. ¶93.)

L'Operateur worried about taxes associated with directly repaying Red Fort, a company located outside of the European Union. (Id. ¶96.) On November 7, 2018, to address L'Operateur's concerns, L'Operateur, Red Fort, and Iacono entered into a separate agreement ("L'Operateur Separate Agreement") (Doc 5 Ex. 9.) The L'Operateur Separate Agreement expressly incorporated the Loan Agreement of October 10, 2018. (Id.) The Separate Agreement stated that, "[n]otwithstanding any prior arrangements," by November 9, 20[1]8,² L'Operateur "shall pay ... to Ms. Iacono the entire outstanding balance under the Receivable [the invoice]," and "Ms. Iacono shall, upon receipt of funds ... transfer all such funds to an account designated by Red Fort." (Id. ¶97 & Ex. 9).

On November 15, L'Operateur wrote that it was facing "administrative and fiscal constraints" due to France being "blocked by social movements" and asked for more time to repay the invoice. (Id. ¶98.) On December 4, 2018, Red Fort informed Dilley and Iacono that increased interest rates in the Agreement were triggered by L'Operateur's failure to meets its repayment obligation by November 15, 2018. (Id. ¶99; see Ex. 7 § 1.3(b).) A week later, Red Fort again emailed Dilley and Iacono listing amounts due. (Compl. ¶100.) The same day, Guardhouse commenced a lawsuit against Red Fort in the New York Supreme Court for New York County alleging invalidity and breach of the Agreement and seeking a temporary restraining order and preliminary injunction. (Id. ¶¶101-02.) After Guardhouse filed suit, Red Fort declared an Event of Default under the Agreement and demanded immediate repayment of all amounts due. (Id. ¶106.) Guardhouse's attorneys stopped payment on Mr. Dilley's check one day before it came due (id. ¶107), and Guardhouse learned from an Italian notary public that Iacono is not listed as an owner on the Rome property in the Italian land registry (id. ¶113). To date Red Fort has not received repayment of any amount due. (Id. ¶106.)

II. Allegations in the Counterclaims

Guardhouse alleges that, while at all times unrepresented by counsel, the companies were induced by Red Fort to enter into an outrageous and one-sided unconscionable loan agreement (Counterclaims ¶¶1-3; Doc 65.) Iacono signed a version of the Agreement and then was asked to sign the signature page four additional times without receiving full versions of the updated contract. (Id. ¶32.) Iacono does not recall having signed the October 10 version of the Agreement. (Id. ¶33.) Iacono believed she was entering a factoring agreement, not a loan. (Id. ¶37.)

LEGAL STANDARD

To survive a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6), a complaint or counterclaim "must contain sufficient factual matter, accepted as true, to state a claim for 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) (quotations omitted). A court must disregard legal conclusions, which are not entitled to the presumption of truth and instead examine the well-pleaded factual allegations and "determine whether they plausibly give rise to an entitlement to relief." Id. at 679, 129 S.Ct. 1937. In assessing plausibility, courts draw all reasonable inferences in favor of the non-movant. In re Elevator Antitrust Litig., 502 F.3d 47, 50 (2d Cir. 2007). "In adjudicating a motion to dismiss, a court may consider only the complaint, any written instrument attached to the complaint as an exhibit, any statements or documents incorporated in it by reference, and any document upon which the complaint heavily relies."

In re Thelen LLP, 736 F.3d 213, 219 (2d Cir. 2013). "Dismissal is appropriate when ‘it is clear from the face of the complaint, and matters of which the court may take judicial notice, that the plaintiff[s'] claims are barred as a matter of law.’ " Parkcentral Glob. Hub Ltd. v. Porsche Auto. Holdings SE, 763 F.3d 198, 208–09 (2d Cir. 2014) (quoting Conopco, Inc. v. Roll Int'l, 231 F.3d 82, 86 (2d Cir. 2000) ).

DISCUSSION

The Complaint alleges breach of contract, common law fraud, violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1962, and violations of Indiana state law against Guardhouse, Iacono, Dilley, and others. The Guardhouse entities have counterclaimed alleging fraudulent inducement, procedural and substantive unconscionability, breach of contract, breach of the implied covenant of good faith and fair dealing, and forgery.

Red Fort has filed a motion to dismiss all counterclaims and enter judgment on the pleadings as to Count 1, its claim for breach of contract, against Guardhouse. Iacono and Dilley have filed a motion to dismiss all claims in the Complaint against them.

Both parties brief all claims under New York law. Such "implied consent .. is sufficient to establish choice of law." Krumme v. WestPoint Stevens Inc., 238 F.3d 133, 138 (2d Cir. 2000) (omission in original) (quoting ...