17‐1571
Galvstar Holdings, LLC, DSB Holdings, LLC, v. Harvard Steel Sales, LLC, Jeremy Jacobs
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY
FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT=S LOCAL RULE 32.1.1.
WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST
CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION
ASUMMARY ORDER@). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY
PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second
Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley
Square, in the City of New York, on the 16th day of January, two thousand
eighteen.
PRESENT: DENNIS JACOBS,
REENA RAGGI,
CHRISTOPHER F. DRONEY,
Circuit Judges.
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GALVSTAR HOLDINGS, LLC, DSB
HOLDINGS, LLC,1
Plaintiffs‐Appellants,
‐v.‐ 17‐1571
1 The Clerk of the Court is respectfully directed to amend the caption.
1
HARVARD STEEL SALES, LLC, JEREMY
JACOBS,
Defendants‐Appellees.
‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐X
FOR APPELLANTS: Matthew H. Sheppe, Reiss Sheppe
LLP, New York, NY.
FOR APPELLEES: Joseph A. Hess, Marshall Dennehey
Warner Coleman & Goggin, P.C.,
New York, NY.
Appeal from a judgment of the United States District Court for the
Southern District of New York (Daniels, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,
ADJUDGED AND DECREED that the decision of the district court is
AFFIRMED IN PART AND VACATED AND REMANDED IN PART.
Plaintiffs‐appellants Galvstar Holdings, LLC (“Galvstar”) and DSB
Holdings, LLC appeal from an April 20, 2017 Order of the United States District
Court for the Southern District of New York dismissing their suit against
Defendants‐appellees Harvard Steel Sales, LLC (“Harvard”) and Jeremy Jacobs,
pursuant to a motion under Fed. R. Civ. P. 12(b)(6).2 Appellants argue on appeal
that the district court erred in dismissing their claims because: (1) the district
court misapplied the legal standards applicable to a motion to dismiss under Fed.
R. Civ. P. 12(b)(6) for their breach of joint venture, breach of fiduciary duty, and
breach of the implied covenant of good faith and fair dealing claims; and (2) the
district court abused its discretion in refusing to allow the appellants to amend
2 Galvstar Holdings, LLC serves as the holding company for non‐party Galvstar,
LLC, which operates the steel plant at issue in this appeal. DSB Holdings, LLC is
the assignee of Galvstar, LLC’s claims against Harvard. In the interest of clarity,
although some claims are DSB’s, the court will refer to these entities collectively
as “Galvstar” throughout this order unless otherwise specified.
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their complaint. We assume the parties’ familiarity with the underlying facts,
the procedural history, and the issues presented for review.
1. “We review the grant of a motion to dismiss de novo, accepting as
true all factual claims in the complaint and drawing all reasonable inferences in
the plaintiff’s favor.” Fink v. Time Warner Cable, 714 F.3d 739, 740–41 (2d Cir.
2013) (per curiam). “To survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to state a claim to relief that is plausible
on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (internal citation and
quotation marks omitted). “A claim has facial plausibility when the plaintiff
pleads factual content that allows the court to draw the reasonable inference that
the defendant is liable for the misconduct alleged.” Id. “A pleading that offers
labels and conclusions or a formulaic recitation of the elements of a cause of
action will not do.” Id. (internal citation and quotation marks omitted).
A joint venture is formed under New York law when:
(a) two or more persons enter into an agreement to carry on a venture
for profit; (b) the agreement evinces their intent to be joint venturers;
(c) each contributes property, financing, skill, knowledge, or effort;
(d) each has some degree of joint control over the venture; and (e)
provision is made for the sharing of both profits and losses.
SCS Commc’ns, Inc. v. Herrick Co., 360 F.3d 329, 341 (2d Cir. 2004). “All of these
elements must be present before joint venture liability may be imposed.” Itel
Containers Intʹl Corp. v. Atlanttrafik Express Serv. Ltd., 909 F.2d 698, 701 (2d Cir.
1990). As the district court concluded, Galvstar failed to adequately plead a
breach of joint venture claim because: (1) it expressly disclaimed that it was
forming a joint venture with Harvard in the February and May TPAs; and (2) no
provision was made for the sharing of both profits and losses between Harvard
and Galvstar.
The February and May TPAs between Galvstar and Harvard recite:
The relationship of Galvstar and Harvard under this Agreement shall
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be solely that of independent contractors. Nothing contained herein
or any other documents comprising a part hereof shall be deemed to
constitute or create a relationship of agency, joint venture,
partnership or any relationship other than that as herein specified.
Joint App’x at 37. “[T]he best evidence of what parties to a written agreement
intend is what they say in their writing,” and this contractual statement is clear
indication of an intent to not form a joint venture. Law Debenture Tr. Co. of N.Y.
v. Maverick Tube Corp., 595 F.3d 458, 467 (2d Cir. 2010) (internal citation
omitted).
Galvstar points out that the TPAs were between Harvard and Galvstar,
LLC (which operated the steel plant), while the putative oral joint venture
agreement was between Harvard and Galvstar Holdings, LLC (the holding
company for Galvstar, LLC). However, the same individual‐‐Daniel Bain, “the
principal of Galvstar Holdings, LLC”‐‐provided the draft of the February TPA,
signed the May TPA, and entered into the alleged oral joint venture agreement
with Jacobs. It is implausible that Bain, Harvard, and Jacobs would expressly
disclaim a joint venture in a written document, but then go ahead and create one
in a side oral agreement.
Galvstar also argues that the TPA has no effect because the February TPA
language predates the oral joint venture. But the May TPA came after the
alleged oral agreement, and that agreement also disclaims any joint venture.
Further, under New York law, all contemporaneous agreements between the
same parties relating to the same subject matter are to be read together and
interpreted as forming part of one and the same transaction. See Carvel Corp. v.
Diversified Mgmt. Grp., Inc., 930 F.2d 228, 233 (2d Cir. 1991).
There are also no allegations plausibly demonstrating an agreement to
share in the profits and losses of the alleged joint venture. “An indispensable
essential of a contract of partnership or joint venture, both under common law
and statutory law, is a mutual promise or undertaking of the parties to share in
the profits of the business and submit to the burden of making good the losses.”
Dinaco, Inc. v. Time Warner, Inc., 346 F.3d 64, 68 (2d Cir. 2003) (emphasis in
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original); see also Steinbeck v. Gerosa, 4 N.Y.2d 302, 317 (1958). Galvstar’s own
pleadings make clear that the two parties agreed to keep their profits and losses
separate. See, e.g., Pl. Compl. at ¶¶ 3, 4, 45. Therefore, we affirm the district
court’s dismissal of appellants’ breach of joint venture claim.
2. Galvstar challenges the district court’s ruling that it inadequately
pled a breach of fiduciary duty claim by Harvard and Jacobs, individually.
To state a claim for breach of fiduciary duty, a plaintiff must plausibly
allege facts demonstrating “breach by a fiduciary of a duty owed to plaintiff;
defendantʹs knowing participation in the breach; and damages.” SCS Commcʹns,
360 F.3d at 342. “A fiduciary relationship exists under New York law when one
[person] is under a duty to act for or to give advice for the benefit of another upon
matters within the scope of the relation.” Flickinger v. Harold C. Brown & Co.,
947 F.2d 595, 599 (2d Cir. 1991) (internal citation and quotation marks omitted,
alteration in original). “Broadly stated, a fiduciary relationship is one founded
upon trust or confidence reposed by one person in the integrity and fidelity of
another. It is said that the relationship exists in all cases in which influence has
been acquired and abused, in which confidence has been reposed and betrayed.”
Penato v. George, 383 N.Y.S.2d 900, 904 (2d Dep’t 1976). Fiduciary relationships
in New York include “those informal relations which exist whenever one man
trusts in, and relies upon, another.” Id. at 904‐05; see also EBC I, Inc. v. Goldman,
Sachs & Co., 5 N.Y.3d 11, 20 (2005) (“[I]t is fundamental that fiduciary ‘liability is not
dependent solely upon an agreement or contractual relation between the
fiduciary and the beneficiary but results from the relation.’”).
Nevertheless, absent an allegation of a special relationship, mere assertions
of “trust and confidence” are insufficient to support a claim of a fiduciary
relationship. See Freedman v. Pearlman, 706 N.Y.S.2d 405, 409 (1st Dep’t 2000).
Further, “[w]hen parties deal at arm[’]s length in a commercial transaction, no
relation of confidence or trust sufficient to find the existence of a fiduciary
relationship will arise absent extraordinary circumstances.” In re Mid–Island
Hosp., Inc., 276 F.3d 123, 130 (2d Cir. 2002) (internal citation and quotation marks
omitted). In sum, “[a] fiduciary relationship is necessarily fact‐specific and is
also grounded in a higher level of trust than normally present in the marketplace
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between those involved in armʹs length business transactions.” Oddo Asset
Mgmt. v. Barclays Bank PLC, 19 N.Y.3d 584, 593 (2012) (internal citation and
quotation marks omitted). So unless the parties “create their own relationship of
higher trust, courts should not ordinarily transport them to the higher realm of
relationship and fashion the stricter duty for them.” Id. (internal citation and
quotation marks omitted).
Since there was no joint venture formed between Harvard and Galvstar,
any fiduciary duty that Harvard or Jacobs owed to Galvstar must be traced to
another source. Appellants cite the intertwined relationship that Harvard had
with Galvstar, but even construing the facts alleged in the light most favorable to
apellants, the claim is not plausible. The allegations only demonstrate that
Harvard had an arm’s length purchaser‐supplier relationship with Galvstar, and
as such, Harvard had an interest in working with Galvstar to ensure that Galvstar
produced the quality and quantity of steel in accordance with its needs. The
parties’ arm’s length relationship is reinforced by the language of the TPAs,
which disclaimed any formation of a formal or informal relationship between
Harvard and Galvstar. Galvstar’s allegations thus fail to establish the
“extraordinary circumstances” needed to establish a fiduciary relationship
between parties dealing at arm’s length. See In re Mid‐Island Hosp., Inc., 276 F.3d
at 130.
Similarly, Galvstar fails to adequately plead any fiduciary duty that Jacobs,
as President of Harvard, owed in his individual capacity to Galvstar; there are no
specific allegations for why Jacobs owed a duty, other than the conclusory
statement that he did. In any event, Galvstar’s brief makes clear that Jacobs
could not, by himself, make any decisions for Harvard, and there are no
allegations that he acted in an individual capacity. Therefore, we affirm the
district court’s dismissal of appellants’ breach of fiduciary duty claim.
3. Galvstar argues that the district court improperly found facts in
dismissing the implied covenant of good faith and fair dealing claim. We agree.
“Under New York law, parties to an express contract are bound by an
implied duty of good faith, but breach of that duty is merely a breach of the
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underlying contract.” Harris v. Provident Life & Accident Ins. Co., 310 F.3d 73,
80 (2d Cir. 2002) (internal citation omitted). We will “enforce the implied
covenant where an implied promise was so interwoven in the whole writing of a
contract as to be necessary for effectuation of the purposes of the contract,” or
“where a partyʹs acts subsequent to performance on the contract so directly
destroy the value of the contract for another party that the acts may be presumed
to be contrary to the intention of the parties[.]” M/A‐COM Sec. Corp. v. Galesi,
904 F.2d 134, 136 (2d Cir. 1990) (internal citations and quotation marks
omitted)(per curiam). “[H]owever, the implied covenant does not extend so far
as to undermine a partyʹs general right to act on its own interests in a way that
may incidentally lessen the other partyʹs anticipated fruits from the contract.”
Id. (internal citation and quotations marks omitted).
The breach of the implied covenant claimed by Galvstar is that Harvard
participated in “a scheme to take over Galvstar,” and refused to pay overdue
invoices in order to prevent Galvstar from enjoying the benefits of the May TPA,
which is the operative agreement between the parties. Joint App’x at 28. The
district court found that there are insufficient allegations to support a claim that
Harvard participated in a scheme to take over Galvstar. However, taking all of
Galvstar’s allegations as true, the failure to pay invoices to Galvstar “form[s] an
essential link in the chain of events” that deprived Galvstar of the benefits of the
TPA, and eventually caused it to fail. M/A‐COM Sec. Corp., 904 F.2d at 1337.
“Integral to a finding of a breach of the implied covenant is a partyʹs action that
directly violates an obligation that may be presumed to have been intended by
the parties,” and the TPA presumes that Harvard would pay invoices due to
Galvstar. Id. at 136. The district court determined that Harvard’s nonpayment
was attributable to a dispute over the quality control of steel and a machine
failure; but this was not pled by Galvstar, and such fact‐finding outside of the
allegations is not proper at the motion to dismiss stage. The district court’s
conclusion may hold true at the summary judgment stage; at this point, the court
must take all nonconclusory allegations pled by Galvstar to be true.
Therefore, we vacate the dismissal of Galvstar’s claim for breach of the
implied covenant of good faith and fair dealing.
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4. Galvstar seeks leave to amend its breach of contract claim, which the
district court dismissed. “We review the denial of leave to amend a complaint
for abuse of discretion, unless the denial was based on an interpretation of law, in
which case the legal conclusion is reviewed de novo.” Starr v. Sony BMG Music
Entm’t, 592 F.3d 314, 321 (2d Cir. 2010) (internal citation omitted). Appellants
did not seek leave to amend from the district court, as they were free to do, and
we will not grant them leave to amend now. Cf. Gurary v. Nu‐Tech Bio‐Med,
Inc., 303 F.3d 212, 225 (2d Cir. 2002) (“Unless manifest injustice will result from
refusing to consider the newly raised issue, it is not properly before this panel.”).
Galvstar contends that leave to amend was sought in the district court, but
Galvstar’s counsel merely stated that need to amend “may” arise at some point,
and never sought leave to do so. Joint App’x at 124.
Accordingly, the judgment of the district court is hereby AFFIRMED IN
PART AND VACATED AND REMANDED IN PART.
FOR THE COURT:
CATHERINE O’HAGAN WOLFE, CLERK
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