California Capital Equity, LLC v. IJKG, LLC and Vivek Garipalli, Index No. 652373/2015, 2/3/16 (Ramos, C.)

Breach of Contract; Fraud; Breach of Fiduciary Duty; Tortious Interference with Contract; Breach of Implied Covenant of Good Faith and Fair Dealing; CPLR § 3211; Right of First Offer; Statute of Limitations; CPLR 203(d)

By: Gleny M. Peña | Staff Member

Defendants, IJKG and Vivek Garipalli, acquired CarePoint Health Bayonne Medical Center (“CarePoint”) as part of its bankruptcy reorganization. To pay for its share of the purchase price, IJKG obtained a loan from Abraxis, which Dr. Patrick Soon-Shiong (“Dr. Soon-Shiong”) owned.   IJKG gave Abraxis a Convertible Note as collateral for the loan (“Note”). Plaintiff, which Dr. Soon-Shiong also owned, purchased the Note from Abraxis as well as Abraxis’ obligations under the Convertible Notes Purchase Agreement (“Note Agreement”), which entitled Plaintiff to receive 49.01% of any non-tax distributions made by IJKG.

Plaintiff subsequently commenced an action for damages alleging breach of contract, fraud, and breach of fiduciary duty upon discovering that IJKG made improper non-tax distributions to its members, thereby failing to pay the amount under the Note Agreement., Defendants asserted counterclaims for tortious interference with contract, breach of implied covenant of good faith and fair dealing, and unjust enrichment on the basis that Plaintiff failed to provide notice to IJKG of its sale of the note.

Plaintiff moved to dismiss Defendants’ counterclaims on the basis that Defendants’ counterclaims for tortious interference with contract and unjust enrichment were barred by the three-year statute of limitations. Additionally, Plaintiff argued that a requirement to provide notice to IJKG was not triggered because Abraxis, was free to transfer the Note at its discretion. Therefore, Plaintiff did not breach the covenants.

While admitting that the claims were time-barred, Defendants argued that CPLR 203(d) permitted counterclaims when such claims were in response to a plaintiff’s causes of action. Defendants also argued that under the Note Agreement, IJKG had a right to purchase the Note prior to any type of transfer being consummated. Therefore, the lack of notice and failure to provide the right of first offer to IJKG made the transfer of the Note a nullity and negated any entitlement to interest payments.

The Court denied Plaintiff’s motion to dismiss in its entirety. First, the Court found that Defendants’ otherwise time-barred counterclaim for tortious interference with contract was permissible. Under CPLR 203(d), a tortuous interference claim was nonetheless permissible when it is asserted for equitable recoupment purposes and is sufficiently related to the causes of action alleged in the complaint. Here, since IJKG requests equitable relief in the form of enforcing rights under the same Note Agreement that Plaintiff seeks to enforce, the claims were sufficiently related. Second, the Court held that Defendants’ counterclaim for unjust enrichment was not time barred. While a claim for unjust enrichment has no identifiable statute of limitations, and when it is plead in the alternative to a breach of contract claim, a six-year statute of limitations applied. Here, Defendants’ claim of unjust enrichment was within the six-years.

Third, the Court noted that IJKG had a mandatory right of first offer before the transfer of the Note to Plaintiff based on jurisprudence on agreements executed at substantially the same time and related to the same subject matter. When documents are executed at the same time and are related to the same subject matter, a court may regard both as contemporaneous writings and must read both documents together as one. Here, the Court found that under the plain language of the loan documents, the Plaintiff’s failure to provide IJKG with the right of first offer under the Note Agreement sustained their counterclaims for tortious interference and unjust enrichment.

California Capital Equity, LLC v. IJKG, LLC and Vivek Garipalli, Index No. 652373/2015, 2/3/16 (Ramos, C.).

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