Brainblue, Inc. v. Tikhman et al
Filing
42
OPINION AND ORDER: Usach's July 22 motion to dismiss all of Tikhman'scounterclaims in the 8ACC except the fifth counterclaim forbreach of the May 2007 Agreement is granted. Brainblue's July22 motion to dismiss both of the counterclaims in the FACC isgranted. (Signed by Judge Denise L. Cote on 12/7/2011) (js)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
----------------------------------------X
:
OLEKSANDR USACH,
:
Plaintiff,
:
:
-v:
:
ANATOLY TIKHMAN, individually and as
:
trustee of the Anatoly and Marina
:
Tickhman Living Trust U/A dated 9/15/97 :
:
Defendant.
:
:
----------------------------------------:
:
BRAINBLUE, INC.,
:
Plaintiff,
:
:
-v:
:
ANATOLY TIKHMAN, individually and as
:
trustee of the Anatoly and Marina
:
Tickhman Living Trust U/A dated 9/15/97 :
:
Defendant.
:
:
----------------------------------------X
11 Civ. 954
(DLC)
OPINION & ORDER
11 Civ. 1472
(DLC)
APPEARANCES:
For Defendant and Counterclaimant Anatoly Tikhman:
Robert H. Stroup
Levy Ratner, P.C.
80 Eighth Avenue, Floor 8
New York, NY 10011
Thomas Craig Mundell
Mundell, Odlum & Haws, LLP
8300 Utica Avenue Suite 200
Rancho Cucamonga, CA 91730
For Plaintiff and Counterdefendant Oleksandr Usach:
Stephen Eric Tisman
1
James Frederick Parver
Margolis & Tisman, LLP
280 Madison Avenue, 5th Floor
New York, NY 10016
For Plaintiff and Counterdefendant Brainblue, Inc.:
Mark Walfish
Elan Richard Dobbs
Katsky Korins, LLP
605 Third Avenue
New York, NY 10158
DENISE COTE, District Judge:
This Opinion addresses the motions to dismiss filed by the
plaintiffs and counterdefendants in these related cases.
Oleksandr Usach (“Usach”) moves to dismiss all but the fifth
counterclaim asserted in defendant and counterclaimant Anatoly
Tikhman’s (“Tikhman”) Second Amended Answer and Counterclaims
(“SACC”).
Counterdefendant Brainblue, Inc. (“Brainblue”) moves
to dismiss both counterclaims asserted in Tikhman’s First
Amended Answer and Counterclaims (“FACC”).
For the following
reasons, both motions are granted in full.
Background
The following facts, unless otherwise stated, are drawn
from the allegations contained in Tikhman’s SACC and FACC, which
are substantially the same.
Tikhman resides in California.
Counterdefendant Usach resides in the Ukraine.
2
Counterdefendant
Brainblue is a corporation formed under the laws of the British
Virgin Islands and owned by Usach.
Tikhman, a Ukraine native, immigrated to the United States
in 1980.
Over the succeeding decades, he founded a number of
software companies, some of which were acquired by larger
entities.
Sometime in the early 1990s, Usach cold-called
Tikhman at the latter’s home in California, identifying himself
as a sub-contractor to a Russian consultant that one of
Tikhman’s businesses had been using.
Usach suggested that he
and Tikhman work with each other directly.
Usach asserted that
he could hire and train as many high-level programmers as needed
to work on projects for Tikhman’s businesses.
Following their initial phone conversation, Tikhman sent
Usach a small programming project.
Pleased with the work done
on this project, Tikhman began sending additional projects to
Usach and the two men developed a “close” friendship.
Usach used a variety of entities for the various projects
that Tikhman’s companies hired him to handle; however, Tikhman
always dealt directly with Usach in negotiating and monitoring
projects.
Usach.
Additionally, “Tikhman liberally extended credit” to
“Tikhman never questioned Usach’s invoices or billings”
and the “only hint” that “Usach was not completely
straightforward in his monetary affairs” was his “aversion to
paying taxes.”
Usach recommended that Tikhman employ corporate
3
entities and trusts headquartered in offshore tax havens and
offered to refer Tikhman to professionals who could help Tikhman
arrange his personal finances in such a way as to minimize his
personal tax liabilities.
Tikhman always demurred.
Over the years, Usach accrued substantial wealth.
According to Tikhman, all of Usach’s fortune is attributable to
projects sent to him by Tikhman’s businesses, or accounts and
connections that Tikhman helped Usach establish.
In the spring of 2001, Tikhman and Usach had a conversation
in the Ukraine regarding their future business ventures.
Usach
offered Tikhman a one-half interest in any one of his
programming companies if Tikhman could structure its sale.
Usach would build the workforce for the company and service the
company’s accounts.
According to Usach, Tikhman would not share
in any of the programming company’s operating profits, but would
own half the equity and be entitled to one-half of the
consideration received upon a sale of the company.
Tikhman and Usach discussed their agreement several more
times.
This oral agreement provided that Usach would create a
consulting group to service accounts that Tikhman had previously
brought in; that Tikhman would use his contacts with executives
at technology companies to continue to generate accounts; that
these accounts should be based in the U.S., in order to generate
a higher price for the eventual sale of the company; and that
4
Tikhman would “pitch” the sale of the group to suitable U.S.
buyers.
Usach’s consulting group operated under the name Alex Usach
Consulting and Technology Companies (“AUCT”), but the business
was structured through a Bahamian corporation called Brainblue
Holdings, Inc. (“Brainblue Holdings”), which in turn was a
wholly owned subsidiary of defendant Brainblue.
After Usach
finished setting up the company, Tikhman and Usach memorialized
their earlier oral agreement in a stock purchase agreement
(“Stock Agreement”).
The Stock Agreement was backdated to
reflect the date of the oral agreement.
Tikhman built up the business by bringing in accounts and
several years later, he presented an acquisition proposal to
Flextronics International, Ltd. (“Flextronics”), an electronics
manufacturing services corporation.
After more than a year of
negotiations, Flextronics acquired AUCT.
Flextronics paid an
initial purchase price of approximately $3 million and agreed to
pay additional contingent consideration (the “Earnout”) over a
five year period.
Tikhman structured the Earnout to be the more
lucrative aspect of the deal.
As part of the sale of AUCT to Flextronics, Brainblue and
Tikhman entered into a second stock purchase agreement (“Second
Stock Agreement”) dated April 30, 2004.
The Second Stock
Agreement implemented Tikhman’s contractual right to half of the
5
proceeds of the sale of AUCT to Flextronics.
Pursuant to § 1 of
the Second Stock Agreement, Brainblue agreed to
pay [Tikhman] a purchase price . . . equal to 50% of
the Purchase Price and 50% of the Contingent
Consideration (as those terms are defined in the Stock
Purchase Agreement, dated April 26, 2004) . . . by and
among Flextronics Central Europe B.V., Brainblue
Holdings, Inc. . . . and Brainblue, Inc. [Brainblue]
shall make payments to [Tikhman] promptly upon receipt
of such payments from [Brainblue Holdings] . . . .
Flextronic’s acquisition of AUCT closed in April 2004.1
Brainblue and Usach paid Tikhman half of the $2.7 million
received from Flextronics at the closing.
On June 5, 2005,
Usach sent Tikhman $675,000 as his half of the first Earnout
payment.
On June 5, 2006, Usach sent Tikhman $635,000 as his
half of the second Earnout payment.
Tikhman thought that the
size of the Earnout payments was “disappointing” and he asked
Usach why the payments were “less than [he] had hoped for at the
time [he] negotiated the deal.”
Usach informed Tikhman that the
business had not been doing as well as anticipated.
During one
of Tikhman’s visits to the Ukraine, Usach “casually” showed
Tikhman a printout of a report Usach said he was sending
Flextronics to support that year’s Earnout submission.
Tikhman
believed Usach’s representations regarding the Earnout figures
1
According to Tikhman, notwithstanding his substantial role in
structuring Flextronics’ acquisition of AUCT, “the deal on paper
was strictly between Brainblue and Flextronics.” Flextronics
was told that Usach was the sole owner of Brainblue. It did not
know that Tikhman had an equity interest in AUCT.
6
for 2005 and 2006, and did not seek to independently corroborate
Usach’s representations.
In late 2006, Tikhman learned that Flextronics was in
negotiations to sell the AUCT group that it had acquired from
Brainblue to Aricent Group (“Aricent”).
Tikhman expected that
Usach would contact him regarding these discussions since, among
other things, there were still three Earnout payments
outstanding from Flextronics’s acquisition of AUCT, and if
Aricent purchased AUCT, it would become responsible for making
those payments to Usach and Tikhman.
Usach assured Tikhman that
Usach would consult with Tikhman as the deal came together to
ensure that they could maximize the consideration they received
from the deal.
In January 2007, Tikhman hosted a dinner party at his home
for Flextronics and Aricent executives.
At that dinner, Tikhman
mentioned that he would like to “handle” the sale of AUCT to
Aricent.
This prompted looks of confusion from his guests.
Shortly thereafter, an Aricent executive told Tikhman that Usach
had already “done the deal”.
Usach responded:
Tikhman promptly confronted Usach.
“Don’t worry.
going to stick with our deal.
I didn’t steal anything.
I’m
In fact, my attorneys are
preparing papers to reflect the new deal I worked out on the
Earnout and you will be very happy.”
7
Tikhman requested
documentation of the sale several times from Usach.
Usach
stated that he would send the documentation, but never did.
In February 2007, Tikhman and Usach met in Paris.
At that
meeting, Usach told Tikhman that the Aricent deal was for 2.5
million shares of Aricent stock plus $7 million paid over five
years at $1.4 million per year.
Usach promised Tikhman that he
would get his half -- $700,000 per year for five years, plus
1,250,000 shares of Aricent stock.
Usach offered to arrange for
his Swiss lawyer to arrange an offshore account for Tikhman so
that his earnings could be “tax-free”.
Tikhman declined.
On May 23, 2007, in Zurich, Switzerland, Usach and Tikhman
entered into a written agreement (“the May 2007 Agreement”)
regarding the cash portion of Tikhman’s share of the Aricent
deal.
Pursuant to the May 2007 Agreement, Usach promised to pay
Tikhman $3.5 million in five annual installments of $700,000.
Payments were to be made on October 15, commencing October 15,
2007.2
The May 2007 Agreement additionally stipulates that it
“constitutes the entire and only integrated agreement between
[Usach and Tikhman] and supersedes all prior discussions,
negotiations, understandings and agreements, whether oral or
written, between [Usach and Tikhman][.]”
It contains a broad
and mutual general release of claims (“the May 2007 Release”).
2
A separate agreement addressed Tikhman’s Aricent stock.
8
The May 2007 Release specifies that Tikhman releases “Usach and
his affiliates, specifically including without limitation
Brainblue, Inc.”
It covers “any and all actions . . . claims
and liabilities of every nature, known or unknown, suspected or
unsuspected, arising from or related . . . to any and all prior
relationships . . . and agreements, whether oral or written”
that Tikhman may have against Usach.
Usach made the 2007 and 2008 payments called for in the May
2007 Agreement.
In 2009, Usach made the third installment
payment minus an agreed upon offset of $361,374 to reflect
monies owed to him by one of Tikhman’s companies.
Usach has not
made any part of the October 15, 2010 payment, nor has he
contacted Tikhman to discuss the matter.
Additionally, in late 2007, after Tikhman and Usach entered
the May 2007 Agreement, Tikhman learned from a friend at
Flextronics that Usach (through Brainblue) had cheated Tikhman
on the 2005 and 2006 Earnout payments.
Usach paid Tikhman
significantly less than one half of the actual Earnout.
Specifically, Usach’s Earnout payment to Tikhman in 2005
“shorted” Tikhman $261,894 and the 2006 Earnout payment
“shorted” Tikhman $971,800, for a total shortfall of $1,233,694.
When Tikhman confronted Usach in 2008 about the breach of the
Second Stock Agreement, Usach admitted to not having paid
Tikhman his full share in 2005 and 2006.
9
Tikhman sued Usach in California state court in 2010.
According to Tikhman, third-party discovery in that case
revealed that Usach had not disclosed the actual amount of the
consideration due to AUCT pursuant to the Flextronics/Aricent
deal.
The California case was voluntarily dismissed without
prejudice on September 14, 2010.
On November 8, 2010, Tikhman filed a second complaint in
California Superior Court against both Usach and Brainblue.
On
January 3, 2011, Usach filed suit against Tikhman in New York
state court (“the Usach action”), seeking to enforce the May
2007 Release.
On January 31, Brainblue brought a similar suit
against Tikhman in New York state court (“the Brainblue
action”).
Tikhman has removed both New York actions to federal court.
Following a pretrial conference held on June 7, 2011, motions to
dismiss that had been filed by Usach and Brainblue were vacated
as moot, and Tikhman was given a final opportunity to amend his
pleadings in both actions by July 1.
On July 1, Tikhman filed
his SACC in the Usach action and his FACC in the Brainblue
action.
On July 22, Usach moved to dismiss all but the fifth
counterclaim in Tikhman’s SACC and Brainblue moved to dismiss
10
both counterclaims in the FACC.
3
Both motions became fully
submitted on August 26.
Discussion
On a motion to dismiss the court must “accept all
allegations in the complaint as true and draw all inferences in
the non-moving party's favor.”
LaFaro v. New York
Cardiothoracic Group, PLLC, 570 F.3d 471, 475 (2d Cir. 2009)
(citation omitted).
The court is “not bound to accept as true
legal conclusions couched as factual allegations.
Only a
complaint that states a plausible claim for relief survives a
motion to dismiss.”
Id. at 475–76 (citing Ashcroft v. Iqbal,
556 U.S. 662 (2009)).
A complaint must do more than offer
“naked assertions devoid of further factual enhancement.”
Iqbal, 129 S.Ct. at 1949 (citation omitted).
In deciding a
motion to dismiss, a court may consider “any written instrument
attached to [the complaint] as an exhibit, materials
incorporated in it by reference, and documents that, although
not incorporated by reference, are integral to the complaint.”
Sira v. Morton, 380 F.3d 57, 67 (2d Cir. 2004) (citation
omitted).
“Where, as in this case, certain contracts are
integral to the complaint, we also consider those documents in
3
The fifth counterclaim alleges that Usach breached the May 2007
Agreement when he failed to pay Tikhman $700,000 in October
2010.
11
deciding the merits of the motion.”
Interpharm, Inc. v. Wells
Fargo Bank, Nat’l Assoc., 655 F.3d 136, 141 (2d Cir. 2011).
Usach and Brainblue have asserted numerous grounds for
dismissal of all but one of Tikhman’s counterclaims.
First and
foremost, however, they assert that every counterclaim but
Tikhman’s fifth counterclaim in his SACC is barred by the May
2007 Release.
I.
Choice of Law
As a preliminary matter, the parties dispute whether New
York or California law governs interpretation of the May 2007
Agreement, and thus the validity, scope, and interpretation of
the May 2007 Release.
As a federal court sitting in diversity
jurisdiction, the Court is obligated “to apply the law of the
forum state in analyzing preliminary choice-of-law questions.”
Cap Gemini Ernst & Young, U.S., L.L.C. v. Nackel, 346 F.3d 360,
365 (2d Cir. 2003) (citation omitted).
“[A]lthough [] New York
courts generally defer to the choice of law made by the parties
to a contract[,] New York law allows a court to disregard the
parties’ choice when the most significant contacts with the
matter in dispute are in another state.”
Id. (citation
omitted); see also Hartford Fire Ins. Co. v. Orient Overseas
Containers Lines (UK) Ltd., 230 F.3d 549, 556 (2d Cir. 2000).
12
In the case of certain contracts covering high-value
transactions, however, a choice of law clause selecting New York
law will be honored regardless of the contacts between the state
and the transaction.
General Obligations Law (GOL) § 5-1401(1)
provides:
The parties to any contract, agreement, or
undertaking, contingent or otherwise, in consideration
of, or relating to any obligation arising out of a
transaction covering in the aggregate not less than
two hundred fifty thousand dollars . . . may agree
that the law of this state shall govern their rights
and duties in whole or in part, whether or not such
contract, agreement or undertaking bears a reasonable
relation to this state.4
(emphasis added).
GOL § 5-1401(1) reflects New York public
policy, consistent with New York’s status as an international
financial center, in favor of providing a stable body of law
that sophisticated international parties may designate to
structure their transactions and resolve their disputes.
See
Banco Nacional De México, S.A., Integrante Del Grupo Financiero
Banamex v Societe Generale, 34 A.D.3d 124, 130 (1st Dept. 2006).
Enforcement of choice of law clauses in high-value agreements is
therefore “favored since it protects the justifiable expectation
of the parties who choose New York law as the governing law in
international financial transactions.”
4
IRB-Brazil Resseguros
GOL § 5-1401 provides for several exceptions not relevant here.
13
S.A. v. Inepar Investments, S.A., 83 A.D.3d 573, 574 (1st Dept.
2011) (citation omitted).
The May 2007 Agreement contains a choice of law clause
specifying that it will be governed by New York law.5
The
parties to this international agreement are two experienced
businessmen, one from the Ukraine and the other from California,
and they have chosen that the laws of the state of New York
should govern a transaction worth $3.5 million.
Under New York
law, the parties’ choice of law is enforced.
Tikhman does not dispute that the May 2007 Agreement
contains a New York choice of law clause.
Rather, he argues
that the Restatement (Second) of Conflict of Laws § 1876 bars
enforcement of the choice of law clause.
Specifically, he
argues that California has a materially greater interest than
New York in the resolution of this dispute, and that application
5
The choice of law clause of the May 2007 Agreement reads:
“Notwithstanding that neither Party hereto has a particular
connection to the jurisdiction of the State of New York, the
parties hereto agree that this Agreement shall be governed by
and construed in accordance with the commercial laws and
procedural rules of the State and Federal Courts, as
appropriate, located in the State of New York, U.S.A.”
6
“The law of the state chosen by the parties to govern their
contractual rights and duties will be applied . . . unless . . .
application of the law of the chosen state would be contrary to
a fundamental policy of a state which has a materially greater
interest than the chosen state in the determination of the
particular issue[.]” Restatement (Second) of Conflict of Laws
§ 187(2).
14
of New York law would violate fundamental California public
policy.
For agreements governing transactions worth more than
$250,000, the parties’ New York choice of law clause is
enforceable “even if, under a traditional choice of law
analysis, the application of the chosen law would violate a
fundamental public policy of another, more interested
jurisdiction.”
Tosapratt, LLC v. Sunset Properties, Inc., 86
A.D.3d 768, 770 (3d Dept. 2011); see also Sun Forest Corp. v.
Shvili, 152 F.Supp.2d 367, 388 (S.D.N.Y. 2001) (“Section 5-1401
does not provide for any exceptions that would permit a court to
decline to enforce a choice-of-law clause if the clause would
infringe a fundamental public policy interest of the conflicting
jurisdiction.”).
The May 2007 Agreement’s choice of law clause
will be enforced, and New York law shall govern the
interpretation of its terms.
II. May 2007 Release
Usach has moved to dismiss all of Tikhman’s counterclaims
but the fifth counterclaim in the SACC on the grounds that they
are barred by the clear terms of the May 2007 Release.7
7
Tikhman asserts that Usach and Brainblue are barred by Fed. R.
Civ. P. 12(g) from relying upon the May 2007 Release, because
they did not rely upon the release in their briefing when the
original motions to dismiss were submitted. Rule 12(g) creates
15
Brainblue does the same with respect to both of Tikhman’s
counterclaims in the FACC.
The motions to dismiss on these
grounds are granted.
“Under New York law . . . a valid release constitutes a
complete bar to an action on a claim which is the subject of the
release.”
Interpharm, 655 F.3d at 142.
“If the language of a
release is clear and unambiguous, the signing of a release is a
jural act binding on the parties.”
Centro Empresarial Cempresa,
S.A. v. América Móvil, S.A.B. De C.V., 17 N.Y.3d 269, 276 (N.Y.
2011) (citation omitted).
While the defendant has the initial
burden of showing that it has been released from claims, “a
signed release shifts the burden of going forward to the
plaintiff to show that there has been fraud, duress, or some
other fact which will be sufficient to void the release.”
Id.
(citation omitted); see also Interpharm, 655 F.3d at 142.
“Notably, a release may encompass unknown claims, including
unknown fraud claims, if the parties so intend and the agreement
is fairly and knowingly made.”
276 (citation omitted).
Centro Empresarial, 17 N.Y.3d at
Where a party releases a fraud claim,
it “may later challenge that release as fraudulently induced
only if it can identify a separate fraud from the subject of the
release.”
Id.
Full disclosure is not required for a release to
no such blanket bar. An amended complaint “ordinarily
supersedes the original and renders it of no legal effect.”
Int’l Controls Corp. v. Vesco, 556 F.2d 665, 668 (2d Cir. 1977).
16
be effective, even with respect to fraud claims.
Bellefonte
Ins. Co. v. Argonaut Ins. Co., 757 F.2d 523, 527 (2d Cir. 1985).
While a release may be invalidated on traditional grounds,
including duress, illegality, fraud, or mutual mistake, “[a]
release should never be converted into a starting point for
litigation except under circumstances and under rules which
would render any other result a grave injustice.”
Centro
Empresarial, 17 N.Y.3d at 276 (citation omitted).
The May 2007 Release is a mutual release of claims written
in “clear and unambiguous language of remarkable breadth,” see
Bellefonte, 757 F.2d at 527.
In the agreement, following
Usach’s promise to pay Tikhman $3.5 million in five
installments, Tikhman commits to “unconditionally releas[ing]”
Usach and Usach’s affiliates, specifically including Brainblue,
from causes of action “known or unknown, suspected or
unsuspected,” arising from or relating to the parties’ prior
relationship.
The provision unambiguously releases Usach from
claims arising prior to May 23, 2007, including claims alleging
fraud.
Cf. Arfa v. Zamir, 17 N.Y.3d 737, 738-39 (N.Y. 2011)
(holding release of “any and all claims . . . known or unknown”
includes fraud claims).
All counterclaims but the fifth in the SACC arise out of
events preceding May 23, 2007, and are barred by the May 2007
Release.
In the SACC, the first, second, and third claims for
17
relief allege that Usach breached the Second Stock Agreement by
failing in 2005 and 2006 to pay Tikhman his full 50% share of
the Earnout payments.
The fourth claim for relief alleges fraud
in connection with the 2005 and 2006 Earnout shortfalls and the
Aricent consideration in early 2007.
The relevant alleged
misrepresentations and false statements predate the May 2007
Release.
The sixth claim for relief alleges that Usach breached
fiduciary duties owed to Tikhman on the basis of an agreement
entered into in 2001, which Tikhman claims established a joint
venture or general partnership governed by California law.
The
seventh claim alleges that Usach committed the Ukrainian tort of
delict if, in the alternative, Ukrainian law governs the 2001
agreement and its consequences.8
The eighth claim for relief
alleges fraudulent transfer in connection with the sale of AUCT
by Flextronic to Aricent.
These alleged fraudulent transfers
are undated, but predate February 2007.
8
Both the sixth and seventh claims for relief incorporate
virtually all of the allegations in the SACC. Therefore, to the
extent that the breaches underlying the sixth and seventh claims
include the 2005 and 2006 Earnout shortfalls and the shortfall
in the Aricent consideration, they are barred by the terms of
the May 2007 Release. To the extent that Tikhman intends to
allege that Usach breached fiduciary duties originating in a
2001 oral agreement between the parties when he failed to pay
Tikhman the October 2010 installment of the amount promised in
the May 2007 Agreement, that claim would not be barred by the
release.
18
The counterclaims asserted in the FACC against Brainblue
echo the first and eighth claims for relief in the SACC.
Both
of these counterclaims are also barred by the May 2007 Release.
Tikhman principally makes three arguments why the May 2007
Release should not bar these counterclaims.
In none of these
arguments does he contend that any of the dismissed
counterclaims fall outside the scope of the release.
Rather, he
attacks the release as invalid and unenforceable.
First, Tikhman argues that the doctrine of unclean hands
bars Usach and Brainblue from relying upon the May 2007 Release.
Unclean hands is an equitable defense to equitable claims.
See,
e.g., PenneCom B.V. v. Merrill Lynch & Co.,Inc., 372 F.3d 488,
493 (2d Cir. 2004); Dunlop-McCullen v. Local 1-S, AFL-CIO-CLC,
149 F.3d 85, 89-90 (2d Cir. 1998).
Under New York law, the
doctrine of unclean hands may bar a party from raising an
equitable defense, just as it may prevent a party from asserting
an equitable claim.
Matter of Uciechowski v. Ehrlich, 221
A.D.2d 866, 868 (3d Dept. 1995) (laches defense).
The defense
asserted by Usach and Brainblue, that the majority of Tikhman’s
counterclaims are barred by the May 2007 Release, arises out of
a contractual right.
The doctrine of unclean hands is therefore
inapplicable here.
Tikhman next argues that Usach materially breached the May
2007 Agreement when he failed to pay Tikhman $700,000 as
19
promised in October 2010.
Tikhman therefore reasons that he
should not have to honor the May 2007 Release.
“[B]efore
rescission will be permitted the breach must be material and
willful, or, if not willful, so substantial and fundamental as
to strongly tend to defeat the object of the parties in making
the contract.”
Septembertide Pub., B.V. v. Stein and Day, Inc.,
884 F.2d 675, 678 (2d Cir. 1989) (citation omitted).
“If a
breach is only partial, it may entitle the non-breaching party
to damages for the breach, but it does not entitle him simply to
treat the contract as at an end.”
New Windsor Volunteer
Ambulance Corps, Inc. v. Meyers, 442 F.3d 101, 117 (2d Cir.
2006).
Tikhman does not allege that Usach failed to make the first
three payments under the May 2007 Agreement.
The failure to pay
Tikhman the fourth installment constitutes a partial breach.
Tikhman’s remedy for that breach is damages, not rescission, and
performance of the May 2007 Release is not excused.
Third, Tikhman argues that the May 2007 Release must be set
aside because it was procured by fraud.
If the release was
induced by a “separate fraud,” it may be set aside; if “[t]he
fraud described in the complaint, however, falls squarely within
the scope of the release,” the claims remain barred.
Empresarial, 17 N.Y.3d at 277.
Centro
The SACC and the FACC allege, in
essence, that Usach paid Tikhman substantially less than the 50%
20
share of sale proceeds to which he was entitled in 2005, 2006,
and 2007.
It is apparent from the allegations in the SACC and
the FACC that by at least January 2007, Tikhman had grounds to
mistrust Usach.
In January 2007, Tikhman learned from an
Aricent executive that Usach had negotiated Flextronics’ sale of
AUCT to Aricent without informing Tikhman.
Soon thereafter,
Tikhman negotiated the May 2007 Agreement, which was a
settlement agreement entitling Tikhman to the fixed sum of $3.5
million in exchange for a release of all claims.
In two recent cases, the New York Court of Appeals has
enforced broad releases under similar circumstances, where
plaintiffs claimed that defendants withheld or misrepresented
critical financial information to secure their agreement to a
broad release of claims.
See Centro Empresario, 17 N.Y.3d at
278 (“A sophisticated principal is able to release its fiduciary
from claims -- at least where, as here, the fiduciary
relationship is no longer one of unquestioning trust -- so long
as the principal understands that the fiduciary is acting in its
own interest and the release is knowingly entered into[.]”)9;
Arfa, 17 N.Y.3d at 739 (“By their own admission, plaintiffs, who
9
Tikhman tries to distinguish Centro Empresarial by arguing that
that case involved corporations represented by counsel. But
Tikhman, as the SACC and FACC make clear, was a very
sophisticated businessman, and the May 2007 Agreement itself
states that it was negotiated with representation by counsel on
both sides.
21
are sophisticated parties, had ample indication prior to [the
release date] that defendant was not trustworthy, yet they
elected to release him from the very claims they now bring
without investigating the extent of his
Tikhman is a sophisticated businessman.
leged misconduct.")
He had ample grounds to
mistrust his business partner, and decided to settle for a sum
certain and future payments of fixed amounts rather than trust
to receive a percentage of future earnings.
Having done so,
Tikhman cannot now bring suit on the basis of claims that
squarely within the scope
1
the May 2007 Release.
Conclusion
Usach's July 22 motion to dismiss all of Tikhman's
counterclaims in the 8ACC except the fifth counterclaim for
breach of the May 2007 Agreement is granted.
Brainblue's July
22 motion to dismiss both of the counterclaims in the FACC is
granted.
80 ORDERED:
Dated:
New York, New York
December 7, 2011
D
United 8
22
District Judge
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