Bentivoglio et al v. Event Cardio Group Inc. et al
Filing
127
OPINION AND ORDER re: 110 MOTION for Summary Judgment filed by Gianfranco "John" Bentivoglio, 126 LETTER MOTION for Oral Argument addressed to Judge P. Kevin Castel from Aileen E. McTiernan dated November 10, 2020 filed by Gianfranco "John" Bentivoglio. For the reasons stated above, Bentivoglio's motion for summary judgment on the remaining breach of contract claim is GRANTED. He has met the elements of breach of c ontract under New York law, and ECGI's defenses do not raise any genuine issues of material fact. Plaintiff shall submit a proposed judgment within fourteen (14) days of this Order. Pursuant to Rule 54(d)(2)(B), Plaintiff may submit his application for attorney's fees and expenses within fourteen (14) days after the entry of judgment. The Clerk is directed to terminate the motion (Docs 110, 126). (Signed by Judge P. Kevin Castel on 2/24/2021) (mro)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-----------------------------------------------------------x
GIANFRANCO “JOHN” BENTIVOGLIO,
Plaintiff,
-against-
18-cv-2040 (PKC)
OPINION
AND ORDER
EVENT CARDIO GROUP, INC., and
EFIL SUB OF ECG, INC.,
Defendants.
-----------------------------------------------------------x
CASTEL, U.S.D.J.
Plaintiff John Bentivoglio brought this action against defendants Event Cardio
Group, Inc. (“ECGI”) and EFIL Sub of ECG, Inc. ECGI is in the business of developing
technology relating to wireless heart monitoring and breast cancer detection. The Court
previously dismissed all claims against EFIL Sub of ECG, Inc and all claims against ECGI,
except the breach of contract claim. (See Doc 93 – Opinion and Order of November 27, 2019,
2019 WL 6341130.) With discovery now closed, Bentivoglio moves for summary judgment on
the breach of contract claim for failing to pay certain consulting fees. For the reasons that
follow, the motion will be granted.
BACKGROUND
The facts below are undisputed except where otherwise noted. Because the
allegations in this case are well described in this Court’s prior Opinion and Order (Doc 93), only
a brief description of the facts follows.
Plaintiff John Bentivoglio founded ECGI in 2014 and was the sole director and
officer of the entity from June 2014 to November 2016. (Pl. 56.1 ¶ 2; Def. 56.1 Resp. ¶ 2.)1
Although neither side features it prominently in their submissions, Bentivoglio sold 3.5 million
shares of ECGI to Frank Sgro or an entity he controlled and resigned from ECGI. (Complaint at
¶ 16; Answer at ¶ 16; Doc 119 – Ex. 2 at ¶ 4(b).)2 In connection with Bentivoglio’s resignation,
Bentivoglio and ECGI entered into a Consulting and Special Projects Agreement (“Consulting
Agreement”) whereby he would provide offsite services to the company in exchange for a
monthly payment. (Pl. 56.1 ¶ 3; Def. 56.1 Resp. ¶ 3; Doc 119 – Ex. 3 (Consulting Agreement).)
The agreement was for the period beginning on November 1, 2016 through October 31, 2020.
(Id.) Bentivoglio was to receive $125,000 per year for the four-year term, broken into monthly
payments of $10,416.67, along with an “additional payment” of $1,000 per month. (Pl. 56.1 ¶¶
11–14; Def. 56.1 Resp. ¶¶ 11–14.) The agreement contains New York choice of law and forum
provisions, as well as a clause specifying that it is a fully integrated agreement. (Pl. 56.1 ¶¶ 7–9;
Def. 56.1 Resp. ¶¶ 7–9.)
ECGI paid Bentivoglio per the terms of the contract for the first three months.
(Pl. 56.1 ¶ 20; Def. 56.1 Resp. ¶ 20.) On January 31, 2017, ECGI sent Bentivoglio a “Dispute
Resolution Notice Under Paragraph 15 of the [Consulting Agreement]” indicating that it planned
to suspend the payments. (Pl. 56.1 ¶ 21; Def. 56.1 Resp. ¶ 21.) Accompanying the notice were
two spreadsheets listing withdrawals from ECGI accounts that occurred prior to his resignation
when Bentivoglio was the sole officer of the company, for which ECGI could not locate any
business receipts. (Doc 119 – Ex. 5.) Many of the payments are alleged to be direct transfers to
Citations to the parties’ Rule 56.1 Statements are intended as a convenient reference to the evidence cited in those
statements.
2
In his initial Complaint, Bentivoglio asserted breach of fiduciary duty and “shareholder oppression” claims against
Sgro that he dropped in his Second Amended Complaint.
1
2
Bentivoglio or payments on his behalf. (Id.) According to ECGI, Bentivoglio fraudulently
induced ECGI into entering the Consulting Agreement by failing to disclose during negotiations
that he had misappropriated corporate funds and rendered the company insolvent. (Def. 56.1
Resp. ¶¶ 27–30.)
Despite sending the January notice, ECGI continued payments for four more
months, suspending payments indefinitely in June 2017. (Pl. 56.1 ¶¶ 26–27; Def. 56.1 Resp. ¶¶
26–27.) Bentivolio has come forward with evidence, and ECGI does not dispute, that the
remaining payments under the Consulting Agreement total $427,083.47 in fees and $41,000 in
“additional payments.” (Pl. 56.1 ¶ 29–30; Def. 56.1 Resp. ¶ 29–30.)
SUMMARY JUDGMENT STANDARD
Summary judgment “shall” be granted “if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a matter of
law.” Rule 56(a), Fed. R. Civ. P. A fact is material if it “might affect the outcome of the suit
under the governing law. . . .” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). “A
dispute regarding a material fact is genuine ‘if the evidence is such that a reasonable jury could
return a verdict for the nonmoving party.’ ” Weinstock v. Columbia Univ., 224 F.3d 33, 41 (2d
Cir. 2000) (quoting Anderson, 477 U.S. at 248). On a motion for summary judgment, the court
must “construe the facts in the light most favorable to the non-moving party” and “resolve all
ambiguities and draw all reasonable inferences against the movant.” Delaney v. Bank of Am.
Corp., 766 F.3d 163, 167 (2d Cir. 2014) (quotation marks omitted).
It is the initial burden of the movant to come forward with evidence sufficient to
entitle the movant to relief in its favor as a matter of law. Vt. Teddy Bear Co. v. 1-800 Beargram
Co., 373 F.3d 241, 244 (2d Cir. 2004). If the moving party meets its burden, “the nonmoving
3
party must come forward with admissible evidence sufficient to raise a genuine issue of fact for
trial in order to avoid summary judgment.” Simsbury-Avon Pres. Soc'y LLC v. Metacon Gun
Club, Inc., 575 F.3d 199, 204 (2d Cir. 2009). In raising a triable issue of fact, the non-movant
carries only “a limited burden of production,” but nevertheless “must ‘demonstrate more than
some metaphysical doubt as to the material facts,’ and come forward with ‘specific facts
showing that there is a genuine issue for trial.’ ” Powell v. Nat'l Bd. of Med. Exam'rs, 364 F.3d
79, 84 (2d Cir. 2004) (quoting Aslanidis v. U.S. Lines, Inc., 7 F.3d 1067, 1072 (2d Cir. 1993)).
A court “may grant summary judgment only when ‘no reasonable trier of fact could find in favor
of the nonmoving party.’ ” Allen v. Coughlin, 64 F.3d 77, 79 (2d Cir. 1995) (citation omitted).
“When the burden of proof at trial would fall on the nonmoving party, it ordinarily is sufficient
for the movant to point to a lack of evidence to go to the trier of fact on an essential element of
the nonmovant's claim. In that event, the nonmoving party must come forward with admissible
evidence sufficient to raise a genuine issue of fact for trial in order to avoid summary judgment.”
Simsbury-Avon Pres., 575 F.3d at 204 (internal citation omitted).
DISCUSSION
Bentivoglio moves for summary judgment on his breach of contract claim,
arguing that that he is entitled to judgment as a matter of law as to both liability and damages.
He asserts that ECGI does not dispute the existence of the Consulting Agreement, and that the
agreement unambiguously establishes ECGI’s “unconditional and absolute” obligation to pay
plaintiff. In opposition, ECGI disputes the validity of the Consulting Agreement, arguing that it
lacks consideration, is unconscionable, and is the product of fraudulent inducement. In the
alternative, ECGI asserts that Bentivoglio was the breaching party.
4
A. The Undisputed Facts Establish
ECGI’s Breach of the Consulting Agreement
To establish a claim for breach of contract, the plaintiff must prove “the existence
of a contract, the plaintiff’s performance thereunder, the defendant’s breach thereof, and
resulting damages.” Second Source Funding, LLC v. Yellowstone Capital, LLC, 144 A.D.3d
445, 445–46 (1st Dep’t 2016); see also Johnson v. Nextel Commc’ns, Inc., 660 F.3d 131, 142
(2d Cir. 2011). Bentivoglio has come forward with evidence which establishes all four elements.
In response to the motion, ECGI does not contest the existence of the Consulting Agreement, its
unambiguous payment terms and the cessation of payments in June 2017. (Pl. 56.1 ¶¶ 3, 10–14,
27; Def. 56.1 Resp. ¶¶ 3, 10–14, 27.)
ECGI argues that Bentivoglio did not adequately perform under the Consulting
Agreement. But its argument fails in view of the unambiguous terms of the Consulting
Agreement providing that ECGI’s obligation to pay Bentivoglio is “unconditional and absolute,”
even in the event of an “actual breach.” (Consulting Agreement at ¶ 2.5.) It explicitly states that
Bentivoglio must be paid even in the event of his “death or disability” or “alleged or actual
breach. . . of any of the terms of th[e] agreement. . . .” (Id. at ¶¶ 2.5, 9.1.)
Under New York law, “interpretation of an unambiguous contract provision is a
function for the court, and matters extrinsic to the agreement may not be considered when
the intent of the parties can be gleaned from the face of the instrument. . . .” Teitelbaum
Holdings, Ltd. v. Gold, 48 N.Y.2d 51, 56 (1979). The Consulting Agreement manifests an
intention of the parties to make Bentivoglio’s right to receive payment not dependent upon the
outcome of any future dispute as to adequacy of his contractual performance. ECGI took the
economic risk that Bentivoglio would die or fail to perform and yet it would remain obligated to
pay him. The Court will give the “unconditional and absolute” obligation to pay its intended
5
meaning. If Bentivoglio failed to perform services required under the Consulting Agreement,
something he vehemently disputes, it did not excuse ECGI’s obligation to make payment under
Paragraphs 2.1 and 2.2 of the agreement. However, the unconditional payment obligation did
not insulate Bentivoglio from a claim for money damages or injunctive relief flowing from any
breach of the Consulting Agreement. But no counterclaim has been asserted in this action.
“In a breach of contract action, summary judgment is appropriate ‘[w]here the
language of the contract is unambiguous, and reasonable persons could not differ as to its
meaning.’ ” Fulton Cogeneration Associates v. Niagra Mohawk Power Corp., 84 F.3d 91, 98 (2d
Cir. 1996) (quoting Rothenberg v. Lincoln Farm Camp, Inc., 755 F.2d 1017, 1019 (2d Cir.
1985)). The language of the Consulting Agreement is unambiguous. ECGI had an unconditional
obligation to pay Bentivoglio for the four-year term. Because ECGI indisputably ceased
payments to Bentivoglio, it stands in breach of the Consulting Agreement.
B. ECGI’s Defenses Fail as a Matter of Fact or Law.
In opposition to Bentivoglio’s motion for summary judgment, ECGI asserts that
the contract is unenforceable because it is unconscionable, lacks consideration or was materially
breached by Bentivoglio. It also argues that it was fraudulently induced into entering into the
Consulting Agreement based on alleged misrepresentations and omissions made during the
negotiation process. ECGI bears the burden of proof with regard to these defenses. APS Tech.,
Inc. v. Brant Oilfield Mgmt. & Sales, Inc., 13-cv-6500, 2015 WL 5707161, at *5 (S.D.N.Y. Sept.
29, 2015) (Swain, J) (collecting cases). As such, it must show that the raised defenses present
“disputes over facts that might affect the outcome of the suit under governing law.” Anderson,
477 U.S. at 248. The Court concludes that, on the evidence presented, no reasonable fact finder
could find in ECGI’s favor on any of these defenses.
6
1. Prior Material Breach
Despite the unconditional obligation to pay, ECGI argues that Bentivoglio
materially failed to perform or breached the agreement thereby excusing its own performance.
See Merrill Lynch & Co. Inc. v. Allegheny Energy, Inc., 500 F.3d 171, 186 (2d Cir.2007)
(“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.”) (citing Hadden v. Consol. Edison Co. of N.Y., 34 N.Y.2d 88, 96
(1974)).
According to ECGI, Bentivoglio breached his obligations under the Consulting
Agreement by not producing documentary evidence or meeting with ECGI management to
explain certain expenses. ECGI does not cite to any clause in the contract that imposed an
obligation on Bentivolio to do these things, because none exists. In fact, the February 10, 2017
“Dispute Resolution Notice” that ECGI sent to Bentivoglio explicitly admitted that “there is not
a provision requiring [Bentivoglio] to substantiate his expenditures in any agreement. . . .” (Doc
125 – Ex. A at 3.)
The Consulting Agreement requires Bentivoglio to turn over “Company property.
. . provided to the Consultant by the Company in connection with his duties under this
Agreement. . . .” (Consulting Agreement at ¶ 9.4 (emphasis added).) It also requires him to
relinquish possession of any “Confidential Information” as defined by the Consulting
Agreement, which includes things like “inventions, brand names, software designs,” “passwords
to computer network(s) and computer programs” and “the Company’s intellectual property, trade
names and copyrights.” (Id. at ¶¶ 4.1, 4.4.) This language does not cover the expense
documents from Bentivoglio’s time as an officer of the company.
7
Bentivoglio and ECGI also entered into an agreement providing Bentivoglio with
a lump-sum payment for his termination from the company (the “Separation Agreement”). (Doc
119 – Ex. 2.) The Separation Agreement requires Bentivoglio to “deliver to the Company any
Company property and documents in his possession. . . .” (Id. at ¶ 8.) However, the Separation
Agreement contains separate undertakings that are not at issue on Bentivoglio’s claim for breach
of the Consulting Agreement. The Consulting Agreement states that it is “a single, integrated,
written contract expressing the entire agreement between the parties. . .” and that “each party
represents and warrants to the other party that such party is not relying on any promises or
representations that do not appear written herein.” (Consulting Agreement at ¶ 13.) Giving full
effect to the intent of the parties as reflected in the unambiguous integration clause in the
Consulting Agreement, a purported breach of the Separation Agreement does not amount to a
breach of the Consulting Agreement.
ECGI argues that Bentivoglio also breached the Consulting Agreement by not
“meeting with then new management to review the expenses ECGI identified on a spreadsheet
and explaining their purpose. . . .” (Doc 118 at 15.) But as this Court has already noted, the
issue is not whether Bentivoglio breached the Consulting Agreement but the permissible remedy
for a breach. The Consulting Agreement does not foreclose the possibility of ECGI bringing a
breach claim against Bentivoglio for proven money damages or injunctive relief. It simply
deprives ECGI of the remedy of suspending the unconditional payments to Bentivoglio because
of a claim of an “actual breach.”
2. Lack of Consideration.
ECGI also argues that the Consulting Agreement is unsupported by
consideration. The argument is premised on the contractual clause requiring ECGI to pay
8
Bentivoglio even if he breaches the terms of the agreement. According to ECGI, such a clause
renders any promise or benefit provided by Bentivoglio illusory. “Under New York law, to be
valid, a contract must be supported by consideration.” Genger v. Genger, 76 F. Supp. 3d 488,
498 (S.D.N.Y. 2015) (citing Murray v. Northrop Grumman Info. Tech., Inc., 444 F.3d 169, 178
(2d Cir. 2006)). “Consideration to support an agreement exists where there is ‘either a benefit to
the promisor or a detriment to the promisee.’ ” Id. (quoting Weiner v. McGraw-Hill, Inc., 57
N.Y.2d 458, 464 (1982)).
The Consulting Agreement recites that the consideration for the agreement is “the
Consulting Services and the other rights granted to the Company in this Agreement.”
(Consulting Agreement at ¶ 2.1.) These other benefits to ECGI were substantial. Bentivoglio
agreed to a five-year, worldwide non-compete and non-solicitation clauses, id. at ¶¶ 5–6,
perpetual confidentiality and non-disparagement clauses, id. at ¶¶ 4, 7, and a broad intellectual
property provision requiring him, among other things, to undertake certain steps and execute
appropriate documents, if necessary, to secure ECGI’s rights in intellectual property, id. at ¶ 3.
ECGI agreed to pay him a consulting fee and additional payment, id. at ¶¶ 2.1–
2.2, and refrain from disparaging him, id. at ¶ 7. The fact that the obligation to pay under
paragraphs 2.1 and 2.2 of the Consulting Agreement is “unconditional and absolute” does not
mean that the Consulting Agreement is unsupported by consideration. ECGI gained the benefit
of the valuable provisions referred to above. Significantly, ECGI’s unconditional obligation to
pay does not mean that Bentivoglio can breach the Consulting Agreement with impunity.
Nothing in the Consulting Agreement extinguishes ECGI’s right to pursue a breach of contract
claim against Bentivoglio for provable money damages or injunctive relief.
9
The contract was negotiated by sophisticated parties represented by lawyers, in
the context of Bentivoglio’s departure from the company and the transfer of his 3,500,000
shares. (See Doc 113 – Ex. A at 5 (Blom deposition describing the negotiating and signing of
the agreement).) This is not an illusory contract; it was carefully negotiated and tailored to the
goals of both parties. As the Consulting Agreement itself manifests, it is supported by adequate
consideration. (Consulting Agreement at ¶ 2.)
3. Unconscionability
ECGI next argues that the Consulting Agreement is unenforceable because it is
unconscionable. The argument is based on ECGI’s obligation to pay Bentivoglio even if he does
not perform service. As the Court has noted, the Consulting Agreement does not extinguish a
claim for money damages or injunctive relief by ECGI in the event of a provable breach by
Bentivoglio.
“Under New York law, a contract is unconscionable when it is ‘so grossly
unreasonable or unconscionable in the light of the mores and business practices of the time and
place as to be unenforceable according to its literal terms.’ ” Ragone v. Atl. Video at Manhattan
Ctr., 595 F.3d 115, 121 (2d Cir. 2010) (quoting Gillman v. Chase Manhattan Bank, N.A., 73
N.Y.2d 1, 10 (1988)). “A determination of unconscionability generally requires a showing that
the contract was both procedurally and substantively unconscionable when made,” which means
a showing of “absence of meaningful choice on the part of the parties together with contract
terms which are unreasonably favorable to the other party.” Gillman, 73 N.Y.2d at 10 (citation
and internal quotation marks omitted).
ECGI has not come forward with evidence which if believed by the fact finder
would permit it to find that the Consulting Agreement is either procedurally or substantively
10
unconscionable. In support of its claim of procedural unconscionability, ECGI offers the
declarations of Gary Blom, Bentivoglio’s successor, and Frank Sgro, the individual who
purchased Bentivoglio’s 3,500,000 shares of ECGI. Both individuals assert that Bentivoglio
“abused his exclusive control over the company to extract unusually one-sided terms. . .
threaten[ing] the shareholders that, unless his terms were accepted, he would sell the company
and/or its intellectual property to investors in New York without our approval, while securing an
extravagant salary for himself.” (Doc 120 at ¶ 5; see also Doc 119 at ¶ 20.) But in opposing
summary judgment, “the nonmoving party may not rely on conclusory allegations or
unsubstantiated speculation.” Fujitsu Ltd. v. Federal Exp. Corp., 247 F.3d 423, 428 (2d Cir.
2001) (quoting Scotto v. Almenas, 143 F.3d 105, 114 (2d Cir. 1998)). ECGI has failed to come
forward with evidence showing how Bentivoglio abused his power to extract one-side terms
other than stating that he would look to sell assets of the corporation or perhaps his shares to
others. Blom states that up until November 1, 2016, Bentivoglio was the sole director and
officer of the Company and its only employee. (Doc 119 at ¶ 13.) ECGI has not established that
as sole director of ECGI, he did not have the right to sell assets of the corporation for fair value
to others, or to sell his own shares to whomever he chose.
Certainly, ECGI had the right to pursue any remedy available to it for wrongdoing
by its officer-director-employee in offering assets for sale in some unlawful or improper manner.
Sgro, a pre-existing shareholder, was not without remedy if he thought the corporation was being
wronged. Shareholders of a Nevada corporation, such as ECGI, generally have the right to bring
a derivative action in the name of and on behalf of the corporation for some actionable wrong to
the corporation.3 Also, a purchasing shareholder had the freedom to seek written representations
3
Rule 23.1 of the Nevada Rules of Civil Procedure (Derivative Actions by Shareholders).
11
and warranties from the selling shareholder and if those representations or warranties were
breached, the purchasing shareholder would have a remedy. Of course, if the selling shareholder
were unwilling to make the requested representations and warranties, the purchasing shareholder
had the freedom to walk away from the deal.
Procedural unconscionability looks to a range of factors, such as “the size and
commercial setting of the transaction, whether deceptive or high-pressured tactics were
employed, the use of fine print in the contract, the experience and education of the party claiming
unconscionability, and whether there was a disparity in bargaining power.” Gillman, 73 N.Y.2d
at 11 (citations omitted). Both sides were represented by sophisticated attorneys. (Doc 113 –
Ex. A at 5.) New York courts have found that procedural unconscionability does not exist where
“the party complaining is commercially sophisticated.” SOL Grp. Marketing Co. v. Lines, 14cv-9929, 2016 WL 205444, at *7 (S.D.N.Y. Jan. 15, 2016) (Stein, J) (collecting cases). ECGI is
a sophisticated party, who was represented at negotiation by capable lawyers. When viewing the
transaction as a whole, no reasonable fact finder could find procedural unconscionability.
To avoid this lack of procedural unconscionability, ECGI looks to “exceptional
cases where a provision of the contract is so outrageous as to warrant holding it unenforceable on
the ground of substantive unconscionability alone.” Gillman, 73 N.Y.2d at 12. ECGI has failed
to come forward with evidence which, if believed, would entitle it to judgment in its favor on
substantive unconscionability. It relies on an inapposite New York County Civil Court decision,
Lease Finance Grp. LLC v. Indries, 49 Misc.3d 1129(A), 2015 WL 8544338 (Civ. Ct. N.Y.
Cnty. Dec. 9, 2015). First, the unconscionable clause there required a $2,600 dispute between
two Californian entities to be litigated in a New York forum. The court concluded that the clause
was not to “provide certainty and predictability . . . but rather to increase the likelihood of
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obtaining a default judgment. . . .” Id. at *6 (citation omitted). Second, although the judge
purported to make his ruling on substantive unconscionability, procedural unconscionability
factors were heavily weighed. The judge distinguished the case from New York’s general rule to
uphold forum selection clauses by noting that “the Defendant [was] neither a sophisticated
business entity, nor an investor . . . but rather an immigrant whose first language is not English
and whose education level is equivalent to the eighth grade in the United States.” Id. (citations
omitted). The circumstances surrounding the Consulting Agreement are quite different. As
noted, it was negotiated between sophisticated parties, represented by lawyers who were
presumably well versed in the language and meaning of the terms. Though ECGI agreed to an
“unconditional and absolute” payment obligation, it also obtained valuable non-compete, nonsolicitation, confidentiality and intellectual rights clauses. The agreement is not substantively
unconscionable.
4.
Fraudulent Inducement
ECGI’s final argument is that the Consulting Agreement is voidable because it
was fraudulently induced into entering it. Fraudulent inducement under New York law requires
proof of “(1) a representation [or omission] of material fact, (2) which was untrue, (3) which was
known to be untrue or made with reckless disregard for the truth, (4) which was offered to
deceive another or induce him to act, and (5) which that other party relied on to its injury.”
Aetna Cas. and Sur. Co. v. Aniero Concrete Co., 404 F.3d 566, 580 (2d Cir. 2005). The
circumstances amounting to fraud must be alleged with particularity per the requirements of Rule
9(b), Fed. R. Civ. P. State Street Global Advisors Trust Co. v. Visbal, 462 F. Supp. 3d 435, 439–
40 (S.D.N.Y. 2020) (Woods, J) (citation omitted) (describing the requirements of fraudulent
inducement as an affirmative defense); see also Cortes v. 21st Century Fox America, Inc., 751
13
Fed. App’x 69, 72 (2d. Cir. 2018) (summary order) (“9(b) requires that, to be pursued in federal
court, any such claims . . . must ‘(1) specify the statements that the plaintiff contends were
fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4)
explain why the statements were fraudulent.’ ”) (quoting Lerner v. Fleet Bank, N.A., 459 F.3d
273, 290 (2d. Cir 2006)).
ECGI asserts that during the negotiation of both the Consulting Agreement and
the Separation Agreement, Bentivoglio failed to disclose the company’s insolvency and his
misappropriation of corporate funds. It argues that Bentivoglio had an obligation to disclose
these facts, and that had these facts been revealed, “the agreements would not have been
executed.” (Doc 118 at 14.) ECGI’s phrasing muddles the issue before the Court. Bentivoglio
has moved for summary judgment on the issue of breach of the Consulting Agreement. The
enforceability of the Separation Agreement is not before the Court. No counterclaim has been
asserted by ECGI.
A party seeking fraud by omission must prove “that the plaintiff had a duty to
disclose the concealed fact.” Merrill Lynch, 500 F.3d at 181. ECGI argues that Bentivoglio had
a duty to disclose his alleged misappropriation of company funds because he was a fiduciary of
the company, or in the alternative, under the “special facts doctrine.” (Doc 118 at 8.) Neither
doctrine applies. First, Bentivoglio was not acting as a fiduciary in negotiating the Consulting
Agreement. The agreement became effective when he was no longer an officer of ECGI; Gary
Blom signed on ECGI’s behalf, and Bentivoglio signed as “Consultant.” (See Consulting
Agreement at 10–11 (signature pages).) Moreover, in negotiating the agreement, Bentivoglio
was acting “not in his capacity of a director or officer for the corporation, but as an individual
transacting with the corporation.” Bensen v. Am. Ultramar Ltd., No. 92-cv-4420, 1997 WL
14
66780, at *23 (S.D.N.Y. Feb. 14, 1997) (Buchwald, MJ). As then-Magistrate Judge Buchwald
held, fiduciary duties are owed to entities when directors or officers are acting “in their official
capacities on behalf of the corporation.” Id. This does not extend to individual negotiations
between the officer and the corporation—otherwise, every such negotiation would be a breach of
fiduciary duty as the officer puts his or her desires for individual compensation above the
shareholders’ desire to cap expenses. See also In re Walt Disney Co. Derivative Litig., 825 A.2d
275, 290 (Del. Ch. 2003) (“an officer may negotiate his or her own employment agreement as
long as the process involves negotiations performed in an adversarial and arms-length manner”);
Rocky Mountain Power Co. v. Hamlin, 73 Nev. 87, 91 (1957) (ratifying transaction “between a
director and his corporation . . . made at arm’s length and with full disclosure of the
circumstances.”) (citation omitted).
ECGI has not demonstrated that Bentivoglio had a duty to disclose under the
special facts doctrine either. The doctrine requires proof that “(1) one party has superior
knowledge of certain information; (2) that information is not readily available to the other party;
and (3) the first party knows that the second party is acting on the basis of mistaken knowledge.”
Travelers Indem. Co. of Illinois v. CDL Hotels USA, Inc., 322 F. Supp. 2d 482, 499 (S.D.N.Y.
2004) (quoting Banque Arabe et Internationale D’ Investissement v. Maryland Nat. Bank, 57
F.3d 146, 155 (2d Cir. 1995)). ECGI offers proof in the form of a Collins-Barrow accounting
report indicating that ECGI was insolvent as of November 2, 2016. (See Doc 119 – Ex. 4.) But
beyond the conclusory assertion that Bentivoglio possessed “exclusive access to the company’s
financial information,” they have submitted no evidence demonstrating that Bentivoglio knew
and concealed the insolvency, or that the information was not reasonably available during
15
negotiations. Indeed, there is no evidence that Bentivoglio’s financial management of the
company was ever a subject of the negotiations of the Consulting Agreement.
Fraudulent inducement by omission also requires that the omitted fact be material.
An omission is material if “a reasonable man would attach importance to its existence or
nonexistence in determining his choice of action in the transaction in question,” or “the maker of
the representation knows or has reason to know that its recipient regards or is likely to regard the
matter as important in determining his choice of action, although a reasonable man would not so
regard it.” Barron Partners, LP v. LAB123, Inc., 593 F. Supp. 2d 667, 672 (S.D.N.Y. 2009)
(Rakoff, J) (citation and internal quotation marks omitted). The financial state of ECGI may
have been material to the Separation Agreement. It may have been material to the agreement by
which Bentivoglio transferred his 3,500,000 shares of the company to Sgro. But the Consulting
Agreement explicitly states that it is “a single, integrated, written contract expressing the entire
agreement between the parties with regard to the matters set forth herein.” (Consulting
Agreement at ¶ 13.) The Consulting Agreement is distinct from the Separation Agreement and
the financial state of the company has not been shown to have been material to the Consulting
Agreement.
Finally, on this record, no reasonable fact finder could conclude that ECGI
reasonably relied upon Bentivoglio’s silence concerning the financial state of the company or his
expense practices. According to ECGI’s incoming CEO Gary Blom, who participated in the
negotiation of the November 1, 2016 Consulting Agreement, it was known months before the
agreement was signed that Bentivoglio “blocked all transparency about the company’s finances.”
As he states in his declaration:
By the summer of 2016, Bentivoglio’s relationship with ECGI’s
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shareholders had become completely dysfunctional. Bentivoglio blocked
all transparency about the company’s finances. After storming out of a
shareholders’ meeting, he engineered amendments to ECGI’s by-laws that
stripped shareholders of the right to call a special meeting, and imposed a
fee-shifting obligation on shareholders that commenced unsuccessful
litigation against the company with no corresponding fee-shifting in favor
of shareholders.
Doc 119 at ¶ 17.
Despite this, there is no claim that ECGI made any inquiry of Bentivoglio regarding the
company’s financial condition or his expense reporting, or sought any representation or warranty
from Bentivoglio regarding them. Given the acrimony between Bentivoglio and ECGI, the
Company “can hardly claim with any credibility that [it] . . . entered into the resulting
agreement[] lulled by faith or trust in the parties across the bargaining table. . . .” Shea v.
Hambros PLC, 244 A.D.2d 39, 47 (1st Dep’t 1998).
“New York courts are generally skeptical of claims of reliance asserted by
‘sophisticated businessmen engaged in major transactions [who] enjoy access to critical
information but fail to take advantage of that access.’ ” Merrill Lynch, 500 F.3d at 181 (quoting
Grumman Allied Indus., Inc. v. Rohr Indus., Inc., 748 F.2d 729, 737 (2d Cir. 1984)). Here,
ECGI and Bentivoglio were both sophisticated, and engaged large law firms to help negotiate
Bentivoglio’s separation. ECGI cannot claim to have relied on Bentivoglio’s failure to disclose
ECGI’s financial condition or his expense reporting practices. They could have performed the
requisite due diligence to ascertain the company’s financial health and his expenses prior to
entering into the agreements, or at the very least, obtained representations and warranties from
Bentivoglio sufficient to protect ECGI’s new management and ownership.
Unless bargained away, ECGI has (or has had) the full arsenal of remedies to
pursue Bentivoglio for managing the affairs of ECGI and his expense reporting, including a suit
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for breach of fiduciary duty. Given the acknowledgement that by the summer of 2016
“Bentivoglio blocked all transparency about the company’s finances,” no reasonable fact finder
could conclude that ECGI relied upon Bentivoglio to make an unprompted disclosure regarding
any discrepancy in his expense reporting in connection with the Consulting Agreement.
CONCLUSION
For the reasons stated above, Bentivoglio’s motion for summary judgment on the
remaining breach of contract claim is GRANTED. He has met the elements of breach of
contract under New York law, and ECGI’s defenses do not raise any genuine issues of material
fact. Plaintiff shall submit a proposed judgment within fourteen (14) days of this Order.
Pursuant to Rule 54(d)(2)(B), Plaintiff may submit his application for attorney’s fees and
expenses within fourteen (14) days after the entry of judgment. The Clerk is directed to
terminate the motion (Docs 110, 126).
SO ORDERED.
Dated: New York, New York
February 24, 2021
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