Motion to Dismiss Improperly Granted Where New York and Colombian Law Differ

In a decision dated April 27, 2023, in ROAM Capital, Inc. v. Asia Alternative Management, LLC, Index No. 651728/2019, First Department Case No. 2022-01318, the First Department unanimously reversed, on the law, the decision of the Motion Court (Jennifer Schecter, J.), which dismissed the supplemental amended complaint (SAC) with prejudice pursuant to CPLR 3211. In reversing the Motion Court’s decision as to the SAC’s claim for breach of contract and other arising out of a “right of first refusal” provision in the applicable agreement, the First Department explained:

Supreme Court improperly dismissed ROAM’s breach of contract and related claims because, contrary to defendant’s contention, there is a conflict between New York and Colombian law as to the meaning of “right of first refusal.” Under New York law, “right of first refusal” means plaintiff would get to provide services with respect to Fund VI only if defendant decided to ask a third party to provide the services (see LIN Broadcasting Corp. v Metromedia, Inc., 74 NY2d 54, 56 [1989]); “a right of first refusal does not, at the time it is given, include an operative offer” (id. at 60). By contrast, under Colombian law, a right of first refusal is akin to a preference pact (according to both sides’ experts) or a right of option (according to plaintiff’s expert). Given the wording of section VII(H) of the parties’ agreement, a third party would not be required for a preference pact. Hence, New York law and Colombian law differ.

. . .

As can be seen from the parties’ expert affirmations, “right of first refusal” is not clear under Colombian law. Thus, even according to defendant’s expert, extrinsic evidence is allowed. Although the contract contains a merger/integration clause, and Colombian law recognizes such a clause, this provision (“This Agreement . . . supersedes all previous agreements and understandings”) does not bar consideration of evidence that postdates the contract.

The court’s statement that “right of first refusal . . . has a clear meaning in the business community that all of these parties were members of” overlooks the allegations in the SAC that (1) defendant’s interpretation of section VII(H) is “completely at odds with . . . the way the private equity industry operates” and (2) provisions like section VII(H) “are meant to protect the placement agent [(i.e., plaintiff)] from the fund manager [(i.e., defendant)] and not from other placement agents, to ensure that the manager does not try to circumvent the agent for subsequent fund-raises.” Based on the foregoing, the second cause of action (breach of contract) should not have been dismissed.

Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning motions to dismiss where there are questions of the applicable law or the substance of foreign law.