VFS Financing, Inc. v. Falcon Fifty, LLC et al
Filing
50
OPINION AND ORDER 104274 re: 33 MOTION to Dismiss Defendants' Counterclaims And Third Party Claims filed by General Electric Capital Corporation, VFS Financing, Inc., GE Equipment Corporate Aircraft Trust 2012-1 LLC, Canal Air LLC. For the foregoing reasons, plaintiffs' and third-party defendants' motion to dismiss defendants' counterclaims and third-party claims is GRANTED in part and DENIED in part. Defendants may proceed on the breach of contract cou nterclaim against VFS, the breach of the implied covenant of good faith and fair dealing counterclaim against GEECAT, and the tortious interference with contract claim against GE Capital as to the Falcon and Sky King Loans. Defendants' tortious interference with contract claim against GE Capital as to the Stellar lease is dismissed with leave to amend. Defendants' breach of contract claims against GE Capital and NYRISA claims are dismissed with prejudice. The Clerk of the Court is directed to close this motion (Dkt. No. 33). The final pre-trial conference will proceed as scheduled on May 13, 2014 at 4:30 pm. (Signed by Judge Shira A. Scheindlin on 4/30/2014) (lmb) Modified on 4/30/2014 (nt). Modified on 5/1/2014 (lmb).
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------------------------------){
'.~~~~:~
I
ELE(TRONICAU...Y FILED
DOC#:
VFS FINANCING, INC., and GE
EQUIPMENT CORPORATE AIRCRAFT
TRUST 2012-1 LLC,
1
~
~ F!J~~: ='Gfi!J
I
Plaintiffs,
OPINION AND ORDER
v.
FALCON FIFTY LLC, SKY KING LLC,
PHILIP L. ROGERS, and ALISA K.
ROGERS,
13 Civ. 3534 (SAS)
Defendants,
v.
GENERAL ELECTRIC CAPITAL
CORPORATION, and CANAL AIR LLC,
Third-Party Defendants.
-------------------------------------------------------)(
SHIRA A. SCHEINDLIN, U.S.D.J.:
I.
INTRODUCTION
VFS Financing, Inc. ("VFS") and GE Equipment Corporate Aircraft
Trust 2012-1 LLC ("GEECAT") bring this diversity action against Falcon Fifty
LLC ("Falcon Fifty"), Sky King LLC ("Sky King"), and Philip and Alisa Rogers
seeking damages for the alleged breach of two financing agreements that facilitated
1
l
:
defendants' purchase of two airplanes in 2009 and 2010. Defendants bring the
following counterclaims: 1) breach of contract against VFS; 2) breach of the
implied covenant of good faith and fair dealing against GEECAT; and 3) violation
of the New York Retail Installment Sales Act, N.Y. Pers. Prop.§§ 401, et seq.
("NYRISA") against both VFS and GEECAT. Defendants also bring the
following claims in a third-party complaint: 1) tortious interference with contract
against General Electric Capital Corporation ("GE Capital"); 2) breach of contract
against GE Capital; and 3) violation of NYRISA against both GE Capital and
Canal Air LLC ("Canal").
Plaintiffs and third-party defendants now move to dismiss defendants'
counterclaims and third-party claims under Federal Rule of Civil Procedure
12(b)(6) for failure to state a claim upon which relief can be granted. For the
following reasons, the motion is GRANTED in part and DENIED in part.
II.
BACKGROUND 1
A.
The Falcon Loan
Phil Rogers was the President and CEO of Catch the Wind, Inc.
("CTW"), a company that develops, manufactures and sells laser-based wind
Unless otherwise indicated, the facts are drawn from the Second
Amended Answer, Counterclaims, and Third-Party Complaint. The three sections
are separately numbered, so I refer to each separately as necessary.
2
sensing equipment. 2 Phil Rogers and his wife Alisa also sat on CTW' s board of
directors. 3 At some point in 2009, CTW "became interested in owning a corporate
aircraft, a Dassault Falcon 50" (the "Falcon Aircraft"), 4 and established Falcon
Fifty LLC, a Delaware limited liability company whose members were CTW (75%
ownership interest) and Tristar Aviation LLC ("Tristar") (25% ownership interest).
Falcon Fifty was formed as a single purpose entity for the purpose of owning the
aircraft. Phil and Alisa Rogers, through another LLC, are the members of Tristar.
"The Rogers' ownership of Falcon Fifty, through Tristar, was intended to allow the
Rogers' personal use of the Falcon Aircraft." 5
Falcon Fifty purchased the Falcon Aircraft from GEECAT through a
financing agreement with VFS (the "Falcon Loan"). GEECAT is a limited liability
company whose sole member is GE Capital and VFS is a wholly owned-subsidiary
of GE Capital. VFS and GE Capital are both Delaware corporations.
Counterclaims ~~ 2, 32. Catch the Wind, Inc. ("CTW") was the
operating company for Catch the Wind, Ltd. See id.~ 1. For ease of reference, I
will refer to both as "CTW."
2
3
See
4
Id.~
1.
5
Id.~
3.
id~
2.
3
The contract governing the Falcon Loan (the "Falcon Security
Agreement"), provides that "[Falcon Fifty] shall be in default under this
Agreement ... upon the occurrence of ... any merger or consolidation involving
[Falcon Fifty] ... or any change in control ... with respect to [Falcon Fifty]." 6
The Falcon Security Agreement further provides that "THIS AGREEMENT AND
THE DEBT DOCUMENTS SHALL NOT BE CHANGED OR TERMINATED,
NOR SHALL ANY WAIYER BE GIVEN, ORALLY OR BY COURSE OF
CONDUCT, BUT ONLY IN A WRITING SIGNED BY BOTH PARTIES
HERETO" and that"[ n]o waiver by [VFS] of any default shall operate as a waiver
of any other default or of the same default on a future occasion. " 7 Phil and Alisa
Rogers personally guaranteed the Falcon Loan.
B.
The Sky King Loan
In 2010, Phil and Alisa Rogers, "through [Sky King], another single
purpose entity," purchased a Raytheon Beech Premier IA (the "Premier Aircraft")
from Canal. 8 Canal is a wholly-owned subsidiary of GE Capital and affiliate of
6
9121109 Falcon Security Agreement, Exhibit ("Ex.") B to Declaration
of Christopher Lynch, counsel for plaintiffs and third-party defendants, ("Lynch
Deel.") ("Falcon Security Agreement") § 8( o).
7
Id.§§ 10, 13(g)
8
Counterclaims ,-i 6.
4
GEECAT. 9 VFS provided the financing for this purchase (the "Sky King Loan").
The terms of the Sky King Loan are substantially similar to the Falcon Loan and
also include a personal guarantee from the Rogers.
The Sky King Security Agreement provides
[Sky King] shall be in default under this Agreement and each of
the other Debt Documents upon the occurrence ... of any default
under any other agreement beyond any applicable grace or cure
periods set forth therein ... between [Sky King], and Guarantor
and/or parent entities, subsidiaries, or affiliates (on the one hand)
and [VFS] (or any of its affiliates, subsidiaries or parent entities
(on the other hand). 10
The Sky King Security Agreement also includes waiver provisions identical to the
Falcon Security Agreement. Both agreements include a choice of law provision
stating that the agreements are governed by New York law and that any dispute
should be adjudicated in either federal or state courts in New York. On June 27,
2012, VFS assigned all of its rights, title, and interests in and to the Sky King Loan
to GEECAT, but remained the subservicer of the loan.
C.
Change in Falcon Fifty Ownership
In June 2010, CTW re-domiciled to a foreign country. Because the
Federal Aviation Act requires that any entity owning a plane in the United States
9
See id.
10
6/25/10 Sky King Security Agreement, Ex. D to Lynch Deel., § 8(k).
5
be a domestic entity, Falcon Fifty had to change its ownership structure so that it
became 75% owned by Tristar and 25% owned by CTW. VFS did not oppose this
change in ownership, cease to perform under the contract, or stop accepting Falcon
Fifty's payments.
In October 2011, CTW withdrew its remaining interest in Falcon Fifty
due to a dispute with Phil and Alisa Rogers. This left Tristar, which "had never
contemplated paying the full loan amount," as the sole member. 11 At around this
time, "the Rogers contacted VFS to inquire about restructuring the Falcon Loan ...
[and] were directed to Beth Bonnell, GE Capital's VP of Global Restructuring." 12
Although Bonnell initially expressed interest in working to restructure the loan, no
such deal occurred. Bonnell asked the Rogers to provide additional collateral in
the form of shares of Optocal Air Data Systems, the Rogers' wholly-owned
company. The Rogers refused, citing stock restrictions. Falcon Fifty continued to
make, and VFS continued to accept, timely payments on the loan.
D.
VFS's Refusal to Consent to a Lease Agreement
After CTW's withdrawal, Falcon Fifty had no authority to operate the
aircraft because the Falcon Security Agreement requires that "the use of the
11
Counterclaims ,-i 20.
12
Id.
6
[Falcon Aircraft] shall be predominately for business purposes." 13 While CTW had
a business purpose for operating the Aircraft, Tristar' s "sole purpose for existing
was to own membership shares in Falcon Fifty. [It] conducted no business." 14 But
the Security Agreement allowed Falcon Fifty to "lease or charter" the Falcon
Aircraft upon receiving VFS's "prior written consent." 15 The same provision
stated that "such consent [was] not to be unreasonably withheld." 16
In October 2010, shortly after the first change in ownership, VFS
consented to Falcon Fifty leasing the aircraft to Short Hill Aviation Services. That
lease terminated on January 27, 2012. Falcon Fifty sought a replacement lessee
and negotiated a two year lease with Stellar Corporation ("Stellar"). "[Alisa]
Rogers made it clear to Bonell ... that it was essential for Falcon Fifty to lease the
Falcon Aircraft in order to remain current on the Falcon Loan and that the
opportunity for a two year lease with a qualified lessee was a rare and outstanding
opportunity." 17 Rogers also told Bonnell "that the lessee was willing to pay all the
13
Falcon Security Agreement§ 5a.
14
Id.
15
Id. Section 5a also required Falcon Fifty to make the necessary
regulatory filings and registrations to facilitate the operation of the plane by third
parties.
16
Id.
17
Counterclaims if 36.
7
costs associated with the ownership and operation of the Falcon Aircraft."
18
Through Bonnell, VFS refused to consent to the lease. Instead, it proposed a one
year lease with different terms, which Stellar agreed to. After the conclusion of the
first year, Stellar decided not to renew the lease. Shortly thereafter, VFS declared
the Falcon Loan in default, which triggered the Sky King Security Agreement's
cross-default provision and put the Sky King Loan in default as well.
III.
LEGAL STANDARD ON A MOTION TO DISMISS
In deciding a motion to dismiss pursuant to Rule l 2(b )( 6), the court
must '"accept[] all factual allegations in the [pleading] as true, and draw[] all
reasonable inferences in the [counterclaim plaintiffs] favor. "' 19 The court may
consider "only the [pleading], ... any documents attached thereto or incorporated
by reference and documents upon which the [pleading] relies heavily." 20
Allegations in the pleading that are "contradicted by more specific allegations or
documentary evidence" are not entitled to a presumption of truthfulness. 21
18
Id.
19
Wilson v. Merrill Lynch & Co., 671F.3d120, 128 (2d Cir. 2011)
(quoting Holmes v. Grubman, 568 F.3d 329, 335 (2d Cir. 2009)).
20
Building Indus. Elec. Contractors Ass 'n v. City ofNew York, 678 F.3d
184, 187 (2d Cir. 2012) (quotation marks omitted).
21
Kirkendall v. Halliburton, Inc., 707 F.3d 173, 175 n.l (2d Cir. 2013)
(citing L-7 Designs, Inc. v. Old Navy, LLC, 647 F.3d 419, 422 (2d Cir. 2011)).
8
The court evaluates the sufficiency of the pleading under the "twopronged approach" suggested by the Supreme Court in Ashcroft v. Iqbal. 22 Under
the first prong, a court may "begin by identifying pleadings that, because they are
no more than conclusions, are not entitled to the assumption of truth." 23 For
example, "[t]hreadbare recitals of the elements of a cause of action, supported by
mere conclusory statements, do not suffice." 24 Under the second prong of Iqbal,
"[ w ]hen there are well-pleaded factual allegations, a court should assume their
veracity and then determine whether they plausibly give rise to an entitlement for
relief." 25 A claim is plausible "when the plaintiff pleads factual content that allows
the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged." 26 "The plausibility standard is not akin to a probability
requirement, but it asks for more than a sheer possibility that a defendant has acted
unlawfully. " 27
22
See 556 U.S. 662, 678-79 (2009).
23
Id. at 679.
24
Id. at 678.
25
Id. at 679.
26
Id. at 678.
27
Id. (quotation marks omitted).
9
IV.
APPLICABLE LAW
A.
Breach of Contract
The elements of breach of contract under New York law are well
established: "( 1) the existence of a contract between [the plaintiff] and th[ e]
defendant; (2) performance of the plaintiffs obligations under the contract; (3)
breach of the contract by th[ e] defendant; and (4) damages to the plaintiff caused
by th[e] defendant's breach." 28
"Under New York law, a party's performance under a contract is
excused where the other party has substantially failed to perform its side of the
bargain or, synonymously, where that party has committed a material breach." 29 A
breach is material if it "go[ es] to the root of the agreement between the parties
[and] is so substantial that it defeats the object of the parties in making the
contract. " 30
"Conversely, a breach is not material, and the aggrieved party is not
excused from performance of its obligations, if the breaching party has
28
Diesel Props S.r.l. v. Greystone Bus. Credit II LLC, 631F.3d42, 52
(2d Cir. 2011 ).
29
Merrill Lynch & Co. Inc. v. Allegheny Energy, Inc., 500 F.3d 171, 186
(2d Cir. 2007).
° Frank Felix Assocs., Ltd. v. Austin Drugs, Inc., 111 F.3d 284, 289 (2d
Cir. 1997) (quotation marks omitted).
3
10
substantially performed [its] end of the contract." 31 "The issue of whether a party
has substantially performed is usually a question of fact and should be decided as a
matter of law only where the inferences are certain." 32 The New York Court of
Appeals has instructed courts to consider factors like the magnitude of default, its
effect on the contract's purpose, the willfulness of the breach, and the degree to
which the injured party has benefitted under the contract. 33
Even where the breach is material, New York's doctrine of election of
remedies provides that
the non-breaching party must choose between two remedies - it
can elect to terminate the contract and recover liquidated damages
or it can continue the contract and recover damages solely for the
breach. A party can indicate that it has chosen to continue the
contract by continuing to perform under the contract or by
accepting the performance of the breaching party. Once a party
elects to continue the contract, it can never thereafter elect to
terminate the contract based on that breach, although it retains the
31
Barbagallo v. Marcum LLP, 925 F. Supp. 2d 275, 287 (E.D.N.Y.
32
Merrill Lynch, 500 F.3d at 186.
2013).
33
See Hadden v. Consolidated Edison Co. ofN. Y., 34 N.Y.2d 88, 96
(197 4 ). Accord Restatement (Second) of Contracts § 241 ( 1981) (listing
circumstances that are significant for determining materiality of a breach, including
"the extent to which the injured party will be deprived of the benefit which he
reasonably expected" and "the extent to which the behavior of the party failing to
perform or to offer to perform comports with standards of good faith and fair
dealing").
11
option of terminating the contract based on other, subsequent
breaches. 34
B.
Covenant of Good Faith and Fair Dealing
Under New York law, every contract contains an implied promise that
"neither party to a contract shall do anything which has the effect of destroying or
injuring the right of the other party to receive the fruits of the contract." 35 A breach
of the covenant is "merely a breach of the underlying contract," and "cannot be
used to create new contractual rights between the parties." 36
C.
New York Retail Installment Sales Act
NYRISA governs retail installment contracts, obligations and credit
agreements, which are, in sum and substance, "agreement[ s] entered into in this
state" pursuant to which a retail buyer pays in installments either 1) the time of sale
price for goods purchased from a retail seller, or 2) his outstanding indebtedness
for goods purchased from a retail seller. 37 NYRISA defines retail buyer and retail
34
ESPN, Inc. v. Office of Com 'r of Baseball, 76 F. Supp. 2d 383, 387-88
(S.D.N.Y. 1999) (citation and alterations omitted).
35
M/A-COM Sec. Corp. v. Galesi, 904 F.2d 134, 136 (2d Cir. 1990).
36
Cohen v. Elephant Wireless, Inc., No. 03 Civ. 4058, 2004 WL
1872421, at *11 (S.D.N.Y. Aug. 19, 2004) (quotation marks and citations omitted).
37
NY Pers. Prop. L. §§ 401(6-8). The statute also permits retail sellers
to retain a security interest in the goods
12
seller circularly: a retail seller is "a person who sells goods ... to a retail buyer"
and a retail buyer is a "a person who buys goods ... from a retail seller." "Goods"
are defined as "all chattels personal ... sold for other than a commercial or
business use or for purpose of resale. " 38
D.
Piercing the Corporate Veil
"New York's choice of law rules provide that 'the law of the state of
incorporation determines when the corporate form will be disregarded and liability
will be imposed on shareholders. "' 39 Delaware law applies here because GE
Capital and VFS are both incorporated in Delaware. Under Delaware law, "a court
can pierce the corporate veil of an entity where there is fraud or where a subsidiary
is in fact a mere instrumentality or alter ego of its owner." 40 "To prevail under the
alter-ego theory of piercing the veil, a plaintiff need not prove that there was actual
fraud but must show [ 1] a mingling of the operations of the entity and its owner
[,and] [2] an 'overall element of injustice or unfairness. "' 41
38
Id.§ 401(1).
39
Taizhou Zhongneng Import and Export Co., Ltd. v. Koutsobinas, 509
Fed. App'x 54, 56 n.2 (2d Cir. 2013) (quoting Fletcher v. Atex, Inc., 68 F.3d 1451,
1456 (2d Cir. 1995)).
40
Geyer v. Ingersoll Puhl 'n Co., 621 A.2d 784, 793 (Del. Ch. 1992).
41
NetJets Aviation, Inc. v. LHC Commc 'ns, LLC, 537 F.3d 168,176-77
(2d Cir. 2008) (quoting Harco Nat 'I Ins. Co. v. Green Farms, Inc., No. Civ. A.
13
Several factors are relevant to determining the first prong of the
Delaware test, including
whether the corporation was adequately capitalized for the
corporate undertaking; whether the corporation was solvent;
whether dividends were paid, corporate records kept, officers and
directors functioned properly, and other corporate formalities were
observed; whether the dominant shareholder siphoned corporate
funds; and whether, in general, the corporation simply functioned
as a facade for the dominant shareholder. 42
"The separate corporate existences of parent and subsidiary will not be set aside
merely on a showing of common management of the two entities, nor on a showing
that the parent owned all the stock of the subsidiary." 43
The second element of the Delaware test requires demonstrating a
"fraud or similar injustice" in the "use of the corporate form. [T]he underlying
cause of action[, at least by itself,] does not supply the necessary fraud or injustice.
To hold otherwise would render the fraud or injustice element meaningless, and
would sanction bootstrapping." 44
1331, 1989 WL 110537, at *4 (Del. Ch. Sept. 19, 1989)).
42
United States v. Golden Acres, Inc., 702 F. Supp. 1097, 1104 (D. Del.
1988).
43
Capmark Fin. Group Inc. v. Goldman Sachs Credit Partners L.P., 491
B.R. 335, 350 (S.D.N.Y. 2013) (applying Delaware law) (quotation omitted).
44
Brown v. GE Capital Corp., 290 B.R. 229, 236 (Bankr. D. Del. 2003)
(quotations and other marks omitted).
14
E.
Tortious Interference with Contract
The elements of tortious interference with contract under Virginia
law45 are:
(i) the existence of a valid contractual relationship or business
expectancy; (ii) knowledge of the relationship or expectancy on
the part of the interferor; (iii) intentional interference inducing or
causing a breach or termination of the relationship or expectancy;
and (iv) resultant damage to the party whose relationship or
expectancy has been disrupted. 46
Where the allegation is based on interference with a business or contract
expectancy, as opposed to a legally binding contract, Virginia requires proof that
the interferor used "improper means" to interfere with the relationship or
expectancy. 47
V.
DISCUSSION
A.
Breach of Contract Claim Against VFS and Breach of Implied
Covenant of Good Faith and Fair Dealing Against GEECA T
45
Defendants plead, and plaintiffs appear to accept, that Virginia law
should govern this claim because the alleged tortious interference caused damages
to the Rogers in Virginia, the state where they reside.
46
DurretteBradshaw, P.C. v. MRC Consulting, L.C., 277 Va. 140, 145
(2009).
47
Maxim us, Inc. v. Lockheed Info. Mgmt. Sys. Co., 254 Va. 408, 414-15
(1997).
15
Defendants argue that VFS breached the Falcon Security Agreement
by unreasonably withholding its consent to the two-year Stellar lease, despite the
fact that the lease contained substantially similar terms and conditions to
previously approved leases and with full knowledge of the fact that leasing the
aircraft was the only way Falcon Fifty could continue to make timely payments on
the loan. 48 Defendants argue that this breach caused them to default on the Falcon
Loan, which triggered the cross-default provision of the Sky King Loan. 49
Defendants further contend that VFS acted as the subagent for GEECAT for
purposes of the Sky King Loan because VFS continued to be the subservicer on
that loan.so Thus, defendants argue that GEECAT breached the covenant of good
faith and fair dealing, by virtue of its subagent's actions which triggered the default
of the Sky King Loan.st
VFS responds that the counterclaims fail as a matter of law because its
performance under both loans was excused by virtue of Falcon Fifty's "prior
48
See Counterclaims iii! 49-56.
49
See id.
so
5l
See id.
if 68.
See id.
iii! 69- 71.
16
material breach." 52 VFS contends that under Section 8( o) of the Falcon Security
Agreement, Falcon Fifty was in default both when CTW lowered its membership
interest from 75% to 25% and again when CTW withdrew its interest entirely. 53
According to plaintiffs, this earlier material breach excused VFS from performing
under the Falcon Loan, and independently triggered the cross-default provision of
the Sky King Loan.
In order to accept VFS's theory, I would be required to find - as a
matter of law - that defendants' earlier breaches were material. But the materiality
of a breach is highly fact specific and defendants have alleged enough facts to
plausibly suggest that the earlier breaches were not material. VFS did not oppose
either change in ownership or seek to terminate the agreement as a result. Falcon
Fifty continued to make payments on the loan and VFS continued to accept them.
VFS continued to perform under the agreement, including consenting to the Short
Hills and one-year Stellar leases. Further, CTW posted neither collateral nor
security for the loan, which could lead to a reasonable inference that its exit from
Falcon Fifty was not material.
52
Plaintiffs and Third-Party Defendants' Memorandum of Law in
Support of Motion to Dismiss Defendants' Counterclaims and Third-Party Claims,
at 6.
53
See id. at 7.
17
Even if the breaches were material, defendants have sufficiently pled
an election of remedies defense. Although VFS argues that the Security
Agreements' waiver provisions forbid any waiver of default other than in writing
by both parties, the election of remedies doctrine under New York law states that if
a non-breaching party chooses to continue performance after a breach, it cannot
then seek to terminate that contract based on the same breach. The only remedy is
damages arising from the earlier breach. Because Falcon Fifty continued to make
payments on the loan and VFS continued to accept those payments, it is reasonable
to infer that VFS elected to continue performing under the contract and its failure
to perform cannot be excused.
Defendants state a claim for both breach of contract against VFS and
breach of the covenant of good faith and fair dealing against GEECAT. Taking
defendants' allegations as true, VFS' s refusal to consent to the two-year Stellar
lease was unreasonable where the terms of the lease were substantially similar to
prior leases that VFS had approved, where the lessee agreed to pay for all costs
associated with ownership and operation of the Falcon Aircraft, where Falcon
Fifty, through Alisa Rogers, told VFS that the lease was necessary to allow Falcon
Fifty to remain current on the loan, and where VFS knew that a default on the
Falcon Loan would trigger a default on the Sky King Loan. Defendants have
18
plausibly alleged that VFS was acting on its own behalf for the purpose of the
Falcon Loan and as an agent for GEECAT for the purpose of the Sky King Loan.
Plaintiffs' motion to dismiss the breach of contract and breach of the implied
covenant of good faith and fair dealing claims is DENIED.
B.
Claims Against GE Capital
1.
Breach of Contract
Defendants claim, in a third-party complaint, that GE Capital
breached the Falcon and Sky King Loans by causing VFS to unreasonably
withhold consent to the two-year Stellar lease. 54 GE Capital is not a party to the
Falcon and Sky King Loans. Defendants allege that GE Capital is an "alter ego" of
VFS and GEECAT and "exerts complete control over" both. 55 Thus, according to
defendants, "any breach by VFS [or GEECA T] [is] therefore [a] breach[] by GE
Capital." 56
Defendants have not sufficiently pled an alter ego theory. The
counterclaims and third-party complaint contain, at best, conclusory statements
that GE Capital "controls" VFS and GEECAT or acts as VFS's "manager." But
54
See Third-Party Complaint,
55
Id.
ifif 37-38, 43-44.
56
Id.
iii! 36-47
ifif 39, 45.
19
the only specific allegation to support that claim is that defendants were told by
VFS to communicate with Bonnell, GE Capital's VP of Global Restructuring,
about the loans. However, the mere fact that a "subsidiary shares employees,
officers, and directors with a parent does not permit the corporate form to be
disregarded." 57 A court cannot "infer domination and control" when "[t]he only
factual allegation tying together the ... entities is that the same employees
managed" the transactions at issue. 58 Further, defendants make no allegations
showing that there was any fraud or similar injustice inherent in the use of the
corporate forms, separate from the alleged unfairness or injustice arising from this
transaction. This is not enough to pierce the corporate veil.
Defendants' third-party claims for breach of contract against GE
Capital are dismissed without leave to amend. Defendants state that "[ w ]ith the
exception of GE Capital's dominance over VFS and GEECAT, [d]efendants will
not know which other factors [under the Delaware test for piercing the corporate
veil] ... are applicable to GE Capital until ... discovery." 59 But defendants have
57
Capmark, 491 B.R. at 350.
58
Official Comm. of Unsecured Creditors of Champion Enters., Inc. v.
Credit Suisse (In re Champion Enters., Inc.), No. 09 Civ. 14014, 2010 WL
3522132, at *10 (Bankr. D. Del. Sept. 1, 2010).
59
Defendants' Opposition to Motion to Dismiss Counterclaims and
Third-Party Claims, at 14.
20
alleged no facts to even suggest GE Capital's "dominance." By defendants' own
admission, amendment would be futile.
2.
Tortious Interference with Contract
a.
Falcon and Sky King Loans
However, defendants have adequately pled that GE Capital, through
Bonnell, tortiously interfered with the Falcon and Sky King Loans. The loan
agreements were valid contracts. GE Capital knew of the existence of the
contracts. Bonnell's actions on behalf of GE Capital may have been sufficient to
constitute "intentional interference" that resulted in VFS's refusal to approve the
two-year Stellar lease, which resulted in defendants' default under both contracts.
GE Capital's motion to dismiss defendants' third-party claims for tortious
interference with the Falcon and Sky King Loans is DENIED.
b.
Stellar Lease
Defendants further claim that GE Capital tortiously interfered with the
two-year Stellar lease. GE Capital argues that although Falcon Fifty and Stellar
both signed the contract, it was not legally valid until VFS gave consent to the
lease. Defendants respond that in the absence of a valid contract, the signed lease
created an actionable business expectancy.
21
Under Virginia law defendants are required to plead that the interferor
used "improper means" to interfere with a business expectancy. The Virginia
Supreme Court has held that "[ w]hile improper methods or means need not be
'inherently illegal or tortious[,]' ... breach of [contract] is not in itself an improper
method or means." 60
Improper methods or means generally involve violence, threats or
intimidation, bribery, unfounded litigation, fraud,
misrepresentation or deceit, defamation, duress, undue influence,
misuse of inside or confidential information, breach of a fiduciary
relationship, violation of an established standard of a trade or
profession, unethical conduct, sharp dealing, overreaching, or
unfair competition. 61
Defendants have not alleged that GE Capital committed any of these acts in
connection with its breach of the Falcon Security Agreement. Therefore, GE
Capital's motion to dismiss defendants' third-party claim for tortious interference
with the two-year Stellar lease is GRANTED with leave to amend.
C.
NYRISA Claims Against GE Capital, VFS, GEECAT, and Canal
Defendants allege that the Falcon and Sky King Loans "do not comply
with the requirements of NYRISA" and should be declared "invalid, void and
unenforceable," or in the alternative, defendants' liability for the sale should be
60
Preferred Sys. Solutions, Inc. v. GP Consulting, LLC, 284 Va. 382,
403-04 (2012).
61
Id. at 404.
22
"limited to the purchase price of the aircraft[s], less amounts already paid." 62 But
defendants do not specify which subsections of which agreements fail to comply
with which provisions of NYRISA. More importantly, NYRISA does not govern
these contracts because, as stated in the Security Agreements, both aircrafts were
purchased "predominantly for business purposes. " 63 "By its terms, [NYRISA]
does not apply to goods sold for a business or commercial use." 64
Defendants argue that NYRISA should nevertheless apply because the
Rogers made some personal trips on the planes. That may be true. But the
language of the statute is clear - goods are defined as "all chattel personal ... sold
for other than a commercial or business purpose. " 65 Whether the Rogers made
personal use of the aircrafts is irrelevant because the planes were purchased/or a
business purpose. The NYRISA claims are dismissed without leave to amend.
VI.
CONCLUSION
62
Counterclaims i1i1 58-62.
63
Falcon Security Agreement§ 5(a); Sky King Security Agreement§
64
Ruminant Nitrogen Prods. v. Zittel, 78 A.D.2d 766, 766 (4th Dep't
65
NY Pers. Prop. L. § 401(1) (emphasis added).
5(a).
1980).
23
For the foregoing reasons, plaintiffs' and third-party defendants'
motion to dismiss defendants 1 counterclaims and third-party claims is GRANTED
in part and DENIED in part. Defendants may proceed on the breach of contract
counterclaim against VFS, the breach of the implied covenant of good faith and
fair dealing counterclaim against GEECAT, and the tortious interference with
contract claim against GE Capital as to the Falcon and Sky King Loans.
Defendants' tortious interference with contract claim against GE Capital as to the
Stellar lease is dismissed with leave to amend. Defendants' breach of contract
claims against GE Capital and NYRISA claims are dismissed with prejudice. The
Clerk of the Court is directed to close this motion (Dkt. No. 33). The final pre-trial
conference will proceed as scheduled on May 13, 2014 at 4:30 pm.
SO ORDERED:
Dated:
New York, New York
April 30, 2014
24
- Appearances For Plaintiffs and Third-Party Defendants:
Christopher A. Lynch, Esq.
Reed Smith
599 Lexington Avenue
New York, NY 10022
(212) 521-5400
For Defendants:
Kenneth Michael Murray, Esq.
Beugelmans, PLLC
80 Broad Street, Ste. 1302
New York, NY 10004
(646) 350-0050
Neil R. Lapinski, Esq.
Philip A. Giordano, Esq.
1925 Lovering A venue
Wilmington, DE 19806
(302) 652-2900
25
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