Kortright Capital Partners LP et al v. Investcorp Investment Advisers Limited

Filing 45

OPINION AND ORDER: re: 24 MOTION to Dismiss / Notice of Defendant Investcorp's Motion to Dismiss the Complaint filed by Investcorp Investment Advisers Limited. For the foregoing reasons, Investcorp's motion to dismiss is gran ted in part and denied in part. The motion is granted with respect to the breach of contract, implied covenant of good faith and fair dealing, promissory estoppel, and negligence claims. The motion is denied with respect to that portion of Kortright& #039;s negligent misrepresentation claim that pertains to the April 2016 discussions and Investcorp's need for client consent. The Clerk of Court is directed to terminate the motion pending at ECF No. 24. SO ORDERED. (Signed by Judge William H. Pauley, III on 6/27/2017) (ama)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

KORTRIGHT CAPITAL PARTNERS
LP, et al,
Plaintiffs,
-againstINVESTCORP INVESTMENT ADVISERS
LIMITED,
Defendant.

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16cv7619
OPINION & ORDER

WILLIAM H. PAULEY III, District Judge:
Plaintiffs Kortright Capital Partners LP and its co-founders, Matthew Taylor and
Ty Popplewell (collectively, “Kortright”), bring this action against Defendant Investcorp
Investment Advisers Limited (“Investcorp”) for negligent misrepresentation, negligence, breach
of contract, breach of the implied covenant of good faith and fair dealing, and promissory
estoppel. Investcorp moves to dismiss the Complaint. Investcorp’s motion is granted in part and
denied in part.
BACKGROUND
The allegations in the Complaint are presumed to be true for purposes of this
motion. Kortright Capital Partners was an SEC-registered investment adviser that managed
capital for high net worth individuals and institutional investors. (Compl. ¶ 31.) In November
2013, Investcorp, another SEC-registered investment adviser, entered into a “Project Agreement”
with Kortright. (Compl. ¶¶ 27, 35; Compl. Ex. A.) The Project Agreement required Investcorp
to invest $50 million of its proprietary capital in Kortright for a minimum of two years. (Compl.
¶ 39.) At the start of the Project Agreement, Investcorp also invested $40 million of its clients’
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capital in the Kortright funds. (Compl. ¶ 39.) The Project Agreement also contemplated that
Investcorp would help market the Kortright funds. (Compl. ¶¶ 38, 42.)
In exchange for its seed capital and marketing assistance, Kortright granted
Investcorp a share of its operating revenue (Compl. ¶ 46), veto power over certain corporate
actions (Compl. ¶ 44), and access to Kortright’s confidential information (Compl. ¶ 44, 48).
In January 2015, Man Group plc, an independent alternative asset management
company and competitor of Investcorp, approached Kortright to discuss a possible acquisition of
Kortright. (Compl. ¶¶ 55–57.) Their discussions spanned fourteen months and were not
disclosed to Investcorp. Ultimately, Man Group and Kortright focused on either bringing the
Kortright funds under the Man Group umbrella or winding down the Kortright funds and having
Kortright’s employees join the Man Group. (Compl. ¶ 58.)
In April 2016, Kortright disclosed to Investcorp that it had been exploring a new
business relationship with Man Group. (Compl. ¶ 61.) Investcorp indicated its preference for an
absorption of the Kortright funds into Man Group, provided that Investcorp was able to redeem
its proprietary capital prior to the acquisition. (Compl. ¶ 63.) Investcorp proposed to leave its
clients’ capital with Kortright. (Compl. ¶ 63.) Kortright discussed with Investcorp “the length
of time that such client capital would need to remain invested to satisfy [Kortright and the Man
Group]” and the benefits Investcorp would receive “in return for maintaining its [clients’
investment] for a period of time.” (Compl. ¶ 63.) Following these discussions, Kortright
outlined the basic terms of its new relationship with Investcorp in an email. (Compl. ¶ 64.)
Specifically, (1) the Kortright funds would become part of the Man Group, (2) Investcorp would
redeem its proprietary capital and permit its clients’ capital to continue to be invested in
Kortright, and (3) Investcorp would maintain at least 80% of its account balance at closing for

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six quarters in order to continue to receive its revenue sharing benefits. (Compl. ¶ 64.)
Subsequent conversations focused on the minimum investment threshold for Investcorp to
maintain its revenue sharing benefits. (Compl. ¶ 64.)
Following those discussions with Investcorp, Kortright and Man Group structured
their transaction to transfer the Kortright funds to the Man Group. (Compl. ¶ 65.) In May 2016,
Investcorp withdrew its proprietary capital. (Compl. ¶ 118.)
On June 16, 2016, Kortright and the Man Group entered into their agreement
(“the Man Transaction Agreement”). (Compl. ¶ 67.) Under the Man Transaction Agreement,
the Man Group committed to invest at least $300 million of its clients’ capital in Kortright funds,
which would be managed by Taylor and Popplewell as employees of Man Group. (Compl. ¶¶
67–68.) A condition of closing in the Man Transaction Agreement required Kortright to bring a
minimum level of investment from Investcorp to the Man Group. (Compl. ¶¶ 70, 89.)
Simultaneously, Kortright and Investcorp entered into two new agreements: a
“Termination Agreement” and a “Revenue Sharing Agreement.” (Compl. ¶ 74; Compl. Exs. B
and C.) The Termination Agreement ended the parties’ relationship under the Project Agreement
(Compl. ¶¶ 72–73; Compl. Ex. C), while the Revenue Sharing Agreement set new terms for the
parties’ relationship in view of the Man Transaction Agreement (Compl. ¶¶ 74–79; Compl.
Ex. B). Under the Revenue Sharing Agreement, Investcorp would continue to receive revenue
sharing benefits. (Compl. ¶ 74.) The Revenue Sharing Agreement also contained a termination
provision in the event Investcorp redeemed capital in excess of a threshold amount. (Compl.
¶¶ 75–76.) Importantly, the Revenue Sharing Agreement did not set a fixed term for Investcorp
to maintain its investment. (Compl. ¶¶ 74–79.)

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The day after the Man Transaction Agreement was executed, Kortright notified its
investors and sought consent to transfer their investments to the Man Group. (Compl. ¶ 83.)
The letters to investors also indicated that Investcorp planned to continue its partnership with
Kortright. (Compl. ¶ 83.) The Election Form included with the letters provided, among other
things, that the investor was making an independent decision to invest in the fund and that the
investor had all requisite power and authority to make the investment. (Compl. ¶ 85.)
Investcorp, as a client of Kortright, returned its consent forms within a week, and
Kortright began to wind down its funds. (Compl. ¶¶ 84, 89.) However, two business days later,
Investcorp revoked that consent on the basis that it was required to obtain its own clients’
consents to the transfer of investments. (Compl. ¶¶ 86–88.) Because Investcorp’s clients
declined to consent, the client capital was subject to mandatory redemption. (Compl. ¶ 87.)
As a result, a condition of the Man Transaction Agreement was not satisfied and
Man Group was relieved of its obligation to close the transaction. (Compl. ¶ 89.) Thereafter, the
Man Group informed Kortright that it would not proceed with the Man Transaction or the
employment of Taylor or Popplewell. (Compl. ¶ 90.)
STANDARD
On a motion to dismiss, the factual allegations in a complaint are accepted as true
and all reasonable inferences are drawn in the plaintiff’s favor. Gonzalez v. Hasty, 802 F.3d
212, 219 (2d Cir. 2015). To withstand dismissal, a pleading “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) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
On such motions, courts “may consider only the complaint, any written instrument attached to
the complaint as an exhibit, any statements or documents incorporated in it by reference, and any

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document upon which the complaint heavily relies.” ASARCO LLC v. Goodwin, 756 F.3d 191,
198 (2d Cir. 2014) (quoting In re Thelen LLP, 736 F.3d 213, 219 (2d Cir. 2013)).1
DISCUSSION
I.

Negligent Misrepresentation
To state a claim for negligent misrepresentation under New York law, the

Complaint must allege:
(1) the defendant had a duty, as a result of a special relationship, to give correct
information; (2) the defendant made a false representation that he or she should
have known was incorrect; (3) the information supplied in the representation was
known by the defendant to be desired by the plaintiff for a serious purpose; (4) the
plaintiff intended to rely and act upon it; and (5) the plaintiff reasonably relied on
it to his or her detriment.
Anschutz Corp. v. Merrill Lynch & Co., 690 F.3d 98, 114 (2d Cir. 2012) (internal quotation
marks omitted).
The Complaint alleges that Investcorp made multiple misrepresentations to
Kortright indicating its willingness to allow its clients’ investments in Kortright to be transferred
to the Man Gorup. Specifically, the Complaint alleges that Investcorp (1) provided false election
forms, regarding its clients’ consent to the Man Transaction Agreement, (2) failed to disclose the
need to obtain its clients’ consent for the Man Transaction, (3) permitted Kortright to represent in
its investor consent letters that Investcorp would remain invested with Kortright, (4)
misrepresented that it supported the transfer of Kortright funds into the Man Group in April
2016, and (5) misrepresented its willingness to commit to the Man Transaction by signing the
Revenue Sharing Agreement and Termination Agreement. (Compl. ¶ 100.) Kortright alleges it

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Because Kortright alleges only ordinary negligence, and not claims sounding in fraud, “there is no
compelling reason to trigger Rule 9(b).” Woori Bank v. RBS Sec., Inc., 910 F. Supp. 2d 697, 705 (S.D.N.Y. 2012);
In re Vivendi Universal, S.A., No. 02-CV-5571 (RJH), 2004 WL 876050, at *2 (S.D.N.Y. Apr. 22, 2004)
(“[A]llegations of . . . negligent misrepresentation need only meet the standards of Rule 8(a).”).

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relied on these statements in winding down its business and proceeding with the Man
Transaction Agreement. (Compl. ¶ 102.)
a. Reliance and Foreseeability
“In assessing the reasonableness of a plaintiff’s alleged reliance, [courts] consider
the entire context of the transaction, including factors such as its complexity and magnitude, the
sophistication of the parties, and the content of any agreements between them.” Emergent
Capital Inv. Mgmt., LLC v. Stonepath Grp., Inc., 343 F.3d 189, 195 (2d Cir. 2003). A plaintiff
must also show that such reliance was to its detriment, i.e., “that the misrepresentations directly
caused the loss about which plaintiff complains (loss causation).” Meyercord v. Curry, 832
N.Y.S.2d 29, 30 (1st Dep’t 2007). “Although reasonable reliance is a fact-specific inquiry
generally considered inappropriate for determination on a motion to dismiss, whether a plaintiff
has adequately pleaded justifiable reliance can be a proper subject for a motion to dismiss in
certain circumstances.” Glidepath Holding B.V. v. Spherion Corp., 590 F. Supp. 2d 435, 459
(S.D.N.Y. 2007).
In addition, “misstatements are actionable only if . . . plaintiffs’ reliance upon the
information [is] foreseeable.” Eternity Glob. Master Fund Ltd. v. Morgan Guar. Trust Co. of
N.Y., 375 F.3d 168, 187 (2d Cir. 2004). “There must be knowledge or its equivalent on the
defendant’s part that the information is desired for a serious purpose, that the plaintiff intends to
rely and act upon it, and that if the information is false or erroneous, he will suffer injury.”
Eternity, 375 F.3d at 187. Such “issues of proximate cause are often fact-laden, requiring a fully
developed factual record, and not a bare-bones motion to dismiss.” Bank Midwest, N.A. v.
Hypo Real Estate Capital Corp., No. 10-CV-232, 2010 WL 4449366, at *4 (S.D.N.Y. Oct. 13,
2010).

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i.

Election Forms, Client Consent Letters, and Revenue Sharing Agreement

In entering into the Man Transaction Agreement, Kortright allegedly relied on
Investcorp’s election forms and its representation that Kortright could represent in its client
consent letters that Investcorp would remain invested in the funds. (Compl. ¶¶ 100–02.)
However, both of these alleged misrepresentations occurred after Kortright executed the Man
Transaction Agreement, precluding Kortright’s reliance on those statements.
The Complaint also alleges that Kortright relied on the signed election forms to
begin to wind down its business in anticipation of transitioning to the Man Group. (Compl. ¶¶ 2,
89.) However, the Complaint does not allege how Kortright was harmed in the two business
days before Investcorp revoked its consent. Moreover, the Complaint states that Kortright had
“already begun winding down operations in anticipation of closing the Man Transaction.”
(Compl. ¶ 89.) Thus, this misrepresentation, too, fails to adequately allege reasonable or
detrimental reliance.
The Complaint further alleges that Investcorp misrepresented its willingness to
participate in the Man Transaction by signing the Termination Agreement and Revenue Sharing
Agreement. But “[w]here the plaintiff is a sophisticated investor and an integrated agreement
between the parties does not include the misrepresentation at issue, the plaintiff cannot establish
reasonable reliance on that misrepresentation.” ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493
F.3d 87, 105 (2d Cir. 2007). This is particularly true “where . . . a party has been put on notice
of the existence of material facts which have not been documented and he nevertheless proceeds
with a transaction without securing the available documentation or inserting appropriate
language in the agreement for his protection, he may truly be said to have willingly assumed the

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business risk that the facts may not be as represented.” Emergent, 343 F.3d at 195 (quoting
Rodas v. Manitaras, 159 A.D.2d 341, 343 (1st Dep’t 1990)).
Investcorp’s involvement with the Man Transaction was documented in the
Revenue Sharing Agreement, which preserved Investcorp’s ability to receive a portion of
revenues generated from Investcorp clients. But Kortright cannot claim reasonable reliance on
the Termination Agreement or the Revenue Sharing Agreement because neither document
committed Investcorp to maintaining its investment with Kortright. In fact, Kortright concedes
that the Termination and Revenue Sharing Agreements do not contain misstatements themselves,
instead arguing that the agreements reflect their reliance on Investcorp’s April 2016 statements.
(ECF No. 32 at 11 (“The Revenue Sharing Agreement itself is a product of Investcorp’s false
statements.”).)
ii.

April Statements and Investor Consent

The Complaint alleges that prior to structuring the Man Transaction Agreement,
Kortright presented both options to Investcorp. In ensuing discussions, Investcorp indicated its
preference to proceed with the Man Transaction using only its clients’ capital. (Compl. ¶ 63.)
Kortright granted Investcorp the right to withdraw its proprietary capital in advance of executing
the Man Transaction Agreement. The parties also discussed the financial benefits Investcorp
would receive “in return for maintaining its investment for a period of time. (Compl. ¶ 63.)
Whether it was foreseeable that Kortright would rely on Investcorp’s representations concerning
its willingness to continue its clients’ investment in Kortright while omitting any reference to the
need for client consent is a question of fact that cannot be resolved on a motion to dismiss.

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b. Future Statements
Generally, courts guard against a party’s “efforts to frame broken promises into
misrepresentations of present fact.” Murray v. Xerox Corp., 811 F.2d 118, 123–24 (2d Cir.
1987). “Promises of future conduct are not actionable as negligent misrepresentations.”
Murray, 811 F.2d at 122. “[T]he alleged misrepresentation must be factual in nature and not
promissory or relating to future events that might never come to fruition.” Hydro Inv’rs, Inc. v.
Trafalgar Power Inc., 227 F.3d 8, 20–21 (2d Cir. 2000); Henneberry v. Sumitomo Corp. of Am.,
532 F. Supp. 2d 523, 541 (S.D.N.Y. 2007) (“[Defendant’s] promise of an initial investment in
the future, that an investment ‘would close,’ and repeated statements that, should the need arise,
it ‘would be willing’ to make additional investments in the future, . . . fail to support a claim of
negligent misrepresentation as a matter of law because they solely speak to future conduct.”).
Kortright alleges that Investcorp negligently represented its willingness to
participate in the Man Transaction while failing to explain that the transfer of Investcorp’s client
capital was subject to client consent. However, those statements were made with a degree
definitiveness that led both parties to take action. After the April 2016 discussions, Investcorp
withdrew its proprietary capital in advance of the transfer of the Kortright funds to the Man
Group (Compl. ¶ 118) and Kortright structured the Man Transaction Agreement based on
Investcorp’s representations (Compl. ¶ 65). Thus, construed in the light most favorable to
Kortright, those statements reflected Investcorp’s then-present intention to participate in the
transfer of the Kortright funds to the Man Group—an intention on which both parties acted—not
simply promises of future action.

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c. Special Relationship
“[T]he standard of a special relationship in the context of a negligent
misrepresentation claim is less rigorous than that of a fiduciary duty.” Musalli Factory For Gold
& Jewellry v. JPMorgan Chase Bank, N.A., 261 F.R.D. 13, 28 (S.D.N.Y. 2009), aff’d sub nom.
Musalli Factory for Gold & Jewellry Co. v. JPMorgan Chase Bank, N.A., 382 F. App’x 107 (2d
Cir. 2010). In determining whether a special relationship exists, the New York Court of Appeals
has instructed courts to weigh three factors: (1) “whether the person making the representation
held or appeared to hold unique or special expertise;” (2) “whether a special relationship of trust
or confidence existed between the parties;” and (3) “whether the speaker was aware of the use to
which the information would be put and supplied it for that purpose.” Kimmell v. Schaefer, 89
N.Y.2d 257, 264 (N.Y. 1996); see also Suez Equity Inv’rs, L.P. v. Toronto-Dominion Bank, 250
F.3d 87, 103 (2d Cir. 2001). “Courts in this circuit have held that a determination of whether a
special relationship exists is highly fact-specific and generally not susceptible to resolution at the
pleadings stage.” Anwar v. Fairfield Greenwich Ltd., 728 F. Supp. 2d 372, 416 (S.D.N.Y. 2010)
(quoting Century Pac., Inc. v. Hilton Hotels Corp., No. 03-CV-8258, 2004 WL 868211, at *8
(S.D.N.Y. Apr. 21, 2004)).
“A special relationship may be brought about by either privity of contract between
the parties or a relationship so close as to approach that of privity.” JP Morgan Chase Bank v.
Winnick, 350 F. Supp. 2d 393, 400–01 (S.D.N.Y. 2004) (internal quotation marks omitted). “In
the commercial context, a duty to speak with care exists when the relationship of the parties,
arising out of contract or otherwise, is such that in morals and good conscience the one has the
right to rely upon the other for information and the reliance is justifiable.” Fraternity Fund Ltd.
v. Beacon Hill Asset Mgmt. LLC., 376 F. Supp. 2d 385, 411 (S.D.N.Y. 2005) (internal quotation

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marks omitted). But “the duty attendant to that special relationship ‘must spring from
circumstances extraneous to, and not constituting elements of the contract, although it may be
connected with and dependent upon the contract.’” JP Morgan, 350 F. Supp. 2d at 400–01
(quoting Clark-Fitzpatrick, Inc. v. Long Island RR Co., 70 N.Y.2d 382, 389 (N.Y. 1987)). “In
other words, ‘[i]f the only interest at stake is that of holding the defendant to a promise, the
courts have said that the plaintiff may not transmogrify the contract claim into one for tort.’” JP
Morgan, 350 F. Supp. 2d at 400–01 (quoting Hargrave v. Oki Nursery, Inc., 636 F.2d 897, 899
(2d Cir. 1980)).
Here, Kortright and Investcorp had “a closer degree of trust . . . than that of the
ordinary buyer and seller.” Dallas Aerospace, Inc. v. CIS Air Corp., 352 F.3d 775, 788 (2d Cir.
2003). Investcorp was Kortright’s “self-proclaimed ‘strategic partner’” and had special
privileges, including the ability to veto numerous proposed actions by Kortright. (Compl. ¶ 44–
46, 97.) In addition, Investcorp had access to “virtually any and all information regarding the
Kortright funds” (Compl. ¶ 44) and held itself out as a “partner,” offering “sales and marketing
support.” (Compl. ¶¶ 34–35.)
Moreover, Kortright’s negligent misrepresentation claim is tangential to the
Project Agreement. In JP Morgan, the agreement at issue required the defendant to provide
certain assurances that banks would rely on to advance funds. 350 F. Supp. 2d at 401. That
court found that a special relationship was not adequately alleged because the plaintiff could not
show that the special relationship was “in any way distinct from the defendants’ obligations
under the terms of the [agreement] itself.” JP Morgan, 350 F. Supp. 2d at 401. By contrast,
Investcorp’s alleged misrepresentations did not breach the explicit terms of the Project
Agreement; they contemplated a new relationship and termination of the Project Agreement.

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Investcorp argues that “[w]here the parties do not create their own relationship of
higher trust, courts should not fashion the stricter duty for them.” Brinsights, LLC v. Charming
Shoppes of Delaware, Inc., No. 06-CV-1745 (CM), 2008 WL 216969, at *8 (S.D.N.Y. Jan. 16,
2008). Investcorp claims that its relationship with Kortright was that of an “independent
contractor.” (Compl., Ex. A at 33.) But the contract provision Investcorp focuses on only
provides that Investcorp did not have an equity interest in Kortright. Unlike the contract in
Brinsights, it did not “disclaim[] any ‘employment or trust relationship between the parties.’”
2008 WL 216969, at *8.
In addition, a special relationship may exist because Investcorp “held or appeared
to hold unique or special expertise.” Kimmell, 89 N.Y.2d at 264. While “[a] company’s
knowledge of the particulars of its own business is not the type of unique or specialized
knowledge that the Court of Appeals was talking about,” MBIA Ins. Co. v. GMAC Mortg. LLC,
914 N.Y.S.2d 604, 611 (Sup. Ct. N.Y. County 2010), these cases typically refer to more
generalized, industry knowledge. Here, only Investcorp could have known whether consent
from its clients was required. Because Plaintiffs could not have obtained that information from
anyone else, it had to rely on Investcorp’s specialized knowledge.
Accordingly, the motion to dismiss the negligent misrepresentation claims
relating to the April 2016 discussions and client consent is denied.
II.

Negligence
“Duplicative claims shall be dismissed when they are based on identical conduct

and seek the same relief.” See Sands Harbor Marina Corp. v. Wells Fargo Ins. Servs. of Oregon,
Inc., 156 F. Supp. 3d 348, 362 (E.D.N.Y. 2016). Plaintiffs attempt to distinguish their
negligence claim from their negligent misrepresentation claim by arguing that the former arises

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out of Investcorp’s failure to ascertain whether it needed client consent, while the latter rests on
misleading representations to Plaintiffs regarding the need for client consent. This is a
distinction without a difference. An element of a negligent misrepresentation claim is that “the
defendant made a false representation that he or she should have known was incorrect.”
Anschutz, 690 F.3d at 114 (emphasis added). Thus, Investcorp’s failure to verify the need for
investor consent is a part of the negligent misrepresentation claim. Accordingly, the negligence
claim is dismissed as duplicative.
III.

Breach of Contract
The Project Agreement provides that Investcorp “will not make redemption

requests . . . based on Confidential Information disclosed to Investcorp pursuant to [the]
Agreement or otherwise use Confidential Information for proprietary trading.” (Compl. ¶ 116.)
“Confidential Information” is defined as “[a]ll information relating to the terms of this
Agreement, as well as any other non-public information exchanged between the parties.”
(Compl., Ex. A., § 5.1(a)(i).)
The Complaint alleges that after learning of the Man Transaction, Investcorp
breached those provisions by redeeming its proprietary capital in May 2016 and its clients’
capital in June 2016. However, a party can “waive[] a contractual right when it voluntarily and
intentionally abandons the enforcement of that right.” Am. Int’l Grp. Europe S.A. (Italy) v.
Franco Vago Int’l, Inc., 756 F. Supp. 2d 369, 380 (S.D.N.Y. 2010) (citing Beth Israel Med. Ctr.
v. Horizon Blue Cross & Blue Shield of N.J., Inc., 448 F.3d 573, 585 (2d Cir. 2006)). “Waiver
may be established by affirmative conduct or by failure to act so as to evince an intent not to
claim a purported advantage.” Gen. Motors Acceptance Corp. v. Clifton–Fine Cent. Sch. Dist.,
85 N.Y.2d 232, 236 (N.Y. 1995). Moreover, the Project Agreement itself contemplates such

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waivers and provides that any of its terms “may be waived . . . by a written instrument signed . . .
by the Party granting such waiver.” (Compl., Ex A., § 8.6.) And the confidentiality provision
provides that neither party will “use any Confidential Information except as authorized by the
disclosing Party.” (Compl., Ex. A, § 5.1(d).)
In an email confirming the parties’ April conversation, Kortright reiterated its
“expectation . . . that Investcorp prop[rietary] capital [would] be redeemed as soon as
practicable.” (Compl. ¶ 64.) Approximately a month later, Investcorp did precisely that and
redeemed its proprietary capital. (Compl. ¶ 118.) Instead of asserting its contractual rights under
the Project Agreement, Kortright then entered into the Termination Agreement and the Revenue
Sharing Agreement. Kortright’s email confirming that Investcorp would redeem its proprietary
capital and its subsequent acquiescence in the redemption of those funds, make clear that
Kortright waived the anti-redemption clause in the Project Agreement’s confidentiality
provision.
Moreover, unlike its proprietary capital, Investcorp’s client capital was not subject
to the confidentiality provision at all. The client capital was withdrawn only after Kortright
disclosed the material terms of the Man Transaction to all investors. Accordingly, the breach of
contract claim is dismissed.
IV.

Implied Covenant of Good Faith and Fair Dealing
New York law “prohibits either party from doing anything which will have the

effect of destroying or injuring the right of the other party to receive the fruits of the contract.”
1-10 Indus. Assocs., LLC v. Trim Corp. of Am., 297 A.D.2d 630, 631 (2d Dep’t 2002).
However, this implied covenant “can only impose an obligation consistent with other mutually
agreed upon terms in the contract. It does not add to the contract a substantive provision not

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included by the parties.” Nat’l Gear & Piston, Inc. v. Cummins Power Sys., LLC, 861 F. Supp.
2d 344, 364 (S.D.N.Y. 2012). Such claims “survive[] a motion to dismiss where the implied
promise protects either the contract’s central purpose or a party’s right under a specific
contractual provision.” Ret. Bd. of Policemen’s Annuity & Ben. Fund of City of Chicago v.
Bank of N.Y. Mellon, No. 11-CV-5459 (WHP), 2014 WL 3858469, at *5 (S.D.N.Y. July 30,
2014).
The Complaint alleges that Investcorp breached the “fundamental premise of the
Project Agreement” by “destroy[ing]” the Kortright funds. (Compl. ¶ 127.) But Kortright’s plan
all along was to exit the Project Agreement and enter into an entirely new arrangement with
Investcorp. Indeed, termination of the Project Agreement was a condition precedent to entering
into the Man Transaction Agreement. (Compl. ¶ 70.) Therefore, Investcorp’s conduct did not
undermine the Project Agreement.
In addition, “[t]o prove a violation of the implied covenant of good faith and fair
dealing, conclusory allegations of a party’s failure to act in good faith alone are insufficient;
specific factual allegations of a party’s bad faith acts are required.” Ferguson v. Lion Holding,
Inc., 478 F. Supp. 2d 455, 469 (S.D.N.Y. 2007) (citing Prospect St. Ventures I, LLC v. Eclipsys
Solutions Corp., 23 A.D.3d 213 (1st Dep’t 2005)). The Complaint alleges that Investcorp
“breached its obligation to act in good faith” by inducing Kortright to structure the Man
Transaction Agreement contingent on Investcorp’s participation, while failing to disclose the
need for client consent. (Compl. ¶ 128.) These conclusory allegations lack “sufficient factual
matter” to allow this Court “to draw the reasonable inference that” Investcorp “acted in bad
faith.” Wells Fargo Bank Nw., N.A. v. Sundowner Alexandria, LLC, No. 09-CV-7313 (BSJ),
2010 WL 3238948, at *4 (S.D.N.Y. Aug. 16, 2010). And in responding to Investcorp’s Rule

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9(b) argument, Kortright asserts that it is pleading negligence, not fraud, with respect to its tort
claims. (ECF No. 32 at 9.) Thus, the Complaint alleges negligence, not bad faith. That is
insufficient to state a claim for breach of the implied covenant. See Paul v. Bank of Am. Corp.,
No. 09-CV-1932 (ENV), 2011 WL 684083, at *6 (E.D.N.Y. Feb. 16, 2011) (“To succeed on [a
claim for breach of the implied covenant], more than negligence is needed.”).
V.

Promissory Estoppel
“The elements of a claim for promissory estoppel are: (1) a promise that is

sufficiently clear and unambiguous; (2) reasonable reliance on the promise by a party; and (3)
injury caused by the reliance.” MatlinPatterson ATA Holdings LLC v. Federal Express Corp.,
87 A.D.3d 836, 841–42 (1st Dep’t 2011). Generally, “[p]romissory estoppel . . . is a narrow
doctrine which generally only applies where there is no written contract, or where the parties’
written contract is unenforceable for some reason.” Paxi, LLC v. Shiseido Americas Corp., 636
F. Supp. 2d 275, 287 (S.D.N.Y. 2009).
Here, the Complaint alleges only that Investcorp expressed its preferred structure
for and interest in the Man Transaction. (See Compl. ¶ 63 (“[Investcorp] agreed that the first
structure was indeed preferable and that Investcorp would like to participate in the
transaction.”).) However, the Complaint does not allege any promise, much less a “clear and
unambiguous” promise to go forward with the transaction. Accordingly, the promissory estoppel
claim is dismissed.

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CONCLUSION
For the foregoing reasons, Investcorp’s motion to dismiss is granted in part and
denied in part. The motion is granted with respect to the breach of contract, implied covenant of
good faith and fair dealing, promissory estoppel, and negligence claims. The motion is denied
with respect to that portion of Kortright’s negligent misrepresentation claim that pertains to the
April 2016 discussions and Investcorp’s need for client consent.
The Clerk of Court is directed to terminate the motion pending at ECF No. 24.
Dated: June 27, 2017
New York, New York

SO ORDERED:

_______________________________
WILLIAM H. PAULEY III
U.S.D.J.

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