This memorandum is uncorrected and subject to revision before
publication in the New York Reports.
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No. 62
Robert E. Wilson, III,
Respondent,
v.
Daniel Valente Dantas, et al.
Appellants,
et al.,
Defendants.
Philip C. Korologos, for appellants.
Terrance Reed, for respondent.
MEMORANDUM:
The order of the Appellate Division, insofar as
appealed from, should be affirmed, with costs, and the certified
question answered in the affirmative. Defendants have expressly
abandoned their personal jurisdiction claims in their appeal to
this Court. Their remaining claims, to the extent reviewable on
this appeal, are without merit (see CPLR 3211 [a] [7]; Leon v
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Martinez, 84 NY2d 83, 87-88 [1994]; Islamic Republic of Iran v
Pahlavi, 62 NY2d 474, 478-479 [1984], cert denied 469 US 1108
[1985]).
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Wilson v Dantas
No. 62
WILSON, J.(dissenting):
We should dismiss this appeal for lack of appellate
jurisdiction; the two issues as to which plaintiff sought leave
to appeal have been rendered academic by plaintiff's subsequent
amendment of his complaint. Defendants agree that those two
issues are no longer present. However, because the majority has
concluded otherwise, requiring us to reach the nonfinal arguments
now raised by defendants, I address those arguments in detail. I
disagree with the majority's conclusion as to the complaint's
sufficiency, and would remand the forum non conveniens issue for
redetermination.
I.
Our rules require parties requesting leave to appeal to
include "[a] concise statement of the questions presented for
review and why the questions presented merit review by this
Court, such as that the issues are novel or of public importance,
present a conflict with prior decisions of this Court, or involve
a conflict among the departments of the Appellate Division.
Movant shall identify the particular portions of the record where
the questions sought to be reviewed are raised and preserved" (22
NYCRR 500.22). The First Department's rules similarly require
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that "[t]he moving papers shall include a copy of the order of
this court from which leave to appeal is requested, and shall set
forth the questions of law to be reviewed by the Court of
Appeals" (NY Ct Rules § 600.14).
Defendants petitioned the First Department for leave to
appeal to this Court. They identified two legal questions, both
concerning the sufficiency of the original complaint in pleading
personal jurisdiction.1 Within the thirty-four page memorandum
urging review by this Court, there is a single boilerplate
statement that "[d]efendants respectfully request leave to bring
all cognizable issues before the Court of Appeals." Defendants
did not mention the issues they now press on appeal.
In opposition, plaintiff argued that the Appellate
Division can grant leave from non-final orders generally only
"where the questions present important issues of substantial
public and pressing interest," and that defendants "are limited
to the questions that they have raised in their motion for leave
to appeal." In reply, defendants mentioned only the two issues
relating to personal jurisdiction, and did not dispute
plaintiff's contention that their appeal was limited to the two
1
Defendants sought our review to address: (1) "[w]hether a
reviewing court may assert personal jurisdiction over a foreign
defendant solely by inferring essential jurisdictional facts that
plaintiff declined to allege in his pleading is an issue
deserving consideration by the Court of Appeals"; and (2)
"[w]hether a cause of action arises from a business transaction
for jurisdictional purposes, when that transaction is immaterial
to any element of the cause of action, is an issue deserving of
consideration by the Court of Appeals."
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personal jurisdiction issues.
After the Appellate Division granted leave, plaintiff
amended his complaint to eliminate the claimed defects in the
allegations of personal jurisdiction. Defendants thereafter
conceded the mootness of the issues they pressed on us, and
instead ask us to review issues they have never claimed meet the
standards for review by this Court of nonfinal orders.
To justify this switcheroo, defendants cite the
Appellate Division's certified question: "whether Supreme Court's
order as modified by the Appellate Division was properly made."
However, as we held in Quain, "if a party in its application for
leave to appeal specifically limits the issues it seeks to have
reviewed, it is bound by such limitation and may not raise
additional issues on appeal" (Quain v Buzzetta Constr. Corp., 69
NY2d 376, 379 [1987]). Although Quain involved a motion for
leave granted by this Court and not the Appellate Division, the
rule should be the same.
The justification for binding a party to its express
limitation implicates questions of notice and fairness. "To
permit [the party to appeal other questions not raised]
necessarily disadvantages the opposing parties, who might have
joined issue or even cross-moved for leave to appeal as to
additional issues had adequate notice been given" (id. at 380).
Here, for example, plaintiff did not cross-move or seek leave to
appeal from the Appellate Division's dismissal of his third,
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fifth and ninth causes of action, presumably on the understanding
-- as plaintiff asserted in his opposition to the leave to appeal
-- that the leave request was limited to the two personal
jurisdiction questions presented by defendants as, in defendants'
words, "deserving consideration by the Court of Appeals."
Unlike the United States Supreme Court, we lack (but
should possess) the ability to dismiss appeals based on an
improvident grant of leave to appeal. It is therefore
particularly important that we avoid cases where the issues
specified by the appellant as the basis for review have
evaporated.
II.
Given the Court's decision that we must decide the
nonfinal issues newly raised by defendants, I conclude that, as a
matter of law, only a portion of one cause of action in
plaintiff's complaint2 should survive defendants' motion.
As alleged in the complaint, plaintiff Robert E.
2
Before us, procedurally, is plaintiff's original
complaint, which contains nine causes of action. Because the
Appellate Division affirmed the dismissal of plaintiff's third,
fifth, and ninth causes of action, only six remain at present and
plaintiff has, quite understandably, not asked us to review the
portion of the nonfinal order of the Appellate Division
dismissing those causes of action. Because the original
complaint is the one before us, I refer here to the causes of
action as numbered therein. (In any event, the amended complaint
is not materially different from the original complaint, save for
the deletion of three causes of action dismissed by the Appellate
Division and a new cause of action not before us on this appeal).
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Wilson, III, who was employed by Citibank in the 1990s, devised
an investment strategy related to Brazil, which he persuaded
Citibank to pursue. In 1997, Citibank, Mr. Wilson and Mr. Dantas
agreed to form a Cayman Islands entity, Opportunity Equity
Partners, Ltd. (OEP), to be managed by Mr. Dantas in furtherance
of that investment strategy. Citibank instructed Mr. Wilson to
move to Brazil to assist with management of the investment fund;
he was employed in Brazil by OEP, of which he was also a 1%
shareholder. Mr. Wilson alleges that Mr. Dantas and two business
enterprises formerly headed by Mr. Dantas, OEP and Opportunity
Invest II, Inc. (OI), wrongfully injured him by promising and
failing twice to pay him 5% of the carried interest in the
private equity funds run by OEP.
Mr. Wilson claims that before leaving Citibank to
become a principal and shareholder of OEP Ltd., he sent Mr.
Dantas a letter in July 1997 that specified the terms of Mr.
Wilson's forthcoming employment, including that he was to receive
5% of the carried interest generated by the funds. Mr. Wilson
signed the letter; no one else did.
Six months later, in December of 1997, the seven
shareholders of OEP, including Mr. Wilson, entered into a
Shareholders' Agreement, to which OEP and OI were also parties.
At the same time, OEP, as General Partner, Citibank, N.A., as
Initial Limited Partner, and International Equity Investments,
Inc., as Limited Partner, entered into the Amended and Restated
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Limited Partnership Agreement (LP Agreement). Also at the same
time, OEP, OI, Citibank, N.A., Banco Opportunity S.A.,
CVC/Opportunity Equity Partners Administradora de Recursos,
Ltda., and the seven Principals of OEP, including Mr. Wilson,
entered into an Operating Agreement.
The Shareholders' Agreement provided that, of OEP's 100
issued shares, OI would own 96 and Mr. Wilson and three other
individuals would each own one. The Shareholders' Agreement
specifically provided: "Nothing in this Agreement shall
constitute or be deemed to constitute a partnership between any
of the parties hereto." In 2005, various Citibank entities sued
OEP and Mr. Dantas, who filed counterclaims. That litigation was
resolved in 2008 through a confidential settlement. Mr. Wilson
was not a party to that litigation. He claims that Mr. Dantas
falsely promised him that he would be paid his share of the
carried interest out of the settlement proceeds, and that he was
thereby induced to take no action with regard to the settlement,
to his detriment.
Mr. Wilson initially commenced an action in federal
court, seeking to recover his promised share of the carried
interest, against OEP, OI, Mr. Dantas, and four Citibank
entities, including International Equity Investments. The
district court dismissed the lawsuit for lack of diversity
jurisdiction. Mr. Wilson then brought this action in state
court, against the same set of defendants. Citibank removed the
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case to federal court, which dismissed Mr. Wilson's claims
against the Citibank entities pursuant to Fed. R. Civ. P.
12(b)(6). The federal district court declined to exercise
supplemental jurisdiction over the remaining claims and remanded
Mr. Wilson's claims against OEP, OI and Mr. Dantas back to
Supreme Court.
Each of Mr. Wilson's causes of action, under different
theories, seeks to recover the 5% share of the carried interest
he claims was promised to him first in 1997, and then again in
2008, together with interest, attorneys' fees and punitive
damages. Supreme Court dismissed plaintiff's claims for lack of
personal jurisdiction. The Appellate Division reversed and
determined that CPLR 302 (a) (1) conferred personal jurisdiction
over defendants, and at the same time denied defendants' request
to dismiss on forum non conveniens grounds, as well as their
alternative grounds for dismissal. The Appellate Division also
granted defendants' motion to dismiss for failure to state a
claim as to three of the nine causes of action, denying it as to
the other six.
III.
On a motion to dismiss for failure to state a cause of
action, "[w]e accept the facts as alleged in the complaint as
true, accord plaintiffs the benefit of every possible favorable
inference, and determine only whether the facts as alleged fit
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within any cognizable legal theory" (Leon v Martinez, 84 NY2d 83,
87-88 [1994]). Here, accepting all facts alleged in the
complaint as true, all but one of Mr. Wilson's claims fail as a
matter of law. Having assumed the burden of reviewing the
Appellate Division's nonfinal order on a motion to dismiss under
CPLR 3211 and the doctrine of forum non conveniens, I cannot
cursorily agree that defendants' motion to dismiss is "without
merit." To consider the viability of Mr. Wilson's six remaining
causes of action, I have reordered them to begin with his breach-
of-contract claims.
The Sixth Cause of Action
The sixth cause of action alleges a breach of: (a) the
1997 Shareholders' Agreement; (b) the July 1997 purported letter
agreement; and (c) an oral promise by Mr. Dantas to use proceeds
from the 2008 settlement to pay Mr. Wilson his carried interest.
First, Mr. Wilson's breach of contract claims as to the
Shareholders' Agreement should be dismissed as a matter of law.
The contract concerns the terms of Mr. Wilson's employment in
Brazil. Its only mention of a "carried interest" is in Annex A,
which contains a bullet point, "carried interest" with no further
detail as to whom (among the seven Shareholders) it would be
owed, how it might be calculated, when it might be paid, or any
material term necessary to enforce a contractual obligation.
The Shareholders' Agreement "shall be governed by and construed
in accordance with the laws of the Cayman Islands", and the
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Cayman courts, in interpreting this very agreement with regard to
Wilson's co-employee and co-signatory, Mr. Demarco, determined:
"Annex A was not complete; it was, as Mr. Dantas agreed in cross-
examination, a 'to-do list.' This impression is confirmed by the
fact that every party to the agreements signed by the same
attorney, one Danielle Silbergleid, in New York" (Demarco v
Opportunity Equity Partners Ltd., [2006] UKPC 44 ¶ 82). The
Cayman high court agreed with the lower courts that the
Shareholders' Agreement did not contain any enforceable terms as
to carried interest, and that "As a result the shareholders'
agreement was reduced in whole or in part to an agreement to
agree" (id. at ¶ 83). In New York, "it is rightfully well
settled in the common law of contracts . . . that a mere
agreement to agree, in which a material term is left for future
negotiations, is unenforceable" (Joseph Martin, Jr., Delicatessen
v Schumacher, 52 NY2d 105, 109 [1981]).
That same analysis applies to Mr. Wilson's claim that
he was entitled to an "irrevocable put option." Paragraph 12(3)
of the Shareholders' Agreement provides: "Opportunity hereby
grants to each of Wilson, Andrade, Demarco and Carvalho an
irrevocable put option over their Shares in the Company at a
price and according to the payment terms and conditions to be
agreed pursuant to Annex A." Annex A contains merely a bare
bullet point stating "Call/put upon exit", without any
specification of when or how it would be implemented or how the
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put price might be determined. In the Demarco litigation, the
Cayman court observed, "A shareholders' agreement prohibited the
sale of shares other than to the company and gave each of the
minority shareholders an irrevocable put option and the company a
corresponding call option in respect of their shares, to be
exercised in accordance with terms and conditions in a schedule
to the agreement. The relevant schedule was blank" (In re CVC
Opportunity Equity Partners Ltd., [1999] CILR 378, 378). The
Shareholders' agreement, under either Cayman or New York law,
does not contain sufficient detail for a court to determine what,
if anything, the parties intended by the bare reference to a
"Call/put option," and therefore no such contractual right can be
enforced.
Mr. Wilson next contends that defendants' failure to
disclose the terms of the 2008 Settlement Agreement was a breach
of the Shareholders' Agreement. The Shareholders' Agreement does
not require the disclosure of settlements, and even if such an
obligation existed, Mr. Wilson has alleged no injury from the
failure to provide him the information concerning the settlement
(which it is undisputed he now possesses). The validity of his
claim arising from the breach of an alleged promise to use part
of the settlement to pay his share of the carried interest does
not depend on any breach relating to the provision of
information, especially because OEP, the General Partner, was
contractually entitled to make all decisions unilaterally, except
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"Important management decisions," for which it needed approval of
51% of the shareholders. Although the Shareholders' Agreement
lists "commence[ment] [of] legal proceedings" as an important
management decision, it does not list settlement or termination
of lawsuits as such. In any event, because defendant
International Equity Investments held 96% of OEP's shares (and
Mr. Dantas another 1%), defendants had unilateral authority to
enter into the 2008 Settlement regardless of whether settlement
is an important management decision. Mr. Wilson's throwaway
sentence that the same conduct constituting a breach of contract
also breaches the attendant covenant of good faith and fair
dealing adds nothing to this cause of action.3
Second, the sixth cause of action contains a claim
based on a letter from July 1997, signed by Wilson and conveying
his proposed terms of employment. Mr. Wilson's letter requested
that Mr. Dantas countersign the letter to evidence OEP's
agreement to its terms, but neither Mr. Dantas nor any
representative of OEP did so. A purported contract which is
unsigned by the party against whom it is sought to be charged is
unenforceable. As we held in Joseph Martin, Jr., Delicatessen v
3
"The covenant of good faith and fair dealing cannot be
used to add a new term to a contract, especially to a commercial
contract between two sophisticated commercial parties represented
by counsel" (D & L Holdings, LLC v RCG Goldman Co., 287 AD2d 65,
73 [1st Dept 2001]). As above, there was no disclosure
requirement provided for in the Shareholders' Agreement; even if
the failure to disclose constituted a breach, that breach is not
the cause of any damage articulated by Mr. Wilson, and, in any
event, he now has the settlement agreement.
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Schumacher, "before one may secure redress in our courts because
another has failed to honor a promise, it must appear that the
promisee assented to the obligation in question" (52 NY2d at
109).4
Moreover, six months after Mr. Wilson sent his July
letter, he entered into the Shareholder Agreement, which governs
the terms of his employment and status as a shareholder of OEP.
The Agreement provides: "This Agreement constitutes the entire
agreement between the parties hereto with respect to the matters
dealt with therein and supersedes any previous agreement between
the parties hereto in relation to such matters. Each of the
parties hereto hereby acknowledges that in entering into this
Agreement it has not relied on any representations or warranty
save as expressly set out herein or in any document referred to
herein." Under Cayman law, a contract provision allowing that
the current agreement supersedes "any previous agreement" has
been held as "sufficient to prevent the claimant [from] bringing
any claim on a pre-contractual or collateral agreement" (Re Atl.
Fasions Ltd. Papanicola v Sandhu, [2011] EWHC 1431 ¶¶ 36, 45-46,
quoting SERE Holdings Ltd. v Volkswagen Grp. UK Ltd., [2004] EWHC
4
Both Mr. Wilson and defendants cite only New York law in
their arguments about the enforceability of the July letter. The
July letter has no choice of law clause, and indicates that Mr.
Wilson was in New York when he sent the letter. Mr. Wilson also
characterizes the promises in the letter as ones that induced him
to move to Brazil. The parties do not cite, and I have not
found, any Cayman law suggesting that a written agreement may be
enforced against a party who did not sign it, when the written
agreement calls for signature by the party.
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1551 ¶ 22). Under New York law, even if the July 1997 letter
evidenced an enforceable agreement, it would not survive the
execution of the Shareholder Agreement (see e.g. Danann Realty
Corp. v Harris, 5 NY2d 317 [1959]).
Third, Mr. Wilson alleges that Mr. Dantas promised him
that some of the proceeds of the 2008 settlement would be used to
pay Mr. Wilson his share of the carried interest. The
Shareholders' Agreement, however, expressly states: "No variation
of this Agreement be valid or effective unless made by one or
more instruments in writing signed by such of the parties hereto
which would be affected by such variation." Mr. Wilson's
argument is that, despite the fact the Shareholder Agreement's
bullet-point reference to "carried interest" is unenforceable,
Mr. Dantas subsequently committed orally to pay it. The
Shareholder Agreement expressly bars that argument (Re Atl.
Fasions Ltd. Papanicola v Sandhu, [2011] EWHC 1431 ¶¶ 36, 45-46,
quoting SERE Holdings Ltd. v Volkswagen Grp. UK Ltd., [2004] EWHC
1551 ¶ 22). Likewise, under New York law, "[a] written agreement
or other written instrument which contains a provision to the
effect that it cannot be changed orally, cannot be changed by an
executory agreement unless such executory agreement is in writing
and signed by the party against whom enforcement of the change is
sought or by his agent" (General Obligations Law § 15-301; see
Eujoy Realty Corp. v Van Wagner Communications, LLC, 22 NY3d 413
[2013]).
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The Seventh Cause of Action
In the seventh cause of action, Mr. Wilson alleges that
Mr. Dantas, OEP and OI breached the Partnership Agreement, again
claiming his entitlement to his share of the carried interest.
The Partnership Agreement states that it is to be "governed by
and construed in accordance with the law of the Cayman Islands";
while the Operating Agreement "shall be governed and construed in
accordance with the laws of the State of New York."
Mr. Wilson is not a party to the Partnership Agreement,
which is an agreement among OEP, Citibank and International
Equity Investments. His breach-of-contract claim in his seventh
cause of action is the following: (a) Article 6.8.1 of the
Partnership Agreement requires that OEP and CVC Brasil (the
original and successor General Partners, respectively) agreed to
bear the cost of all compensation, fees and expenses of their
employees; (b) Mr. Wilson was an employee of OEP; (c) OEP's
agreement that it, not Citibank or International Equity
Investments, would be responsible for the compensation of its
employees, rendered all OEP employees (including Mr. Wilson)
third-party beneficiaries of the Partnership Agreement; and (d)
because, when the 2008 settlement agreement was signed, the
General Partners failed to secure Mr. Wilson the compensation he
claims he was owed, they are liable for breaches of the
Partnership Agreement, as to which he is a third-party
beneficiary.
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As a matter of law, the fact that an agreement between
two parties specifies who will be responsible for what payments
does not make the recipients of the payments third-party
beneficiaries with standing to sue for breaches of the agreed-
upon allocation of liability between the two contracting parties.
Under Cayman law, "a third party may in his own right enforce a
term of the contract if (a) he is expressly identified in the
contract by name, as a member of a class or as answering a
particular description, which includes a person nominated or
otherwise identified pursuant to the terms of the contract but
the third party need not be in existence when the contract is
entered into; and (b) the contract expressly provides in writing
that he may" (Rights of third party to enforce contractual term.,
C.I. Contracts [Rights of Third Parties] Law, 2014, s. 4.). Mr.
Wilson does not, and could not, allege that he falls into either
category.
Furthermore, in disposing of Mr. Wilson's identical
claims against the Citibank entities, the United States District
Court for the Southern District of New York and the Court of
Appeals for the Second Circuit both held that Mr. Wilson can
assert no such claim under the Partnership Agreement or Operating
Agreement (Wilson v Dantas, 2013 WL 92999 [SDNY 2013]; Wilson v
Dantas, 746 F3d 530 [2d Cir 2014]). That holding collaterally
estops Mr. Wilson here: his seventh cause of action here is the
same claim, by the same party, against an identically situated
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party, as to which Mr. Wilson had a full and fair opportunity to
litigate. "The doctrine of collateral estoppel, a narrower
species of res judicata, precludes a party from relitigating in a
subsequent action or proceeding an issue clearly raised in a
prior action or proceeding and decided against that party or
those in privity, whether or not the tribunals or causes of
action are the same" (Ryan v New York Telephone Co., 62 NY2d 494,
500 [1984]; see B. R. De Witt, Inc. v. Hall, 19 NY2d 141 [1967]).
Even were Mr. Wilson not collaterally estopped, the district
court and Second Circuit decisions would be persuasive precedent
for concluding Mr. Wilson lacked any rights under those
agreements. Finally, even if he could sue under them, his claim
depends upon the proposition that he was owed money and
wrongfully deprived of it via the 2008 settlement. Because, as
discussed above, his claimed entitlement to a share of the
carried interest is defective as a matter of law, this claim
would vanish with it for that independent reason.
The Eighth Cause of Action
In the eighth cause of action, Mr. Wilson brings a
claim under the doctrine of promissory estoppel. "To prevail on
such a cause of action, the party advancing it must demonstrate
that the opposing party made a clear and unambiguous promise,
upon which the former reasonably relied, to its detriment" (R.
Freedman & Son v A.I. Credit Corp. 226 AD2d 1002, 1003 [1996]).
Mr. Wilson alleges that there were two promises to pay him 5% of
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the carried interest: one made before he moved to Brazil and
began managing the portfolio, and one made around the time of the
2008 settlement agreement negotiations.
As to the first, he alleges that he relied to his
detriment by moving to Brazil and managing the portfolio, but
that promise is extinguished as a matter of law by the
Shareholders' Agreement containing a merger/integration clause
and the unenforceable bullet point regarding carried interest.
The agreement covers the same subject matter as the alleged
promise (terms of employment), and by its express terms
extinguishes all prior representations (see supra at 12-13). In
addition, courts are reluctant to find that sophisticated
business people have detrimentally relied on an agreement that
was not documented (401 Hotel v MTI/Image Group, 251 AD2d 125,
126 [1st Dept 1998]). As to the second, his allegation as to
detrimental reliance is completely conclusory: his "forbearance
from challenging the settlement." As previously discussed, Mr.
Wilson was not a party to the litigation, was not a party to the
contracts at issue in that litigation, was not a third-party
beneficiary of those contracts, and, if he had or has a valid
claim against one or more of the parties to that settlement, the
settlement could not extinguish his claim.
The Fourth Cause of Action
In the fourth cause of action, Mr. Wilson alleges
claims based on the doctrines of unjust enrichment, quantum
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meruit, and monies had and received. Under each of those
theories, Mr. Wilson seeks to recover the "reasonable value of
his services," which he defines as his share of the carried
interest. As we have previously said, "[t]he theory of unjust
enrichment lies as a quasi-contract claim and contemplates an
obligation imposed by equity to prevent injustice, in the absence
of an actual agreement between the parties" (Georgia Malone &
Co., Inc. v Rieder, 19 NY3d 511, 516 [2012]). Further, "[A]
party may not recover in . . . unjust enrichment where the
parties have entered into a contract that governs the subject
matter" (Papas v Tzolis, 20 NY3d 228, 234 [2012], quoting Cox v
NAP Constr. Co., Inc., 10 NY3d 592, 607 [2008]).
The fourth cause of action is completely barred by the
Shareholder Agreement, which compensates Wilson for his services
(thereby setting out the parties' bargain concerning the value of
Wilson's services) and contains a merger/integration clause.
Other than the carried interest, Mr. Wilson does not allege that
defendants failed to pay him salary, moving expenses,
reimbursable business expenses, or any other compensation due
him. Thus, because the Shareholder Agreement establishes Mr.
Wilson's compensation, provides no legally enforceable right to a
portion of the carried interest, and contains a merger and
integration clause to which Mr. Wilson agreed, his claims for
unjust enrichment, quantum meruit and monies had and received
fail as a matter of law.
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The First Cause of Action
In the first cause of action, Mr. Wilson alleges a
breach of fiduciary duty. A fiduciary duty exists "between two
persons when one of them is under a duty to act for or to give
advice for the benefit of another upon matters within the scope
of the relation" (EBC I, Inc. v Goldman, Sachs & Co., 5 NY3d 11,
19 [2005], quoting Restatement [Second] of Torts § 874). This
relationship is "necessarily fact-specific" and rooted in "a
higher level of trust than normally present in the marketplace
between those involved in arm's length business transactions"
(id.). An employment relationship, no matter how lengthy the
tenure, in itself does not create a fiduciary relationship
(Rather v CBS Corp., 68 AD3d 49, 55 [1st Dept 2009]).
Liberally reading the first cause of action, as we
must, Wilson alleges several bases on which he claims that
defendants owed him a fiduciary duty. One allegation is that OEP
and Dantas, who were majority shareholders, officers and
directors, owed Mr. Wilson a fiduciary duty in his capacity as a
minority shareholder. That proposition is true under New York
law: "Because the power to manage the affairs of a corporation is
vested in the directors and majority shareholders, they are cast
in the fiduciary role of 'guardians of the corporate welfare'
(Leibert v Clapp, 13 NY2d 313, 317; see Case v New York Cent.
R.R. Co., 15 NY2d 150, 156 [1965]). In this position of trust,
they have an obligation to all shareholders to adhere to
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fiduciary standards of conduct and to exercise their
responsibilities in good faith when undertaking any corporate
action" (Alpert v 28 Williams St. Corp., 63 NY2d 557, 568 [1984];
see also Gamble v Queens County Water Co., 123 NY 91 [1890]).
However, the Shareholders' Agreement specifies that it
is to be governed by Cayman law. Even if it did not, under the
internal affairs doctrine, Mr. Wilson's claims that, as a
shareholder of OEP, its officers, directors and shareholders owe
him a fiduciary duty would be governed by Cayman law (Davis v
Scottish Re Group Ltd., 138 AD3d 230, 233-234 [2016]; Hart v
General Motors Corp., 129 AD2d 179, 182 [1st Dept 1987]). Under
Cayman law, a fiduciary relationship is explained as a case where
"one person A holds property or exercises rights or powers for
another, or for the benefit of another B. It is for that reason
that A must deal with the property or exercise the rights or
powers in the best interests of B and for the purposes which are
properly within the scope of the power. It is for that reason
that A owes a duty of loyalty to B and must not allow his duty to
B to conflict with his own personal interests," meaning that
"trustees, directors, solicitors and agents will all owe
fiduciary duties" (McKillen v Misland (Cyprus) Investments Ltd.,
[2012] EWHC 521, at ¶ 94, 97). However, "a case that the
shareholders owe each other fiduciary duties is not sustainable"
(id., at ¶ 94; Davis, 138 at 238). The Shareholder Agreement
provides, "Nothing in this agreement shall constitute or be
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deemed to constitute a partnership between any of the parties
hereto and none of them shall have any authority to bind the
others in any way." A clause in a shareholder agreement saying
that nothing in the agreement should be read to create any
partnership between the parties is a "strong indicat[or]" that
there was in fact, no such relationship of fiduciary duty (id. at
¶ 97).
The Demarco case, cited by defendants for the
proposition that Cayman law recognizes a fiduciary relationship
arising from a quasi-partnership only in the context of a
winding-up transaction, addresses at most Wilson's alternative
ground for the existence of a fiduciary relationship (quasi-
partnership), not his minority shareholder ground. To the extent
his first cause of action seeks to recover the carried interest
on a claimed fiduciary duty among shareholders or partners, that
recovery is barred by the Shareholder Agreement and Cayman law,
as above.
However, to the extent the first cause of action seeks
to recover payments owed to Mr. Wilson arising from his status as
an OEP shareholder, predicated on a theory that defendants, as
directors and officers of OEP treated him unfavorably when
compared to other shareholders (namely, Mr. Dantas and
International Equity Investors), the allegations in his first
cause of action are pleaded sufficiently to state that claim
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under either Cayman or New York law.5 In particular, the
allegation, "reaching a Settlement Agreement that excluded
Plaintiff from knowledge of its terms and from participation in
the distribution of proceeds, and by thereafter failing to
distribute to Plaintiff his interest in the subsequent proceeds
of the divestment" can be fairly read to allege that Wilson was
deprived of the fair value of his 1% ownership share via the 2008
settlement and/or through other acts of defendants, while the
other OEP shareholders were treated better. Under Cayman law, in
order for a director to owe a fiduciary duty to a shareholder,
special factual circumstances must arise in which a director has
caused a loss to a shareholder personally (Peskin v Anderson,
[2001] BCC 874, 1 BCLC 372, 2000 WL 1841707 [2000]). This might
occur in an instance where a director "direct[ly] approaches" and
"deal[s] with, the shareholders in relation to a specific
transaction . . . holding themselves out as agents for them in
connection with the acquisition or disposal of shares; or making
material representations to them . . . or supplying them with
specific information and advice on which they have relied" (id.).
This is distinct from the case in which the shareholder suffers a
loss of value to his shares based on a director's action as a
director of the company (id.). Here, Mr. Wilson's allegations
are sufficient to meet the special circumstances requirement, in
5
That claim should be interpreted under Cayman law, because
Wilson's rights as a shareholder arise from the Shareholder
Agreement, which chooses Cayman law, and because OEP is a Cayman
corporation.
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that Mr. Dantas told Mr. Wilson that he would represent his
interests in the settlement negotiations, but that in the end he
was excluded from them, while other shareholders were treated
more favorably.
The Second Cause of Action
Finally, in the second cause of action, Mr. Wilson
alleges that defendants engaged in constructive fraud and
fraudulent concealment when they failed to disclose the terms of
the 2008 Settlement. Constructive fraud requires that "(1) a
representation was made, (2) the representation dealt with a
material fact, (3) the representation was false, (4) the
representation was made with the intent to make the other party
rely upon it, (5) the other party did, in fact, rely on the
representation without knowledge of its falsity, (6) injury
resulted and (7) the parties are in a fiduciary or confidential
relationship" (Del Vecchio v Nassau Co., 118 AD2d 615, 617-618
[2d Dept 1986]). Mr. Wilson's second cause of action seeks
damages from defendants on the theory that defendants
fraudulently concealed the 2008 Settlement from Mr. Wilson,
depriving him of the right to participate in the negotiations
and/or know the terms so he could take some sort of unspecified
action to block it. As discussed previously, Mr. Wilson had no
claim that was settled or extinguished through the 2008
settlement, and was not a party to that litigation. Although he
is a shareholder of OEP, and OEP settled its claims and claims
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against it, a minority shareholder does not have any legal right
to participate in settlement negotiations or, absent
circumstances not alleged here, block the officers and directors
(or majority shareholders) from settling litigation brought by or
against the company; those decisions are entrusted to the company
and insulated by the business judgment rule.
To plead a claim for fraudulent concealment,
"plaintiff must allege facts to support the claim that it
justifiably relied on the alleged misrepresentations" (ACA Fin.
Guar. Corp. v Goldman, Sachs & Co. 25 NY3d 1043, 1044 [2015]). A
claim of "fraudulent concealment requires, in addition to the
four foregoing elements [of fraudulent misrepresentation], an
allegation that the defendant had a duty to disclose material
information and that it failed to do so" (P.T. Bank Cent. Asia,
N.Y. Branch v ABN AMRO Bank N.V., 301 AD2d 373, 376 [1st Dept
2003). Mr. Wilson's fraudulent concealment claim fails for the
additional reasons that defendants had no duty to disclose the
settlement negotiations to Mr. Wilson, and given the merger,
integration and written modification provisions of the
Shareholder Agreement signed by Mr. Wilson, he could not have
justifiably relied on an oral agreement with Mr. Dantas.
Absent a duty to disclose before signing the settlement
(which defendants did not have), Wilson does not state a claim
for constructive fraud or fraudulent concealment; the allegations
here as to discrimination against minority shareholders are
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subsumed within his first cause of action.6
IV.
The Appellate Division denied defendants' motion to
dismiss on grounds of forum non conveniens. Forum non conveniens
is discretionary and based on a variety of factors. I would
vacate the Appellate Division's decision and remand for a
redetermination for two reasons: (1) the forum non conveniens
calculus would likely be affected by the dismissal of most of Mr.
Wilson's claims; (2) the Appellate Division's consideration of
the unavailability of a jury trial in the Cayman Islands is an
error of law; adequacy of the alternative forum does not consider
whether a jury trial is available, but only the fairness and
legitimacy of the process (Islamic Republic of Iran v. Pahlavi,
62 NY2d 474, 481 [1984] ["the availability of another suitable
forum is a most important factor to be considered in ruling on a
motion to dismiss"]). Courts must take great care in assessing
the adequacy of a foreign forum, not to impugn foreign judicial
systems merely because they are different. It is common, in many
jurisdictions, for civil cases not to warrant the availability of
a jury (Piper Aircraft Co. v Reyno, 454 US 235, 252, n 18 [1981]
["jury trials are almost always available in the United States,
while they are never provided in civil law jurisdictions. Even in
6
Mr. Wilson's amended complaint includes a new cause of
action, seeking an equitable accounting. Because the appeal
before us is taken from the original complaint, which did not
include that claim; even under the majority's holding, we lack
jurisdiction to consider it here.
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the United Kingdom, most civil actions are not tried before a
jury"]; Lockman Found. v Evangelical All. Mission, 930 F2d 764,
768 [9th Cir 1991] [the lack of a right to a jury trial in Japan
did not render Japan an inadequate forum]). Furthermore, under
New York law, Mr. Wilson has waived "his right to a jury trial by
joining legal and equitable claims" (Horizon Asset Mgmt., LLC v
Duffy, 106 AD3d 594, 594-595 [1st Dept 2013]).
Accordingly, I respectfully dissent.
* * * * * * * * * * * * * * * * *
Order, insofar as appealed from, affirmed, with costs, and
certified question answered in the affirmative, in a memorandum.
Chief Judge DiFiore and Judges Rivera, Stein and Fahey concur.
Judge Wilson dissents in an opinion. Judge Garcia took no part.
Decided June 6, 2017
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