DECISION & ORDER
SHIRLEY WERNER KORNREICH, Judge.
It is ordered that this.
MOTION IS DECIDED IN ACCORDANCE WITH ACCOMPANYING MEMORANDUM DECISION AND ORDER
Motion sequence numbers 006 and 007 are consolidated for disposition.
Defendant/third-party plaintiff Desarrolladora Farallon S. de R.L. de C.V. (Farallon) and defendant Juan Diaz Rivera move, pursuant to CPLR 3212, for summary judgment against plaintiff Cargill Soluciones Empresariales, S.A. de C.V., SOFOM, E.N.R. (Cargill SOFOM or SOFOM) and third-party defendant Mexvalo S. de R.L. de C.V. (Mexvalo), a SOFOM affiliate. Seq. 006.
I. Factual Background & Procedural History
This action is part of sprawling, multi-forum litigation concerning a luxury resort in Cabo San Lucas, Mexico (the Resort). As explained herein, there have been several lawsuits in this court, a case in federal court, litigation in Mexico, and an international arbitration. What remains of this case is a dispute between two major investors in the Resort, SOFOM and Farallon, the latter being an entity controlled by Rivera. SOFOM acquired the rights to the Resort's major debt from the lender and has brought this action to collect, alleging that Farallon has engaged in malfeasance which triggers its liability under a "bad boy" guaranty of the Resort's debt.
The parties agree to the following facts:
Dkt. 95 at 1-5 (paragraph numbering and some paragraph breaks omitted; emphasis added); see Cargill Soluciones Empresariales, S.A. v WPHG Mexico Operating, L.L.C., 2015 WL 1941364, at *1 (Sup Ct, NY County 2015) (WPHG) (explaining parties' relationship in action by SOFOM against Resort's operator); see also id. n.2 (noting pendency of this action and that Farallon is controlled by Rivera).
On May 23, 2014, SOFOM commenced this action and filed its original complaint. On July 24, 2015, SOFOM filed its first amended complaint, which asserts four causes of action against both Farallon and Rivera: (1) breach of the Loan Agreement; (2) breach of the Guaranty; (3) conversion; and (4) an accounting. See Dkt. 46 (the FAC). The second cause of action asserted against Rivera under the Guaranty is based on SOFOM's seeking to pierce Farallon's corporate veil. By order dated February 2, 2016, the court granted defendants' motion to dismiss the FAC's first and fourth causes of action, and denied their motion to dismiss the second and third causes of action. See Dkt. 69. On January 5, 2017, the Appellate Division affirmed. See Cargill Soluciones Empresariales, S.A. de C.V., SOFOM, ENR v Desarrolladora Farallon S. de R.L. de C.V., 146 A.D.3d 439 (1st Dept 2017).
Defendants filed an answer to the FAC on February 22, 2016. See Dkt. 75. On June 22, 2016, Farallon filed a third-party complaint, which seeks contribution from Mexvalo and FHD under the Guaranty. See Dkt. 85 (the TPC). Mexvalo filed an answer to the TPC on August 19, 2016. See Dkt. 87. As noted earlier, FHD was never served because it is an inactive Delaware LLC.
At this juncture, there is no question that Rivera converted about $15 million from the Resort for approximately 18 months before returning it. The only dispute is what damages, if any, are recoverable on this conversion claim. There also is no question that Farallon breached the Guaranty by failing to transfer the Beach and Well Concessions. Defendants dispute the existence of damages on these claims.
At an international arbitration, the parties' principal disputes, including the malfeasance that forms the basis of SOFOM's claim that Farallon breached the Guaranty, were adjudicated in Mexvalo's (i.e., SOFOM's)
With respect to Farallon's third-party claim for contribution, as explained herein, Farallon, as a joint and several guarantor, has no right to seek contribution from a co-guarantor (Mexvalo) that did not contribute to its breach. There is no question of fact that Mexvalo did not cause Farallon's breach because Mexvalo did not cause Farallon to fail to fulfill its obligation to transfer the Beach and Well Concessions. That was Farallon's sole decision. To the extent Farallon seeks to justify its breach based on alleged malfeasance by SOFOM and Mexvalo (e.g., breach of the parties' alleged joint venture agreement), all such claims have been rejected by every court to have considered them (including, as noted, the Appellate Division and the Second Circuit). Simply put, Farallon and Rivera are solely at fault. That said, as explained further herein, there is no basis to pierce Farallon's corporate veil to hold Rivera personally liable for Farallon's breach of the Guaranty (though Rivera is personally liable for his conversion of the $15 million).
After completion of discovery, a summary judgment schedule was set in an order dated September 22, 2016, which also extended the parties' deadline for filing a note of issue pending the outcome of SOFOM's motion for leave to amend. See Dkt. 88. The parties filed their respective summary judgment motions on November 17, 2016. SOFOM's motion includes a request for leave to file the PSAC. See Dkt. 119 (PSAC) & Dkt. 120 (redline).
The PSAC, which adds new factual allegations based on discovery, seeks to assert new causes of action for: (1) specific performance of the Guaranty against Farallon and Rivera;
The court reserved on the motions after oral argument. See Dkt. 165 (4/20/17 Tr.).
II. Summary Judgment Motions
A. Legal Standard
Summary judgment may be granted only when it is clear that no triable issue of fact exists. Alvarez v Prospect Hosp., 68 N.Y.2d 320, 325 (1986). The burden is upon the moving party to make a prima facie showing of entitlement to summary judgment as a matter of law. Zuckerman v City of New York, 49 N.Y.2d 557, 562 (1980); Friends of Animals, Inc. v Associated Fur Mfrs., Inc., 46 N.Y.2d 1065, 1067 (1979). A failure to make such a prima facie showing requires a denial of the motion, regardless of the sufficiency of the opposing papers. Ayotte v Gervasio, 81 N.Y.2d 1062, 1063 (1993). If a prima facie showing has been made, the burden shifts to the opposing party to produce evidence sufficient to establish the existence of material issues of fact. Alvarez, 68 NY2d at 324; Zuckerman, 49 NY2d at 562. The papers submitted in support of and in opposition to a summary judgment motion are examined in the light most favorable to the party opposing the motion. Martin v Briggs, 235 A.D.2d 192, 196 (1st Dept 1997). Mere conclusions, unsubstantiated allegations, or expressions of hope are insufficient to defeat a summary judgment motion. Zuckerman, 49 NY2d at 562. Upon the completion of the court's examination of all the documents submitted in connection with a summary judgment motion, the motion must be denied if there is any doubt as to the existence of a triable issue of fact. Rotuba Extruders, Inc. v Ceppos, 46 N.Y.2d 223, 231 (1978).
B. Conversion of the $15 Million
"A conversion takes place when someone, intentionally and without authority, assumes or exercises control over personal property belonging to someone else, interfering with that person's right of possession." Colavito v N.Y. Organ Donor Network, Inc., 8 N.Y.3d 43, 49-50 (2006). "Two key elements of conversion are (1) plaintiff's possessory right or interest in the property and (2) defendant's dominion over the property or interference with it, in derogation of plaintiff's rights. Id. at 50 (internal citations omitted); see Messiah's Covenant Community Church v Weinbaum, 74 A.D.3d 916, 919 (2d Dept 2010) ("In order to establish a cause of action to recover damages for conversion, the plaintiff must show legal ownership or an immediate superior right of possession to a specific identifiable thing and must show that the defendant exercised an unauthorized dominion over the thing in question . . . to the exclusion of the plaintiff's rights.") (quotation marks omitted). "Where the property is money, it must be specifically identifiable and be subject to an obligation to be returned or to be otherwise treated in a particular manner." Republic of Haiti v Duvalier, 211 A.D.2d 379, 384 (1st Dept 1995). "The funds of a specific, named bank account are sufficiently identifiable." Id.; see Manufacturers Hanover Trust Co. v Chem. Bank, 160 A.D.2d 113, 124 (1st Dept 1990) (same).
There is no question of fact that Rivera converted the $15 million for approximately 18 months. "Farallon has admitted that Diaz Rivera directed approximately US$15 million of Resort revenues to the Banorte [A]ccount in 2013 and 2014,  a practice that was finally ended when Cargill SOFOM obtained the Cash Management Order in the SNDA Action on July 8, 2014, directing Capella to give Cargill SOFOM control over the Resort's cash and finances." Dkt. 128 at 25, citing Dkt. 95 at 4 ("Although Farallon and Diaz Rivera later granted to the Resort's Manager, Capella, limited access to some of the Hoteles bank accounts in which Resort revenues were deposited, in or about January 2013 Diaz Rivera ordered Capella to direct revenues of the Resort to [the Banorte Account,] to which Capella had no access.") This is a textbook example of conversion.
While SOFOM does not seek summary judgment on damages, the court rejects defendants' argument that the conversion claim should be dismissed for lack of damages. While the $15 million was eventually returned, SOFOM lost the right to use that money for approximately 18 months. That money could have been placed in an interest-bearing account, and certainly could have been used for other business purposes. Regardless, even if no actual damages were suffered, damages are not an element of a conversion claim. On the contrary, once a conversion of money is established, the plaintiff is entitled to statutory pre-judgment interest. CPLR 5001(a) ("Interest shall be recovered upon a sum awarded . . . because of an act or omission depriving or otherwise interfering with title to, or possession or enjoyment of, property."); see Hunt v Hunt, 13 A.D.3d 1041, 1043 (3d Dept 2004) (prejudgment interest under CPLR 5001 should be awarded on conversion claim); see also Eighteen Holding Corp. v Drizin, 268 A.D.2d 371, 372 (1st Dept 2000) (same; holding that "even if plaintiff's action had been equitable, the IAS court's award of prejudgment interest would nonetheless have been proper in light of the circumstance that defendants wrongly withheld plaintiff's money."). Summary judgment on liability, therefore, is granted to SOFOM on its conversion claim against Farallon and Rivera. At a minimum, SOFOM will be awarded pre-judgment interest on the converted amount for the approximately 18 months it was in the Banorte Account.
C. Breach of the Guaranty
There is no question of fact that Farallon breached the Guaranty by failing to transfer the Beach and Well Concessions. Farallon does not deny that it had an express contractual obligation to do so, nor does it deny that it failed to fulfill that obligation. See Dkt. 95 at 5 ("The Project Documents, as defined in the Construction Loan Agreement, that were provided to the Lender stated that the Beach Concessions and Well Concessions would be transferred to the Trust from Farallon."). Farallon's contention that it should not be liable for damages resulting from its breach is unavailing. Section 2.02 of the Guaranty provides that the failure by a Guarantor (such as Farallon) to perform a Recourse Obligation (such as failure to transfer the Beach and Well Concessions) triggers that Guarantor's bad boy liability. Dkt. 112 at 4; see Cargill, 146 AD3d at 440 (upon occurrence of Recourse Obligations, such as "(1) [Farallon's failure to] deliver any earnings, revenues, rents, or other income from the premises; (2) the occurrence of any fraud, tortious conduct, or material misrepresentation; and (3) any failure by the borrower to procure or maintain unencumbered marketable title," Farallon is liable for "the payment and repayment of all amounts due under the Construction Loan Agreement" and must "indemnify and hold harmless the lender [now SOFOM] for all costs and expenses arising by reason of default by any guarantor."); see also Dkt. 128 at 11-12 ("Farallon and Diaz Rivera intentionally prevented the Trust from fulfilling its obligations to the Lender under the Construction Loan Agreement with respect to the Beach Concessions and Well Concessions, encumbered marketable title to the Resort and caused Cargill SOFOM to incur significant costs in an effort to obtain new permits from local authorities to access the adjacent beach and to drill new wells and develop a new desalinization plant and discharge facility.").
The Arbitration Award's findings of Farallon's breach of the TGA and its willful misconduct also triggers Farallon's liability under the Guaranty. It is well settled that that these sorts of bad boy guaranty breaches, which clearly caused harm to the Resort (e.g., having to spend money digging other wells, losing access to the $15 million, incurring attorneys' fees defending Farallon's meritless litigation), give rise to a claim for damages. See Nexbank, SSB v Soffer, 2015 WL 458287 (Sup Ct, NY County 2015), aff'd 144 A.D.3d 457 (1st Dept 2016). While SOFOM only seeks summary judgment on liability, Farallon's contention that SOFOM's claim should be dismissed for lack of damages is without merit. Cargill, 146 AD3d at 441 ("since the [G]uaranty expressly provides that [Farallon] will be liable for any expenses, including legal fees, incurred in its enforcement, Cargill SOFOM may
D. Veil Piercing
While Rivera is personally liable on the conversion claim, he could not, absent veil piercing, be liable for Farallon's breach of the Guaranty. Rivera contends that he is entitled to summary judgment on SOFOM's veil piercing claim because no reasonable finder of fact could conclude that Rivera abused Farallon's corporate form for the purpose of harming SOFOM. Rivera is correct.
SOFOM, tellingly, devotes little more than one of the 35 pages in its moving brief to the argument that Farallon's corporate veil should be pierced to hold Rivera personally liable for Farallon's breach of the Guaranty. See Dkt. 128 at 27. Since Farallon is incorporated in Mexico, Mexican law applies. Flame S.A. v Worldlink Int'l (Holding) Ltd., 107 A.D.3d 436, 438 (1st Dept 2013) (The question of whether defendants' corporate veils should be pierced will be determined by the laws of each defendant's state of incorporation."). The parties, however, only cite New York's veil piercing law, which the court, therefore, will apply.
Under New York law, "[t]he concept of piercing the corporate veil is a limitation on the accepted principles that a corporation exists independently of its owners, as a separate legal entity, that the owners are normally not liable for the debts of the corporation, and that it is perfectly legal to incorporate for the express purpose of limiting the liability of the corporate owners." Morris v NY State Dep't of Taxation & Finance, 82 N.Y.2d 135, 140 (1993). "In order to pierce the corporate veil, a plaintiff must show  that the dominant corporation exercised complete domination and control with respect to the transaction attacked, and  that such domination was used to commit a fraud or wrong causing injury to the plaintiff." Fantazia Int'l Corp. v CPL Furs New York, Inc., 67 A.D.3d 511, 512 (1st Dept 2009). In other words, the plaintiff must show both an abuse of the corporate form (the domination prong) and that such abuse was committed for the purpose of defrauding plaintiff (the fraud prong). TNS Holdings, Inc. v MKI Secs. Corp., 92 N.Y.2d 335, 339 (1998) ("Evidence of domination alone does not suffice without an additional showing that it led to inequity, fraud or malfeasance."); see Cobalt Partners, L.P. v GSC Capital Corp., 97 A.D.3d 35, 40 (1st Dept 2012); Damianos Realty Group, LLC v Fracchia, 35 A.D.3d 344 (1st Dept 2006) ("The mere claim that the corporation was completely dominated by the defendants, or conclusory assertions that the corporation acted as their `alter ego,' without more, will not suffice to support the equitable relief of piercing the corporate veil").
Corporate form abuse is to be determined on a case-by-case basis by analyzing the presence of certain well established factors, such as adherence (or lack thereof) to corporate formalities, inadequate capitalization, and domination and control over the company by the person to whom personal liability is sought to be imputed. See Tap Holdings, LLC v Orix Fin. Corp., 109 A.D.3d 167, 174 (1st Dept 2013). Here, these factors arguably militate in favor of alter ego liability.
After defendants argued in their opposition brief that SOFOM had not addressed the fraud prong, in reply, SOFOM responded that Rivera's conversion of the $15 million is sufficient wrongdoing to justify veil piercing. See Dkt. 154 at 15. This wrongdoing, however, has nothing to do with the legitimacy of Farallon's corporate form. See Bd. of Managers of 325 Fifth Ave. Condo. v Cont'l Residential Holdings LLC, 149 A.D.3d 472, 475 (1st Dept 2017) ("[t]he party seeking to pierce the corporate veil must establish that the owners,
To the extent SOFOM contends that Farallon's misconduct that gives rise to its liability under the Guaranty amounts to sufficient proof of the fraud prong, SOFOM is wrong. It is well settled that the fraud prong must be established with proof distinct from the underlying breach of contract. See Skanska USA Bldg. Inc. v Atl. Yards B2 Owner, LLC, 146 A.D.3d 1, 12 (1st Dept 2016) ("a simple breach of contract, without more, does not constitute a fraud or wrong warranting the piercing of the corporate veil."), quoting Bonacasa Realty Co. v Salvatore, 109 A.D.3d 946, 947 (1st Dept 2013).
Finally, the fact that SOFOM successfully defeated defendants' prior motion to dismiss the veil piercing claim is of no moment. In affirming the court's denial of that motion, the Appellate Division wrote that "the allegations of an absence of corporate formalities, inadequate capitalization, and the commingling of corporate and personal funds, as well as the allegations that Diaz Rivera directed Farallon to take various actions that harmed Cargill SOFOM, including failing to transfer property rights, siphoning resort revenues, and incurring unnecessary taxes, are sufficient to withstand this pre-answer motion to dismiss the complaint, based on alter ego liability, as against Diaz Rivera." Cargill, 146 AD3d at 441. Leaving aside the fact that the fraud prong of the veil piercing standard was not extensively addressed, the standards for surviving a motion to dismiss and summary judgment are quite different. See RXR WWP Owner LLC v WWP Sponsor, LLC, 145 A.D.3d 494, 496 (1st Dept 2016) ("Our earlier holding, on a motion to dismiss. . . . . . does not constitute law of the case' barring [defendant] from moving for summary judgment, which is subject to a different standard of review."). Since SOFOM was required to lay bare its proof [see Genger v Genger, 123 A.D.3d 445, 447 (1st Dept 2014)] of the fraud prong, and failed to proffer any such evidence, the veil piercing claim against Rivera is dismissed.
E. Contribution from Mexvalo
Farallon avers that "[i]f the Court does allow Cargill SOFOM to go forward on its breach of Guaranty claim [which it does], Co-Guarantor Mexvalo should be liable for a third of any such recovery." See Dkt. 97 at 28. Farallon is wrong.
Under New York law, a defendant who "seeks to enforce the guaranty against . . . a co-guarantor of the same obligation . . . may only recover against [that co-guarantor], in his capacity as co-guarantor of the same obligation, by means of a cause of action for contribution." Panish v Rudolph, 282 A.D.2d 233 (1st Dept 2001) (internal citation omitted). "[T]o state such a cause of action it [is] essential for [the defendant] to allege that she had paid
Here, there is no evidence in the record to support a claim that Mexvalo contributed to Farallon's breach. On the contrary, the Arbitration Decision makes clear that all of the fault lies with Farallon. Simply put, Mexvalo did not cause Farallon to refuse to transfer the Beach and Well Concessions or engage in any of the other malfeasance found by the arbitrators. To the extent Farallon justifies its actions based on SOFOM's and Mexvalo's supposed wrongdoing (e.g., breach of the parties' joint venture agreement and Mexican law), Farallon's allegations were rejected by the arbitrators and, as discussed, every trial and appellate court to consider them. Hence, there is no basis for Farallon to assert a contribution claim against Mexvalo because Mexvalo bears no responsibility for Farallon's wrongdoing. Moreover, even if contribution from Mexvalo was appropriate, Farallon may not seek contribution from its co-guarantor where, as here, it has not made any payments under the Guaranty, let alone its proportionate share thereof. See Guedj v Dana, 302 A.D.2d 268 (1st Dept 2003).
III. SOFOM's Motion for Leave to Amend
"Leave to amend pleadings under CPLR 3025(b) should be freely given, and denied only if there is prejudice or surprise resulting directly from the delay or if the proposed amendment is palpably improper or insufficient as a matter of law." McGhee v Odell, 96 A.D.3d 449, 450 (1st Dept 2012) (quotations marks and internal citation omitted).
SOFOM is granted leave to assert a claim for specific performance of the Guaranty against Farallon (but not against Rivera due to the court's veil piercing ruling). "The elements of a cause of action for specific performance of a contract are that the plaintiff substantially performed its contractual obligations and was willing and able to perform its remaining obligations, that defendant was able to convey the property, and that there was no adequate remedy at law." EMF Gen. Contracting Corp. v Bisbee, 6 A.D.3d 45, 51 (1st Dept 2004). "[T]he equitable remedy of specific performance is routinely awarded in contract actions involving real property, on the premise that each parcel of real property is unique." Id. at 52. Here, as discussed, Farallon was contractually obligated to transfer the Beach and Well Concessions, but did not do so. A specific performance claim is the appropriate means of obtaining such bargained-for real estate. Farallon, moreover, may be judgment proof, and thus absent specific performance, SOFOM may have no enforceable remedy at law. SOFOM's clear entitlement to this relief precludes a claim of prejudice or surprise.
SOFOM, however, is denied leave to assert claims under Judiciary Law §§ 488 and 489 because champerty is an affirmative defense, not an affirmative cause of action. See Coopers & Lybrand v Levitt, 52 A.D.2d 493, 497 (1st Dept 1976) (§ 489 does not create a private claim for damages."). The same rationale applies to § 488, which also does not purport to create a private right of action. Contrary to SOFOM's suggestion, nothing stated by the Court of Appeals in Justinian Capital SPC v WestLB AG, 28 N.Y.3d 160 (2016)
SOFOM also is denied leave to amend to assert tortious interference with contract, abuse of process, and malicious prosecution claims against the White Lilly Parties based on the supposed wrongful nature of the White Lilly Parties' funding of defendants' Litigation. The White Lilly Parties are accused of providing funding to defendants in this case and the discussed related litigation in exchange for a cut of Farallon's recovery (including, apparently, any pay-offs or beneficial buy-out terms). SOFOM cites no authority for the proposition that one who provides litigation funding for a baseless lawsuit may personally face liability, whether under a tortious interference, abuse of process, or malicious prosecution cause of action. While SOFOM urges the court to hold the White Lilly Parties to account for their encouragement of the meritless litigation brought by Rivera and Farallon, the court is mindful of the chilling effect such a holding would have on the legitimate business of litigation funding.
The same concerns, however, do not exist with holding Rivera and Farallon to account. They, clearly, have embarked on a scorched-earth litigation rampage based on rather flimsy arguments that have all been rejected, including many at the pleadings stage. On this motion for leave to amend, SOFOM has plausibly alleged a vexatious collateral motive behind defendants' litigation strategy that served the purpose of driving up SOFOM's litigation costs in an effort to force a settlement and frustrate SOFOM from enforcing its contractual rights.
Nonetheless, a malicious prosecution or abuse of process claim cannot be properly pleaded without alleging that the predicate meritless lawsuit was actually frivolous. To state a claim for malicious prosecution, the plaintiff must plead "each of the following elements: `(1) the commencement or continuation of a . . . proceeding by the defendant against the plaintiff, (2) the termination of the proceeding in favor of the [plaintiff], (3)
Even if the court assumes a vexatious motive behind defendants' litigation strategy, SOFOM's proposed malicious prosecution and abuse of process claims are, nonetheless, devoid of merit. SOFOM does not explain why defendants' claims in the other actions were frivolous, as opposed to merely lacking in merit. While defendants' claims were dismissed, defendants were not sanctioned for asserting frivolous claims. Absent any meaningful analysis, there is no basis to conclude that the PSAC states a claim for malicious prosecution or abuse of process.
Finally, SOFOM's proposed tortious interference with contract claim is predicated on malicious prosecution and abuse of process, and therefore fails due to those predicate claims lacking merit. See Lama Holding Co. v Smith Barney Inc., 88 N.Y.2d 413, 424 (1996) ("Tortious interference with contract requires . . . defendant's intentional procurement of the third-party's breach of the contract
ORDERED that (1) SOFOM is granted summary judgment on liability only against Farallon on the FAC's second cause of action for breach of the Guaranty and against both Farallon and Rivera on the FAC's third cause of action for conversion; (2) Rivera is granted summary judgment on SOFOM's veil piercing claim and, therefore, on the portion of the second cause of action asserted against Rivera, which is dismissed with prejudice; (3) Mexvalo is granted summary judgment on Farallon's claim in the TPC for contribution, which is dismissed with prejudice; (4) SOFOM is granted leave to file a second amended complaint only to add a cause of action against Farallon for specific performance of the Guaranty, which is to be filed within one week of the entry of this order on NYSCEF; and (5) the parties' motions are otherwise denied; and it is further
ORDERED that Farallon shall file an answer to SOFOM's second amended complaint within 20 days of its filing on NYSCEF; and it is further
ORDERED that the caption in this action shall no longer include the third-party action; and it is further
ORDERED that a telephone conference will be held on August 16, 2017 at 3:30 pm to discuss SOFOM moving for summary judgment on its specific performance claim and the scheduling of an inquest on the claims on which SOFOM was granted summary judgment.