Court Denies Motion To Dismiss Breach Of Contract Claim

On April 12, 2024, Justice Margaret A. Chan denied defendant’s motion to dismiss plaintiff’s complaint based on documentary evidence, lack of standing/capacity to sue, and for failure to state a claim. In Alternative Global Six, LLC v. Durham Homes, LLC, Index No. 653837, plaintiff alleged a single cause of action for breach of contract based on defendant’s failure to repay loans and interest in the amount of $7,277,969. As to the lack of standing and capacity to sue, Justice Chan explained:

Defendant claims that plaintiff has no legal capacity to commence the action as [plaintiff] failed to obtain proper authorization from its parent company and manager, AGM, the real party in interest. According to defendant, the AGM Operating Agreement shows that AGM has total control and management of the Affiliated Numbered Entities, including plaintiff. In contrast, plaintiff asserts that plaintiff is independent of AGM, and its own AG6 Operating Agreement empowers it to bring this suit to protect its interest. That interest arises from the Note, under which plaintiff made term loans to defendant with a repayment schedule including interest payments and default interest payments as provided in the Note.

Here, defendant's argument on plaintiff’s lack of legal capacity fails for this pre-discovery motion to dismiss. While defendant claims that section 6.01 of the AGM Operating agreement provides that the AGM manager has total control and management of the Alternative Numbered Entities, or, as defendant asserts, "Affiliates" in the AGM's Operating Agreement. On its face, there is nothing that connects the AGM's Operating Agreement to the Affiliated Numbered Entities.

Defendant's other offer of proof on its claim that AGM owns and controls 100% of the Alternative Numbered Entities is Cardinale's letter that was sent with the AGM operating agreement to his investors. Cardinale's letter to "Investor" speaks of two classes of units, Class A and Class B, and their respective voting rights. It would be a guess to definitively say that "Investor" is the Alternate Numbered Entities. This letter also states that Investor will own Class B Units in the LLC and have the right to profit-sharing but not in managing the operations of the LLC, which is AGM. It would be a jump, at this pre-discovery stage of litigation, to conclusively state that AGM definitively took over all the Alternative Numbered Entities such that the AGM operating agreement binds the Alternative Numbered Entities. And, as defendant recognizes, defendant's motion does not include the vital documents that would show that AGM wholly owns and has 100% of the Alternative Number Entities. According to defendant, these documents, which include tax returns, cannot be produced here because they were produced in another action involving the principals of AGM and are marked highly confidential. Defendant invites this court to request these documents from another court in another jurisdiction and draw conclusions about these documents to resolve the instant motion in its favor. This will not be done. As such, this motion to dismiss on capacity and standing grounds cannot be granted at this juncture.

Given this conclusion, plaintiff, as lender to defendant, has an interest to bring this suit. Plaintiffs operating agreement provides and empowers the manager "the sole right to manage the business of the Company and [] have all powers and rights necessary, appropriate, or advisable to effectuate and carry out the purposes and business of the Company"' (NYSCEF # 61, pltf’s MOL ¶ 6 quoting NYSCEF # 62, AG6 Operating Agreement, Art. 9. l[c]). Thus, Cardinale, as the sole manager of AG6, can authorize the initiation of the action on behalf of plaintiff against defendant.

The attorneys at Schlam Stone & Dolan frequently advise clients and litigate disputes concerning breach of contract as well as standing issues. Contact the Commercial Division Blog Committee at commercialdivisionblog@schlamstone.com if you or a client have questions concerning such issues.