Opinion
Index No. 651176/2017
10-25-2022
Cortlandt Street Recovery Corp., Plaintiff, v. TPG Capital Management, L.P., DAVID BONDERMAN, JAMES COULTER, TPG GENPAR IV, L.P., TPG PARTNERS IV, L.P., TPG ADVISORS IV, INC.,T3 GENPAR II, L.P., T3 PARTNERS II, L.P., T3 PARALLEL II, L.P., APAX PARTNERS, L.P., Defendant.
Unpublished Opinion
ROBERT R. REED, J.S.C.
The following e-filed documents, listed by NYSCEF document number (Motion 009) 225, 226, 227, 228, 229, 230, 231, 232, 233, 234, 235, 236, 237, 238, 239, 255, 261 were read on this motion to/for DISMISS.
The following e-filed documents, listed by NYSCEF document number (Motion 010) 217, 218, 219, 220, 221, 222, 223, 224, 240, 241, 242, 243, 244, 245, 246, 247, 248, 249, 250, 251, 252, 253, 254, 256, 257, 258, 259, 260, 283 were read on this motion to/for DISMISSAL.
Motion sequence numbers 009 and 010 are consolidated for disposition.
Plaintiff Cortlandt Street Recovery Corp. (Cortlandt) brings this action on its own behalf and on behalf of a class of holders of promissory notes known as "floating rate subordinated notes due 2015" (the "sub notes"), which were issued by nonparty shell company Hellas Telecommunications (Luxembourg) II, S.C.A. (Hellas II) in December 2006.
In motion sequence 009, defendants TPG Capital Management, L.P., David Bonderman, James Coulter, TPG Genpar IV, L.P., TPG Partners IV, L.P., TG Advisors IV, Inc., T3 Genpar II, L.P., T3 Partners II, L.P., and T3 Parallel II, L.P. (collectively, the "TPG defendants") seek an order: (1) pursuant to CPLR 3211(a)(8), dismissing this action in its entirety against defendants David Bonderman and James Coulter for lack of personal jurisdiction; (2) pursuant to CPLR 3211(a)(1), dismissing the amended complaint in this action on the basis of documentary evidence; (3) pursuant to CPLR 3211(a)(3) and (a)(7), dismissing the amended complaint for lack of standing to sue; (4) in the alternative, pursuant to CPLR 327, dismissing the action based on forum non conveniens, and (5) pursuant to CPLR 3211(a)(7), dismissing this action against all the TPG Defendants (and for defendants Bonderman and Coulter, in the alternative) for failure to state a cause of action.
In motion sequence 010, defendant Apax Partners, L.P. (now known as Apax Partners US, LLC) seeks an order: (1) pursuant to CPLR 3211(a)(1), dismissing the amended complaint in this action on the basis of documentary evidence; (2) pursuant to CPLR 3211(a)(3) and (a)(7), dismissing the amended complaint for lack of standing; (3) pursuant to CPLR 3211(a)(7), dismissing the amended complaint for failure to state a cause of action; (4) in the alternative, pursuant to CPLR 327, dismissing the action for forum non conveniens, and (5) granting such other and further relief as the Court deems just and proper.
BACKGROUND
1. Prior Action
Cortlandt filed an action in 2011, under Index No. 653181/2011, asserting claims on behalf of its purported assignors to collect sums due under the sub notes. On September 26, 2014, the court (Friedman, J.) dismissed Cortlandt's claims for lack of standing (see Cortlandt St. Recovery Corp. v Hellas Telecom., S.à.r.l., 47 Misc.3d 544 [Sup Ct, NY County 2114]). In 2016, the First Department affirmed that ruling (142 A.D.3d 833 [1st Dep't 2016], affd 30 N.Y.3d 40 [2018]).
In September of 2017, Cortlandt filed this action, relying on CPLR 205 (a). CPLR 205(a) allows plaintiff to file a new action if, among other things, the prior action did not produce a final judgment on the merits, the new claim is commenced within six months after the termination of the previous action, and the new claim would have been timely commenced at the time of the commencement of the prior action.
CPLR § 205(a) provides as follows:
Termination of action. (a) New action by plaintiff. If an action is timely commenced and is terminated in any other manner than by a voluntary discontinuance, a failure to obtain personal jurisdiction over the defendant, a dismissal of the complaint for neglect to prosecute the action, or a final judgment upon the merits, the plaintiff, or, if the plaintiff dies, and the cause of action survives, his or her executor or administrator, may commence a new action upon the same transaction or occurrence or series of transactions or occurrences within six months after the termination provided that the new action would have been timely commenced at the time of commencement of the prior action and that service upon defendant is effected within such six-month period. Where a dismissal is one for neglect to prosecute the action made pursuant to rule thirty-two hundred sixteen of this chapter or otherwise, the judge shall set forth on the record the specific conduct constituting the neglect, which conduct shall demonstrate a general pattern of delay in proceeding with the litigation.
On October 22, 2020, the court (Edmead, J.) dismissed Cortlandt's first complaint in this action, concluding that Cortlandt failed to establish personal jurisdiction over multiple European defendants; that it failed to state a cause of action for fraud; and that it had no standing to bring alter ego liability or breach of contract claims. Justice Edmead, however, granted Cortlandt leave to amend the complaint.
On April 5, 2021, Cortlandt filed an amended complaint (the "AC"). In the AC, Cortlandt includes additional allegations which aim to establish that Cortlandt has standing to bring this action as well as new facts supporting Cortlandt's two remaining causes of action: fraud and breach of contract. On May 17, 2021, defendants moved to dismiss the AC.
2. Factual Allegations
The following facts are taken from the AC. Cortlandt alleges that, in 2005, TPG and Apax, (collectively, the "defendants" or "consortium") joined together as a consortium and created a complex group of interrelated Luxembourg entities - the Hellas entities - including Hellas II. (NY St Cts Elec Filing [NYSCEF] Doc No. 214, Amended Complaint, 65). The consortium used these entities as vehicles to acquire TIM Hellas ("TIM") which, at that time, was a profitable, nearly debt-free Greek telecommunications company (id. at 65-67). In connection with the acquisition of TIM, each of the Hellas entities issued securities known as preferred equity certificates ("PECs") and convertible preferred equity certificates ("CPECs") to their shareholders, including defendants (id. at 71).
Beginning shortly after the acquisition of TIM, defendants allegedly set out to overleverage the Hellas entities with debt in order to pay themselves profits on their investment regardless of the performance of the company (id. at 77). Cortlandt alleges that, to achieve such goals, defendants engaged in what is known in finance as dividend recapitalization, a process in which a private equity firm issues new debt in order not to satisfy existing obligations, but to raise money to pay a special dividend to the investors who helped fund the initial purchase of the portfolio company. By 2006, TIM and the Hellas entities were not profitable any longer and the entities assumed large amounts of debt. Months later, in April of 2006, defendants engaged in an initial recapitalization, in which Hellas Finance issued ꇔ,000,000 in notes, the proceeds of which were used to redeem PECs and CPECs, with approximately ꅘ,000,000 flowing directly to the defendants (id. at 76). The initial recapitalization is not a subject of this litigation.
In this context, redemption means the process in which a company that previously issued PECs and CPECs to certain shareholders buys back those same shares, presumably at the higher price, so that the shareholder makes a profit.
Shortly thereafter, defendants attempted to sell the Hellas entities, but they could not find any interested buyers (id. at 80). Following failed attempts to sell TIM, the consortium decided to engage in a second recapitalization. The consortium decided to issue the sub notes and PIK notes (both of which are essentially debt instruments) and use the proceeds to fund a buyback of PECs and CPECs, which at the time were largely held by defendants (id. at 82). On December 21, 2006, Hellas II issued ꎠ million in euro-denominated sub notes and $275 million in U.S. dollar-denominated sub notes (id. at 84). Many of these sub notes were governed by the indenture and the accompanying offering memorandum (the "OM") with the designated choice of law provision in New York. Among others, Clearstream International S.A. ("Clearstream") and Euroclear Bank SA/NV ("Euroclear") are the registered holders of those sub notes (id. at 15).
The PIK notes are the subject of litigation in a related case captioned as Cortlandt Street Recovery Corp. et al v. David Bonderman et al, Index Number 653357/2011.
According to Cortlandt, the OM pursuant to which the registered holders bought the sub notes states that the proceeds of the sub notes would be used to repay "deeply subordinated shareholder loans," even though the consortium allegedly knew that the proceeds would be used to redeem the CPECs - which constitute equity, not debt (id. at 134(a)). The OM also allegedly provides that the sub notes would be secured by the CPECs and PECs issued by Hellas II, despite the fact that the consortium allegedly intended to redeem the CPECs immediately after the sub notes were issued (id. at 134(b)). According to Cortlandt, these misleading statements from the OM were used by defendants to deceive purchasers of the sub notes and, as such, they constitute fraud.
Further, Cortlandt alleges that the OM states that the CPECs would not be redeemed until Hellas II had paid all more senior debt, including the sub notes (id. at 123-124). In addition, the redemption was prohibited by the terms of the CPECs themselves, which provide that a redemption could only occur "after payment of or provision for other obligations of the Company" and if "the Company will not be insolvent" after redeeming the CPECs (id. at 127). According to Cortlandt, defendants' failure to act in accordance with these provisions from the OM and the indenture constitutes a breach.
The same day that the sub notes were issued by Hellas II, Hellas I issued over ꂨ million in PIK notes (id. at 86). Together, the Hellas entities borrowed approximately 䚹.5 billion through issuing the sub notes and PIK notes (id). From those proceeds, approximately 䚹.185 billion was paid to the defendants through a redemption of the CPECs (id). Of that amount, ꎒ,285,000 was considered a dividend (id). By February of 2017, defendants had sold the Hellas entities to a strategic buyer, Weather Investments S.P.A.
While the OM characterized the distributions in question as a "refinancing" of existing debt, according to Cortlandt, internal communications among the consortium members made clear that the proceeds of the sub notes and PIK notes were in fact to be used to pay impermissible dividends to the consortium. The members of the consortium determined the amount of the dividend that they would receive by valuing the CPECs themselves; allegedly, no independent valuation of the CPECs was made (id. at 97).
Moreover, Cortlandt alleges that the dividend payment caused Hellas II to commit business suicide, rendering it insolvent and unable to repay the money borrowed under the sub notes (id. at 88). More specifically, it is alleged that Hellas II defaulted on the sub notes on October 15, 2009 (id. at 131). Cortlandt brings this action to collect on the sub notes as assignee of certain beneficial owners of interests in the sub notes (id. at 12).
As noted, Cortlandt does not own any of the sub notes at issue, but Cortlandt alleges that it has the necessary authorizations and assignments to bring this suit. Specifically, Cortland alleges that the beneficial owners or assignors of the sub notes at issue, such as SPQR Capital, executed an assignment on August 14, 2013, in which they transferred to Cortlandt "all right, title and interest to all claims, including ownership, proprietary, legal, equitable, and beneficial interests in all claims arising from, related to, or concerning the Sub Notes" (id. at 13-14).
Similarly, the assignors themselves also did not originally purchase the sub notes at issue, but it is alleged that the assignors were at all times authorized by the registered holders of the sub notes, such as Clearstream and Euroclear, to bring suit on the notes (id. at 15-27). This authorization allegedly is evidenced by the Euroclear operating rules, incorporated by reference into the indenture and the OM, which expressly authorize the assignors to bring suit on the notes (id. at 17). It is further evidenced by the "Statements of Account for the Purpose of Proof of Holding" ("STAC letters") and "Certificates of Holding", issued by Euroclear and Clearstream, respectively, which allegedly confirm that the assignors are authorized to "maintain proceedings against issuers, guarantors, and any other parties" (id. at 19-24). The letters and certificates were issued on May 8, 2017 and August 29, 2017, respectively. Cortlandt commenced this action by serving a summons and complaint in September of 2017, but, in an effort to avoid the expiration of the otherwise applicable statutory limitations period, by operation of CPLR § 205(a), Cortlandt relates this action back to the action it commenced in November of 2011 under the index No. 653181/11.
3. Causes of Action
In the AC, Cortlandt alleges two causes of action: fraud and breach of contract.
The elements of fraud are misrepresentations or material omission of facts which are false and known to be false by defendants, made for the purpose of inducing investors to rely upon them, reliance of investors on the misrepresentation or material omission and injury (Eurycleia Partners, LP v. Seward & Kissel, 12 N.Y.3d 553, 559 [2009]). Cortlandt alleges that defendants conspired to, and did, sell interests in the sub notes by means of the OM which included untrue statements of material fact. These misleading statements include without limitation:
a. The statement that defendants intended to use the proceeds of the offering of the sub notes to redeem deeply subordinated shareholder loans from the sponsors. Cortlandt asserts that defendants always intended to use the proceeds of the sub notes to redeem the CPECs, which constitute equity, not debt, and which could not properly be redeemed by their own terms (id. at 134 (a)).
b. The statement that the sub notes would be secured by the CPECs and PECs issued by Hellas II. Cortlandt alleged that defendants always intended to redeem the CPECs and PECs in order to pay the proceeds of the sub notes to themselves (id. at 134 (b)).
The elements of a cause of action for breach of contract are the existence of a contract, the performance of one party under that contract, a breach by the other party and resulting damages (Morgan Chase v. J.H. Elec. of NY, Inc., 69 A.D.3d 802, 803 [2d Dep't 2010]). Cortlandt alleges that defendants' alter ego, Hellas II, signed the sub notes and the indenture. Moreover, the sub notes were issued subject to terms and conditions in the OM and indenture, documents that separately and together, along with the sub notes themselves, constitute a contract, and which, among other things, collectively provide that:
a. CPECs were securities held by shareholders of Hellas, Hellas I and Hellas II;
b. Defendants had no authority to cause redemption or other distribution relating to CPECs; and
c. The CPECs issued by Hellas II to Hellas I were to be pledged as collateral to secure and guarantee payment of the sub notes (id. at 142 (a)-(c)).
Cortlandt claims that defendants breached the terms of the sub notes, indenture and the OM through their alter ego, Hellas II, by redeeming CPECs without paying or providing for payment of the sub notes. As a result, plaintiff suffered damages in the amount owed to it under the sub notes, with default interest at Euribor plus 7% from October 15, 2009, together with attorneys' fees and the costs.
ARGUMENTS
In their motions to dismiss, both the TPG and Apax defendants first argue that Cortlandt lacks standing to bring this action. In essence, defendants argue that Cortlandt's assignors did not receive authorization to sue until after they assigned their claims to Cortlandt, and since Cortlandt, as an assignee, stands in the shoes of an assignor, it therefore lacked standing itself to sue at the time this action was instituted. In opposition, Cortlandt states that defendants ignore the express provisions of the applicable OMs, which incorporated the registered holders' operating rules and procedures, which confirm that the assignors and therefore Cortlandt were always authorized to bring this action.
Secondly, the TPG defendants argue that this court has no personal jurisdiction over individual defendants Bonderman and Coulter. Specifically, the TPG defendants argue that the AC fails to allege that Bonderman or Coulter had any role in the events purportedly giving rise to the fraud and breach of contract claims asserted inappropriately against the TPG defendants. Moreover, the AC allegedly not only fails to set forth any basis pursuant to which this court could exercise personal jurisdiction over Bonderman or Coulter, but as reflected in their prior deposition testimony, and as confirmed in their affidavits filed herewith, none of the salient facts have changed from the original complaint.
On the issue of personal jurisdiction, Cortlandt answers by asserting that this court has held and it is law of the case that Cortlandt has sufficiently pled a sufficient start to allege personal jurisdiction, that jurisdictional discovery should go forward and that the individual defendants may raise their jurisdictional arguments only after conclusion of that discovery.
Regarding Cortlandt's fraud and breach of contract claim, defendants argue that the AC should be dismissed because neither of the claims states a cause of action against defendants. Among other deficiencies, the fraud claim suggests that demonstrably true representations in the sub notes offering memorandum were false. In either event, defendants argue, the fraud claim is not pleaded with sufficient specificity. Defendants further argue that the contract/alter ego claim is deficient for multiple reasons, including that it alleges the breach of a non-existent term of the sub notes, and governing Luxembourg law does not recognize the concept of piercing the corporate veil.
Cortlandt answers by arguing that its fraud claim need not be alleged as to each defendant. Instead, it is enough to allege that Hellas II engaged in fraud and that the defendants are liable as Hellas II's alter egos. Regarding its breach of contract claim, Cortlandt argues that defendants' technical pleading points with respect to the breach of contract claim are similarly without merit, as, under New York law, a no recourse clause does not bar equitable claims such as for alter ego liability, and that the AC properly sets out the bases of the breach of contract.
Finally, defendants argue that this action should be dismissed on forum non conveniens grounds because all relevant action related to this case occurred in Europe. Cortlandt answers by noting that, after litigating this action for nearly four years without asserting that New York is an inconvenient forum, such argument has been waived.
DISCUSSION
I Standing:
Defendants allege that the amended complaint does not cure - but instead confirms - that, as Justice Edmead held in dismissing Cortlandt's prior complaint, Cortlandt lacks standing to bring this action. Defendants are correct insofar as they claim Cortlandt failed to assert standing regarding sub notes registered to Clearstream, but are incorrect in arguing that Cortlandt has no standing to sue on sub notes registered to Euroclear. To understand the court's determination in this regard, it is important to consider how the issue of standing was analyzed in prior decisions and how Cortlandt attempted to address this problem over the course of, what is now, more than 10 years.
1. Background
A. Cortlandt I
The complaint that is now before this court is a related and substitute action filed pursuant to CPLR § 205(a) based upon the same acts and transactions as were alleged in a case which was previously dismissed by Justice Marcy S. Friedman in (Cortlandt Street Recovery Corp. v. Hellas Telecommunications, S.C.A, Index No. 653181/2011 [NY Sup Ct]), or as referred to herein, Cortlandt I. The complaint in Cortlandt I was filed on November 15, 2011, and in 2014, Justice Marcy S. Friedman dismissed the case in part because she concluded that Cortlandt lacked standing to sue. Because Cortlandt I did not yield a final judgment upon the merits, CPLR § 205(a) permits Cortlandt to bring this present action, even though the limitations period on Cortlandt's claims otherwise has long since expired.
To determine whether Cortlandt had standing to bring a claim in 2011, Justice Friedman first analyzed the language of the no-action clause of the indenture which provides that only a "holder" of notes may maintain an action to recover on the notes. Although Cortlandt conceded that it was not a registered holder of any of the notes, Cortlandt argued that it had standing to bring the action because Cortlandt was the assignee of the notes with "a right to collect." Justice Friedman rejected this argument on the basis that such assignment was insufficient to establish standing. To properly plead standing, Cortlandt had to assert not only that the assignment created a right to collection, but that it also transferred to Cortlandt an actual interest and title to the claims.
Although Justice Friedman granted leave to amend a complaint, Cortlandt instead appealed the decision to the First Department, and in 2016, the First Department affirmed the dismissal (Cortlandt St. Recovery Corp. v. Hellas Telecomms. S.a.r.l, 47 Misc.3d 544 [Sup Ct NY County 2014] aff'd 142 A.D.3d 833, 8335 [1st Dep't 2016]). After the First Department affirmed the dismissal, by virtue of CPLR § 205(a), Cortlandt commenced this action, herein referenced as Cortlandt II, in which it filed its first complaint in September 2017.
B. Cortlandt II
i. September 2017 Complaint
The first complaint in this present action alleges 10 causes of action and it aims to correct previously identified deficiencies related to Cortlandt's standing. In analyzing the issue of standing as alleged in the September 2017 complaint, Justice Edmead also begun by reviewing the no-action clause.
Specifically, in relevant parts, section 6.06 of the indenture provides that:
"Except to enforce the right to payment of principal, premium (if any) or interest when due, no Holder may pursue any remedy with respect to this Indenture or the Notes unless:
(1) such Holder has previously given the Trustee notice that an Event of Default is continuing;
(2) Holders of at least 25% in principal amount of the outstanding Notes have requested the Trustee to pursue the remedy."
First, defendants argued, and Justice Edmead accepted, that Cortlandt failed to plead compliance with the no-action clause because Cortlandt failed to sufficiently plead that it is a holder of at least 25% in the principal amount of the outstanding notes. As a result of such non-compliance, Cortlandt's claims were barred generally, but Justice Edmead recognized that Cortlandt could still bring breach of contract and fraudulent inducement claims. This is because such claims are related to a party's ability to enforce the right to payment of principal, premium or interest (see Upic & Co. v Kinder-Care Learning Ctrs., Inc., 793 F.Supp. 448, 454, [SDNY 1992] [no-action clause did not affect plaintiff's right "to receive payment of principal of the Security, on or after the due date [] expressed in the Security"]; see also Feldbaum v McCrory Corp., 1992 WL 119095, *5 (Del 1992]). Hence, all causes of actions other than breach of contract and fraud were dismissed.
Then, in analyzing the remaining substantive allegations, and without explicitly deciding the issue, Justice Edmead assumed arguendo that Cortlandt had standing to sue for fraudulent inducement, but she dismissed the claim on the basis that the original complaint failed to allege any misrepresentation of fact.
However, Justice Edmead addressed the issue of standing in detail when she analyzed Cortlandt's breach of contract claim. First, Justice Edmead recognized that a party that lacks a holder status, such as Cortlandt, could still bring a breach of contract claim so long as it pleads the circumstances showing its right to enforce the instrument, either because it is a transferee or assignee of a prior holder or because it possesses a legal or equitable ownership interest in the instrument itself.
The September 2017 complaint alleges that Cortlandt was the assignee of rights, titles, and interests to all claims related to the notes. More specifically, the complaint stated that Cortlandt's assignors "transferred to Cortlandt all right, title and interest to all claims, including ownership, proprietary, legal, equitable and beneficial interests in all claims arising from, related to, or concerning the Notes" (NYSCEF Doc No. 50, Complaint, 11). It further alleges that Cortlandt's assignors "are authorized by the registered holders of the Sub Notes to maintain litigation against issuers, guarantors and third parties" (id. at 12). This was Cortlandt's attempt to correct deficiencies identified in Cortlandt I, where Justice Friedman held, and the First Department affirmed, that for purposes of asserting standing, it was insufficient for Cortlandt to assert that it had an assignment giving it "a right to collect," and that instead Cortlandt must show that it had an actual interest or title in the claims themselves.
Still, based on these conclusory allegations alone, Justice Edmead determined that Cortlandt lacked standing to bring a breach of contract claim because the complaint contained nothing but bare allegations that Cortlandt's assignors are "authorized" by registered holders to maintain litigation against issuers, guarantors, and third parties. Such allegations were characterized as bare legal conclusion not entitled to any consideration. However, the original complaint was not dismissed with prejudice and, on April 5, 2021, Justice Edmead granted Cortlandt leave to amend its complaint after considering new allegations from Cortlandt's proposed amended complaint.
ii. Amended Complaint
The amended complaint alleges only two causes of action, breach of contract and fraud. As it relates to the issue of standing, the allegations from the amended complaint aim to explain in more detail a relationship between the registered holders of the sub notes; the assignors who have received authorizations to sue from the registered holders; and the assignees (Cortlandt) who have subsequentially received an assignment from the assignors.
More specifically, the AC states that Euroclear and Clearstream - the registered holders of the sub notes - first authorized the assignors, such as SPQR Capital, to bring suits related to the sub notes as soon as SPQR became a beneficial owner of those notes. Although this was not discussed in the AC, it is presumed that SPQR became a beneficial owner of the notes prior to November 2011, which is when Cortlandt originally commenced this suit in Cortlandt I. It is further alleged that, on May 8, 2017, Euroclear provided the so-called STAC letters in which Euroclear stated that the SPQR was authorized to maintain proceedings related to sub notes on its behalf. Similarly, on August 29, 2017, Clearstream issued a certificate of holding confirming that SPQR is authorized to maintain proceedings against any third parties, issuers, or guarantors of the sub notes.
Additionally, the AC states that on August 14, 2013, SPQR, which previously received authorizations to sue from Euroclear and Clearstream, further assigned all the rights and interests in the claims related to such sub notes to Cortlandt. In short, as concerns the issue of standing, the new allegations in the amended complaint aim to establish a previously missing link between the registered holders of the notes, the assignors, and Cortlandt. They do so by describing the succession of authorizations and assignments of the interests in the claims: first from the registered holders - such as Euroclear and Clearstream - to assignors, such as SPQR, and then from the assignors to the assignee, Cortlandt. Thus, the central issue before this court, as far as standing is concerned, is two-fold: whether the registered holders properly and timely authorized the assignors, such as the SPQR, to bring this action; and if so, whether such authorizations were thereafter properly and timely assigned from SPQR to Cortlandt.
2. Analysis
In their motions to dismiss, defendants argue that Cortlandt's assignors did not receive authorization to sue until after they assigned their claims to Cortlandt. More specifically, defendants state that SPQR assigned claims to Cortlandt in August 2013 but did not receive its alleged authorization from the registered holders until August 2017, some four years later. Defendants argue that this timing is fatal to Cortlandt's standing because, as an assignee, Cortlandt stands in the shoes of an assignor, and has no greater rights than its assignor had at the time of the assignment.
In its opposition to motions to dismiss, Cortlandt states that defendants ignore the express provisions of the OMs which incorporated the registered holders' operating rules and procedures. Specifically, Cortlandt cites Euroclear's operating rule which in essence states that Euroclear will not take any legal action related to the sub notes and that it instead authorizes the underlying beneficial owners or the assignors, such as SPQR, to maintain such proceedings.
Thus, Cortlandt argues that SPQR has been authorized to bring this suit ever since they became beneficial owners of the sub notes (which presumably occurred prior to November of 2011), and that the 2017 STAC letters and certificates of holding did not create such authorizations, but, rather only confirmed their existence. It follows that since the assignors were authorized to bring this suit all along, such right automatically passed to Cortlandt as soon as the assignors and Cortlandt executed their own assignment, transferring the title and interest in the claims.
The existence of timely authorizations is evidenced by provisions of the OMs which incorporated the registered holders' operating rules and procedures. Cortlandt specifically cites to Euroclear's operating rule 5.3.1.3(a) which states that Euroclear "will not take any action, legal or otherwise, to enforce your rights against any issuer or any guarantor in respect of a security," and explicitly authorizes "the underlying beneficial owners of such securities to maintain proceedings against issuers, guarantors and any other parties" where Euroclear is the registered holder of the security.
Even if this court were to recognize validity of Cortlandt's theory that a reference to registered holders' operating rules in the OM evidences the existence of a timely authorization, Cortlandt only references Euroclear's rules and cites to no equivalent rule found in Clearstream's operating procedures. Those procedures - central to Cortlandt's theory of standing - therefore cannot provide suit authority with respect to the sub notes registered to Clearstream. Without providing a concrete citation to a specific rule maintained by Clearstream, Cortlandt's theory of standing, as it relates to the sub notes registered to Clearstream, is nothing but an unsupported assertion and it therefore represents a prime example of a "bare legal conclusion that is not entitled to any consideration" (Biondi v Beekman Hill House Apt. Corp., 257 A.D.2d 76, 81 [1st Dep't 1999], aff'd 94 N.Y.2d 659 [2001]).
Importantly, Cortlandt does not disclose the extent to which Clearstream, as opposed to Euroclear, is the registered holder of the sub notes on which Cortlandt seeks to recover here. In either event, Cortlandt lacks standing to pursue claims registered to Clearstream because it cites to no rule maintained by Clearstream that would be a counterpart to the above-referenced Euroclear rule and that would give Cortlandt an authority to sue for those notes.
Nevertheless, Cortlandt, does indeed successfully allege standing to bring claims related to the sub notes registered to Euroclear. As noted earlier and as set forth in the AC, Euroclear's operating rule 5.3.1.3(a), which was incorporated into the OM by reference, states that Euroclear "will not take any action, legal or otherwise, to enforce your rights against any issuer or any guarantor in respect of a security," and explicitly authorizes "the underlying beneficial owners of such securities to maintain proceedings against issuers, guarantors and any other parties" where Euroclear is the registered holder of the security (AC at 17). Thus, SPQR has been authorized to bring claims on behalf of the registered holders since the moment it became a beneficial owner of the sub notes, and, by extension, Cortlandt has been authorized to bring the same claims by virtue of receiving an assignment from SPQR.
Still, defendants argue that Cortlandt is barred by collateral estoppel from asserting this new theory of standing - as collateral estoppel precludes relitigation of an issue previously decided against a party. Collateral estoppel, or issue preclusion, however, requires: (1) that the identical issue was necessarily decided in the prior proceeding and is decisive of the present action, and (2) that there was a full and fair opportunity to contest that issue in the prior proceeding (D'Arata v New York Cent. Mut. Fire Ins. Co., 76 N.Y.2d 659, 664 [1990]). It is well settled that res judicata and collateral estoppel only bar a subsequent action or the re-litigation of previously decided claims when the prior action or issues were concluded and decided on the merits. "The doctrine applies if the issue in the second action is identical to an issue which was raised, necessarily decided and material in the first action, and the plaintiff had a full and fair opportunity to litigate the issue in the earlier action" (Parker v Blauvelt Volunteer Fire Co., 93 N.Y.2d 343, 349 [1999]). "[C]ollateral estoppel effect will only be given to matters actually litigated and determined in a prior action" (Kaufman v Eli Lilly & Co., 65 N.Y.2d 449, 456, [1985] [internal quotation marks omitted]).
Here, the issue of standing was never necessarily decided, as none of the previous decisions settled the issue of standing. Specifically, Cortlandt I did not yield a final judgment and Justice Friedman granted Cortlandt leave to amend its pleadings. Similarly, Justice Edmead also permitted Cortlandt to amend its complaint, specifically allowing Cortlandt to allege additional facts that would demonstrate that "the registered holders of the sub notes, authorized the assignors to bring suit on the notes" (NYSCEF Doc. No. 206 at 7). In the AC, Cortlandt does exactly that - it elaborates on the relationship between the registered holders, the assignors, and itself. In so doing, Cortlandt cites to a specific provision of the OM which incorporates Euroclear's operating rule by which Euroclear explicitly authorizes SPQR to sue on the sub notes registered to Euroclear. Later, such right was assigned to Cortlandt, authorizing Cortlandt to bring this action, and both SPQR's and Cortlandt's authority to sue was further confirmed by the STAC letters (AC at 23 quoting STAC Letters "[Letters] confirm that the Assignors are 'authorized to maintain proceedings against issuers, guarantors and any other parties'") (emphasis added).
As noted, by granting to Cortlandt leave to amend its pleadings, Justice Edmead specifically allowed Cortlandt to allege additional facts in the AC that would demonstrate that Cortlandt has standing to pursue this action. By asserting the above-mentioned theory in the AC and by attaching multiple exhibits supporting the theory's merits - including the copies of the OM, Euroclear's operating rules and the STAC letters - Cortlandt has accomplished that. If this court were to apply collateral estoppel in this context, as defendants suggest, the court would render the process of re-pleading null, and effectively interfere with the prior decisions of both Justice Edmead and Justice Friedman.
In short, because the issue of standing was never previously decided in a final manner and because Cortlandt stated a cognizable theory of standing in the AC, Cortlandt is allowed to bring claims regarding sub notes registered to Euroclear. However, Cortlandt has failed to demonstrate standing as it relates to sub notes registered to Clearstream because it never identified a Clearstream rule or procedure that is equivalent to Euroclear's rule 5.3.1.3(a).
II Personal Jurisdiction
In the AC, Cortlandt asserts that this court has personal jurisdiction over two individual defendants, David Bonderman and James Coulter, under two theories of personal jurisdiction: alter ego theory and closely-related doctrine.
Cortlandt alleges that Bonderman and Coulter are the founding partners of TPG, joint chief executive officers, and controlling owners of TPG (AC at 34). It is further alleged that Bonderman and Coulter are both officers and directors of the TPG funds and that they received certain proceeds from the sale of the sub notes. Neither Bonderman nor Coulter are residents of New York.
1. Alter Ego Theory of Personal Jurisdiction
Cortlandt argues that Bonderman and Coulter are alter egos of Hellas II and, as such, may be bound by the terms of the indenture entered into by Hellas II. Thus, since Hellas II, pursuant to section 14.09 of the indenture, consented to jurisdiction in New York, Cortlandt reasons, this court also has jurisdiction over Bonderman and Coulter individually (see Highland Crusader v. Targeted, 184 A.D.3d 116, 122 [1st Dep't 2020] ["A non-signatory may be bound by a contract under certain limited circumstances, including as a third-party beneficiary or an alter ego of a signatory."]).
As a general rule, "establishing the exercise of personal jurisdiction over an alleged alter ego requires application of a less stringent standard than that necessary to pierce the corporate veil for purposes of liability" (GEM Advisors, Inc. v Corporacion Sidenor, S.A., 667 F.Supp.2d 308, 319 [SDNY 2009] [internal quotation marks and citation omitted]). In evaluating whether a corporation is an alter ego of another party, courts consider various indicia, including: "(1) the absence of the formalities and paraphernalia that are part and parcel of the corporate existence, i.e., issuance of stock, election of directors, keeping of corporate records and the like, (2) inadequate capitalization, (3) whether funds are put in and taken out of the corporation for personal rather than corporate purposes, (4) overlap in ownership, officers, directors, and personnel, (5) common office space, address and telephone numbers of corporate entities, (6) the amount of business discretion displayed by the allegedly dominated corporation, (7) whether the related corporations deal with the dominated corporation at arms length, (8) whether the corporations are treated as independent profit centers, (9) the payment or guarantee of debts of the dominated corporation by other corporations in the group, and (10) whether the corporation in question had property that was used by other of the corporations as if it were its own" (Wm. Passalacqua Bldrs., Inc. v Resnick Devs. S., Inc., 933 F.2d 131, 139 [2d Cir 1991]).
To support its argument that Bonderman and Coulter are alter egos of Hellas II for jurisdictional purposes, Cortlandt cites to (Okapi Partners, LLC v. Holtmeier, 2019 WL 1517553 [SDNY 2019]). In Okapi, plaintiff sought to enforce a judgment against two individuals alleged to be alter egos of Rx, an insolvent entity that was not a party to the judgment enforcement action. Plaintiff argued that its agreement with Rx contained a forum selection clause in which the parties consented to jurisdiction in New York, and that defendants were bound by the forum selection clause as alter egos of Rx. The court agreed, holding that plaintiff had adequately alleged that defendants were alter egos of Rx for liability purposes, and concluding that "[b]ecause Rx consented to New York jurisdiction and the Complaint adequately alleges that Rx is defendants' alter ego, [plaintiff] has adequately demonstrated, at the pleading stage, that defendants are subject to personal jurisdiction in New York" (id. at *6, citing William Passalacqua Builders, Inc. v. Resnick Developers S., Inc., 933 F.2d 131, 142-43 [2d Cir 1991]).
However, in Okapi, the individual defendants were alleged to have comingled assets and have written checks on behalf of the alter ego entity from personal bank accounts, and the alleged alter ego entity was purported to be "entirely dependent" on individual defendants' capital contributions, never had regular operating income, and failed to pay Delaware corporate taxes and fees (Okapi, 2019 WL 1517553, at *2, *4). Here, Cortlandt has made no showing of even any direct contact with Hellas II by either Bonderman or Coulter. Moreover, there is nothing in the AC to suggest any specific and meaningful non-conclusory involvement by Bonderman and Coulter with Hellas II or the indenture or the transaction, let alone involvement of the type required to support jurisdiction demonstrated in Okapi, or any of Cortlandt's cited cases.
At best, Cortlandt asserts that (a) Bonderman and Coulter are the "co-founders and heads" of TPG Capital Management, L.P. and held "director and officer" positions at TPG Advisors IV, Inc. ("TPG Advisors IV"); (b) Bonderman and Coulter signed a board resolution in 2005 authorizing the purchase of TIM Hellas by TPG Advisors IV; (c) Bonderman had the highest ownership percentage of TPG in 2006; (d) Bonderman and Coulter were members of an investment review committee and if Bonderman were opposed to a proposed investment, it probably would not have gone forward"; and (e) Bonderman and Coulter were copied on and referenced in some communications about the deal, and wrote a couple of emails about it (Opp. Memo at 23-24).
These allegations fail to refute the sworn statements from Bonderman's and Coulter's affidavits submitted with the motion and affirming - that they "did not participate in the planning or executing" of the refinancing, and had no role in "negotiating, drafting, or approving" the indenture that governs the sub notes (Bonderman Aff. at 3-6; Coulter Aff. at 3). Thus, because of Bonderman's and Coulter's lack of involvement related to the relevant transactions, Courtland cannot establish alter-ego jurisdiction.
2. Closely-Related Doctrine
Under New York law, a signatory to a contract may invoke a forum selection clause against a non-signatory if the non-signatory is 'closely related' to one of the signatories such that 'enforcement of the forum selection clause is foreseeable by virtue of the relationship between the signatory and the party sought to be bound." (Universal Inv. Advisory SA v. Bakrie Telecom Pte, Ltd, 154 A.D.3d 171, 179 [1st Dep't 2017] [citation omitted]).
Here, Cortlandt accepts that Coulter and Bonderman did not sign indenture - the terms of which subject the consortium to courts in New York - but Cortlandt still argues that this court can exercise jurisdiction over the individual defendants by virtue of the closely related doctrine. This is so, Cortlandt argues, because the enforcement of the forum selection clause against defendants was foreseeable as a consequence of defendants' control over Hellas II, including the fact that: (i) defendants' executives signed the sub notes and indenture as authorized officers of Hellas II; (ii) TPG's approvals and consents were required to issue the OM and sell the sub notes under the terms of a shareholders agreement to which the defendants and Hellas II were signatories; and (iii) defendants controlled the drafting and terms of the OM, sub notes and indenture so that the choice of New York law, jurisdiction and venue was defendants' choice.
Cortlandt's' arguments fail because the First Department has held that, for the closely-related doctrine to apply, there must be a showing that "the non-signatory party has an ownership interest or a direct or indirect controlling interest in the signing party, or the entities or individuals consulted with each other regarding decisions and were intimately involved in the decision-making process" (Universal Inv. Advisory SA v Bakrie Telecom Pte., Ltd., 154 A.D.3d 171, 179 [1st Dep't 2017]).
Cortlandt has failed to offer tangible evidence that Bonderman or Coulter were intimately involved in the decision-making process of the note offering or the CPEC redemption. At best, Bonderman or Coulter were the beneficiaries of these transactions, but they had no direct involvement in them, as indicated in their unrefuted affidavits submitted with this motion.
III Fraud
a. Legal Standard
"On a motion to dismiss pursuant to CPLR 3211, the pleading is to be afforded a liberal construction," and the court must "accept the facts as alleged in the complaint as true, accord the plaintiffs the benefit of every favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory" (Leon v Martinez, 84 N.Y.3d 83, 87-88 [1994]). However, "factual allegations that do not state a viable cause of action, that consist of bare legal conclusions, or that are inherently incredible or clearly contradicted by documentary evidence are not entitled to such consideration" (Skillgames, LLC v Brody, 1 A.D.3d 247, 250 [1st Dep't 2003]). Where extrinsic evidence is submitted in connection with the motion, the appropriate standard of review "'is whether the proponent of the pleading has a cause of action, not whether he [or she] has stated one'" (Dollard v WB/Stellar IP Owner, LLC, 96 A.D.3d 533, 533 [1st Dep't 2012], quoting Leon, 84 N.Y.2d at 88).
Dismissal is warranted, pursuant to CPLR 3211 (a) (1), where the documentary evidence "resolves all factual issues as a matter of law, and conclusively disposes of the plaintiff's claim" (Fortis Fin. Servs. v Fimat Futures USA, 290 A.D.2d 383, 383 [1st Dep't 2002] [internal quotation marks and citation omitted]). "[T]o be considered 'documentary,' evidence must be unambiguous and of undisputed authenticity" (Fontanetta v John Doe 1, 73 A.D.3d 78, 86 [2d Dep't 2010], citing Siegel, Practice Commentaries, McKinney's Cons Laws of NY, Book 7B, CPLR 3211:10, at 21-22).
b. Fraud Generally
To state a claim for fraud, a plaintiff must allege particularized facts establishing "a material misrepresentation of a fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by the plaintiff and damages" (El Toro Grp., LLC v. Bareburger Grp., LLC, 190 A.D.3d 536, 541 [1st Dep't 2021]; see EBC I, Inc. v. Goldman Sachs & Co., 91 A.D.3d 211, 218-21 [1st Dep't 2011]; see also Eurycleia Partners, LP v. Seward & Kissel, 12 N.Y.3d 553, 559 [2009]). In addition, a fraud plaintiff must plead particularized facts showing that the alleged misrepresentations "were the direct and proximate cause of the losses claimed" (Laub v. Faessel, 297 A.D.2d 28, 30 [1st Dep't 2002]). Cortlandt alleges that defendants conspired to, and did, sell interests in the sub notes by means of the OM which included untrue statements of material fact.
These misleading statements, according to Cortlandt, include without limitation:
a. The statement that defendants intended to use the proceeds of the offering of the sub notes to redeem deeply subordinated shareholder loans from the sponsors. Cortlandt asserts that defendants always intended to use the proceeds of the sub notes to redeem the CPECs, which constitute equity, not debt, and which could not properly be redeemed by their own terms.
b. The statement that the Sub Notes would be secured by the CPECs and PECs issued by Hellas II. Cortlandt alleged that defendants always intended to redeem the CPECs and PECs in order to pay the proceeds of the sub notes to themselves.
Defendants argue that the AC does not plead fraud with required particularity and that Cortlandt cannot establish any elements of fraud.
A plaintiff alleging fraud must plead the circumstances of the fraud with particularity (see CPLR 3016(b); El Toro Grp, 190 A.D.3d at 541; see also EBC I, Inc., 91 A.D.3d at 218-21; see also Eurycleia Partners, LP, 12 N.Y.3d at 559 ["A claim rooted in fraud must be pleaded with the requisite particularity under CPLR 3016(b)"]). Defendants argue that the AC lumps all the defendants together and, instead of establishing exactly who did what, when, and where, Cortlandt uses nothing but buzzwords, such as "highly-coordinated fraud" and "fraudulent scheme," instead of actually establishing such a scheme.
Defendants may misperceive the fraud claim. The AC does not allege that defendants are liable for a fraud that they committed themselves in an individual capacity; rather, it seeks to hold defendants liable as alter egos for the fraud committed by Hellas II (People v. Concert Connection, 211 A.D.2d 310, 320 [2d Dep't 1995] ["That the corporate veil may be pierced to hold corporate officers personally liable for tortious conduct is a well-accepted doctrine"] [citing Marine Midland Bank v Russo Produce Co., 50 N.Y.2d 31, 44 [1980]). The AC therefore need not allege the elements of a fraud claim as to each defendant; rather, it need only allege a fraud on the part of Hellas II and that defendants are liable as alter egos. Although CPLR 3016(b) requires that, where a claim sounds in fraud, the circumstances constituting the wrong shall be stated in detail, CPLR 3016(b) is satisfied when the facts alleged "are sufficient to permit a reasonable inference of the alleged conduct" (Pludeman v. Northern Leasing Sys., Inc., 10 N.Y.3d 486, 492 [2008]). In light of the applicable standard, Cortlandt successfully alleges the necessary facts for its fraud claim to survive defendants' motion to dismiss.
c. Misrepresentation of Fact
Cortlandt alleges that the OM fraudulently stated that recapitalization proceeds would be used to redeem deeply subordinated shareholder loans from the sponsors, even though defendants intended to redeem CPECs. Defendants argue this claim is meritless because it assumes that CPECs and deeply subordinated shareholder loans were different securities. In support of this assertion, defendants point to a sentence in the OM which states that "the Sponsors contributed a total of 썢.0 million of deeply subordinated shareholder loans in the form of convertible preferred equity certificates ('CPECS')" (OM at 60). But the OM does not use the terms "CPECs" and "deeply subordinated shareholder loans" interchangeably and, in certain provisions of the OM, the two terms are being used to refer to distinct things (OM at 58) ["To facilitate the redemption of the deeply subordinated shareholder loans from the Sponsors as described in 'Use of proceeds,' CPECs with a nominal value of 썑.8 million (as of September 30, 2006) issued by Hellas II to Hellas I will be valued at fair market value by the directors of Hellas II]").
Further, the OM states that "the Company classifies the CPECs as equity" (OM at 293). Shareholder loans, on the other hand, are not considered equity (emphasis added), indicating that CPECs and the deeply subordinated shareholder loans are not the same thing.
The AC also alleges that the OM falsely stated that "the Sub Notes would be secured by the CPECs and PECs issued by Hellas II," when in fact "the Defendants always intended to redeem the CPECs and PECs in order to pay the proceeds of the Sub Notes to themselves." (AC at 134(b)). Defendants argue that this statement is not false because (1) "the OM repeatedly explained that Hellas II would redeem CPECs in the Recap, and that Hellas would use Recap proceeds to redeem its CPECs from the Sponsors," (Apax Br. at 12) (citing OM at 12 n.5 and 59 n.4) and (2) "the OM made clear that the security consisted of CPECs 'that are outstanding at any time,' a reference to the remaining CPECs after the redemptions" (id. at 12-13 [citing OM at 39]).
However, the OM states that the sub notes will be secured by a "pledge over certain voting shares, convertible preference equity certificates and preference equity certificates of Hellas II granted on the Issue Date" (OM at 247; see also OM at 1-2 ["The Subordinated Notes will have the benefit of security in the form of a pledge over certain instruments issued by Hellas II, which will be limited to 65% of the voting shares of Hellas II that are outstanding and are held by Hellas I at any time and 85% of the total convertible preferred equity certificates and preferred equity certificates, respectively, of Hellas II that are outstanding at any time"]). While defendants claim that the OM "repeatedly explained" that the CPECs would be redeemed in the recap, as set forth above, the OM actually states that "deeply subordinated shareholder loans" would be redeemed, not CPECs.
Since at the motion to dismiss stage the court must accord the plaintiff the benefit of every favorable inference (see Leon v Martinez, 84 N.Y.3d 83, 87-88 [1994]), this court holds that the facts as alleged in the AC fit within a cognizable legal theory and that the first element of fraud is satisfied.
d. Knowledge of falsity and intent to induce reliance
Defendants argue that the complaint does not allege that the defendants knew that any or the alleged misrepresentations in the OM were false or that defendants intended to induce reliance. Again, as discussed above, the AC alleges that defendants are liable for the fraud as alter egos. Therefore, it is not required that Cortlandt must plead each element of a fraud claim as to each individual defendant. Morover, "actual knowledge need only be pleaded generally," as "[p]articipants in a fraud do not affirmatively declare to the world that they are engaged in the perpetration of a fraud" (Oster v. Kirschner, 77 A.D.3d 51, 55-56 [1st Dep't 2010]; "[A]n intent to commit fraud" can therefore be "divined from surrounding circumstances", id. at 56 [citing Eurycleia Partners, 12 N.Y.3d at 559]).
Here, the AC alleges that the OM falsely stated that the note proceeds were to be used to redeem "deeply subordinated shareholder loans" and that the CPECs would be pledged as security for the notes (AC at 134). At the same time, according to the AC, the members of the consortium planned to use the note proceeds to render Hellas II insolvent by redeeming the CPECs at an inflated value in order to pay themselves an enormous dividend (id.). Considering the motion to dismiss standard, this is sufficient to plead knowledge and intent.
e. Causation
To establish causation a plaintiff must show that the defendant's misrepresentation induced the plaintiff to engage in the transaction in question (transaction causation) and that the misrepresentation directly caused the loss about which the plaintiff complains (loss causation) (Laub v. Faessel, 297 A.D.2d 28, 30 [1st Dep't 2002]).
Defendants argue that transaction causation cannot be pled in this case because there can be no allegation that, but for the misrepresentations, the original investors would not have purchased the sub notes. However, it is more than reasonable to conclude that the original purchasers would not have purchased the sub notes if they had known that the security being pledged by the company to protect their investment would actually be redeemed on the very same day that the notes were issued. Transaction causation is therefore satisfied.
Loss causation is likewise satisfied. Loss causation requires "some reasonable connection between the act or omission of the defendant and the damage which the plaintiff has suffered" (Laub, 297 A.D.2d at 31), and is satisfied if "it was foreseeable that [the plaintiff] would suffer losses as a result of relying on [the defendant's] alleged misrepresentations" (MBIA Ins. Corp. v. Countrywide Home Loans, Inc., 87 A.D.3d 287, 295 [1st Dep't 2011]). Here, it was foreseeable that the sub note purchasers would suffer losses as a result of relying on the misrepresentations, as they purchased the notes believing that the notes would be secured by the pledged CPECs which could only be redeemed once all other debt had been paid or provided for when, in fact, the CPECs were immediately redeemed. Loss causation is therefore satisfied.
f. Justifiable reliance
A court will find reasonable reliance where the misrepresented facts were "peculiarly within the defendant's knowledge" and the defrauded party could not have discovered the truth by exercising due diligence (ACA Fin. Guar. Corp. v. Goldman, Sachs & Co., 25 N.Y.3d 1043, 1044 [2015]; see also NRAM v. Societe Gen. Corp. & Inv. Banking, 2014 WL 3924619, *11 [Sup Ct, NY County 2014], "[A] sophisticated plaintiff's fraud claim will not be precluded where it has sufficiently alleged that [defendant] possessed peculiar knowledge of the facts underlying the fraud, and the circumstances present would preclude any investigation by [plaintiff] conducted with due diligence" [internal quotation omitted]; see also China Dev. Indus. Bank v. Morgan Stanley & Co. Inc., 86 A.D.3d 435, 436 [1st Dep't 2011]). Moreover, "[b]ecause reliance is fact intensive, the issue of reasonable reliance is rarely a suitable matter for a motion to dismiss" (Varga v. McGraw Hill Fin. Inc., 2015 WL 4627748, * 7 [Sup Ct, NY County 2015]).
Here, the original purchasers were instructed to rely only on the statements contained in the OM. They therefore could not have relied on anything other than the statements in the OM in deciding to purchase the notes. In so relying, the note purchasers did not know, and could not have discovered with due diligence, that the consortium intended to redeem the CPECs - not deeply subordinated shareholder loans. The note purchasers did not have access to the information regarding the actual value of the CPECs, nor could they have known that the members of the consortium intended to take actions that were directly contradictory to the statements in the OM. Therefore, the element of justifiable reliance is satisfied.
g. Rescission
Finally, defendants argue that the fraud claim must be dismissed because rescission is not an available remedy where a plaintiff has an adequate remedy at law (Apax Br. at 14-15). New York law is clear, however, that where, as here, a fraudulent inducement claim is not duplicative of a breach of contract claim - and defendants have made no argument that the claims are duplicative - a plaintiff may assert both claims and seek rescission as a remedy on the fraudulent inducement claim (see GoSmile, Inc. v. Levine, 81 A.D.3d 77, 82 [1st Dep't 2010] [plaintiff permitted to assert claims for both fraudulent inducement and breach of contract and seek rescission of the contract]). Thus, at this stage, Cortlandt's cause of action for fraud survives defendants' motion to dismiss.
IV Breach of Contract
The theory behind the breach of contract claim boils down to the following: Hellas II issued the sub notes, the noteholders purchased them, Hellas II defaulted under the notes, and the amounts due under the notes remain unpaid. The AC alleges that the defendants are alter egos of Hellas II and therefore are liable for Hellas II's breach of contract. The AC also alleges that the sub notes were issued subject to the terms and conditions in the OM and indenture, documents that separately and together, with the terms of the sub notes themselves, constitute a contract, and which, among other things, collectively provide that defendants had no authority to cause redemption or other distribution relating to CPECs and that the CPECs issued by Hellas II to Hellas I were to be pledged as collateral to secure and guarantee payment of the sub notes.
Defendants argue for dismissal on grounds that the breach of contract claim (1) is not pled with particularity under CPLR 3016(b), (2) is based on the breach of a non-existent contract term, (3) fails under New York law, and (4) is barred by the no recourse clause found in the indenture. Each of these arguments is unavailing.
First, defendants attempt to frame the claim for breach of contract as the contract/alter ego claim and argue that the claim must meet the heightened pleading standard of 3016(b) because the alter ego theory is rooted in fraud.
This argument is baseless. There is "no requirement of heightened particularity in a contract claim" (Vandashield Ltd. v. Isaacson, 146 A.D.3d 552, 554 [1st Dep't 2017]). Rather, the cases cited by defendants stand only for the uncontroversial proposition that alter ego allegations must be supported by particularized statements setting forth the alleged fraud or other corporate wrongdoing. "Particularized" does not mean that the allegations are subject to the heightened particularity requirement of CPLR 3016(b). Rather, pursuant to New York's notice pleading standard, set forth in CPLR 3013, all statements in a pleading "shall be sufficiently particular to give the court and parties notice of the transactions, occurrences, or series of transactions or occurrences, intended to be proved and the material elements of each cause of action or defense" (id.).
Second, defendants further argue that the breach of contract claim fails because it is "based on a non-existent term of the Sub Notes," i.e., that Hellas II "redeem[ed] CPECs without paying or providing for the payment of the Sub Notes" (Apax Br. at 16). Defendants claim that no contract term requires that the notes be paid, or that payment be provided for, before the CPECs could be redeemed (id).
This argument is also without merit. At this stage, the court must "accept the facts as alleged in the complaint as true and accord the plaintiffs the benefit of every favorable inference (Leon v Martinez, 84 N.Y.3d 83, 87-88 [1994]). As alleged in the AC,"[t]he Sub Notes were issued subject to terms and conditions in the OM, Sub Notes and Indenture, documents that each separately and together constitute a contract" (AC at 142). The OM expressly provides that the company will only have "the option to redeem CPECS" "[o]nce the Company does not have any other debt liability to pay or to provide for" (OM at 293). The sub notes were, of course, a debt liability, and Hellas II's failure to pay off the notes or provide for their payment prior to redeeming the CPECs, on its face appears to constitute a breach of contract. Therefore, Cortlandt has alleged sufficient facts to rebut the defendants' argument that Cortlandt's breach of contract must fail because it is based on an allegedly non-existent term.
Third, defendants argue that the breach of contract claim must be dismissed because the original purchasers of the sub notes knowingly contracted only with Hellas II, which they knew was a "holding company without operations" that was "completely dependent on receiving payments from other members of the [Hellas] group to make payments on the [Sub] Notes or meet their obligations." (Apax Br. at 18, citing OM at 11 n.4, 30). They claim that, under these circumstances, piercing the corporate veil would not "accomplish equity or justice, but would in fact thwart that end (Apax Br. at 18, citing Brunswick Corp. v. Waxman, 599 F.2d 34, 36 [2d Cir 1979]).
"[V]eil-piercing is a narrowly construed doctrine limiting 'the accepted principles that a corporation exists independently of its owners'" (Skansa USA Bldg. Inc. v. Atlantic Yards B2 Owner LLC, 146 A.D.3d 1, 12 [1st Dep't 2016], quoting Morris v. New York State Dep't of Taxation & Fin., 82 N.Y.2d 135, 140 [1993]). "The party seeking to pierce the corporate veil must establish that the owners, through their domination, abused the privilege of doing business in the corporate form to perpetrate a wrong or injustice against that party such that a court in equity will intervene" (Morris, 82 N.Y.2d at 143).
While defendants point to the provision in the OM stating that Hellas II was a "holding company without operations," they do not claim that Hellas II was formed "for the sole purpose of carrying out the transaction" and specifically to allow defendants to avoid personal liability. Indeed, as pled in the AC, Hellas II and the other Hellas entities were formed in 2005 in order to serve as acquisition vehicles for TIM Hellas (AC at 8). Defendants did not decide to cause Hellas II to issue the sub notes until December 2006, only after they had failed to sell the Hellas entities (id. at 83). Defendants therefore do not establish that Hellas II was formed for the sole purpose of issuing the sub notes and protecting defendants from personal liability on the notes - because it was not - and the Brunswick rule does not apply.
Finally, defendants contend that an alter ego theory is barred by the no recourse provision in the indenture, which states, in pertinent part, that no "member or stockholder of the Issuer will have any liability for any obligations of the Issuer or under the Notes... or this Indenture or for any claim based on, in respect of, or by reason of such obligations or their creation" (id.).
Under New York law, no recourse provisions bar only contract claims, not equitable claims, and alter ego liability claims are equitable in nature (see Small v Sullivan, 245 NY 343, 356 [1927], rearg denied 245 NY 621 [1927] [no recourse provision "did not and could not cover the future fraudulent acts of the directors"]; LaSalle Natl. Bank v Perelman, 141 F.Supp.2d 451, 463 [Del 2001] [alter ego liability claim "was an equitable claim, and as such, it was not barred by the no recourse provision"]; accord New York Wheel Owner LLC v Mammoet Holding B.V., 481 F.Supp.3d 216, 230 [SDNY 2020] [applying Delaware law]). Given that Cortlandt's alter ego liability claims are equitable in nature, they are not barred by the indenture's no-recourse provision (see LaSalle Natl. Bank, 141 F.Supp.2d at 463; see also Mabon, Nugent & Co. v Texas American Energy Corp., 1988 WL 5492, *3, 1988 Del Ch LEXIS 11, *8 [Del Ch 1988] ["plaintiffs' equitable claims are not barred by the Indenture"]). So, at this stage, Cortlandt's cause of action for breach of contract survives defendants' motion to dismiss.
V Forum Non Conveniens
Finally, defendants argue that the amended complaint should be dismissed on forum non conveniens grounds. Defendants contend that the recapitalization occurred in Europe, many of the key witnesses are in Europe, and that foreign law applies to many of Cortlandt's claims.
Although the recapitalization occurred in Europe, defendants have not shown that they would suffer any greater hardship by litigating this action in New York, given that the parties have extensively litigated this action for 10 years and have engaged in substantial pretrial discovery (see Intertec Contr. A/S v Turner Steiner Intl., S.A., 6 A.D.3d 1, 5 [1st Dep't 2004] ["Where the parties have engaged in substantial pre-trial discovery and invested a great deal of valuable time and resources, the presumption against dismissal on the basis of forum non conveniens greatly increases"]). Therefore, defendants are not entitled to dismissal of the amended complaint on forum non conveniens grounds.
CONCLUSION
Accordingly, it is
ORDERED that the motions (sequence number 009 and 010) of TPG Capital Management, L.P., David Bonderman, James Coulter, TPG Genpar IV, L.P., TPG Partners IV, L.P., TG Advisors IV, Inc., T3 Genpar II, L.P., T3 Partners II, L.P., T3 Parallel II, L.P., and Apax Partners, L.P. to dismiss the amended complaint are granted in part and denied in part as follows:
(1) dismissing the amended complaint in its entirety as against David Bonderman and James Coulter because this court has no personal jurisdiction over the two defendants, with costs and disbursements to said defendants as taxed by the Clerk of the Court, and the Clerk is directed to enter judgment accordingly in favor of said defendants; and (2) dismissing the amended complaint's causes of action for fraud and breach of contract to the extent that such causes of action seek to recover damages related to sub notes registered to Clearstream because plaintiff has not demonstrated standing to pursue this action on behalf of Clearestream's registered holders; and The motions to dismiss are denied in part: (3) to the extent Cortlandt has demonstrated standing to pursue causes of action for fraud and breach of contract related to sub notes registered to Euroclear; and (4) to the extent Cortlandt has alleged sufficient facts to survive dismissal of its claims related to causes of action for fraud and breach of contract against all named defendants except for David Bonderman and James Coulter.