450 F.Supp.3d 358
S.D.N.Y.2020Background
- Ithaca I and Ithaca II (Panamanian investment entities, controlled by Orestes Fintiklis) bought 215 of 369 units in the Trump International Hotel & Tower Panama under a Bulk Sale Agreement (BSA) in Feb 2017; the BSA included a covenant not to interfere with the hotel manager and a New York forum-selection clause.
- The hotel had been managed under a 2011 Hotel Management Agreement (HMA) by Trump Panama Hotel Management LLC and Trump International Hotels Management LLC until March 2018.
- In Oct 2017, Ithaca-affiliated owners (with Lundgren’s vote) installed new Hotel TOC board members, served a notice of default on the managers, and Hotel TOC filed ICC arbitration; Plaintiffs held an Oct 14 meeting that Defendants allege involved misrepresentations.
- In March 2018 Plaintiffs (Ithaca entities) took control of the Hotel; Plaintiffs then allege they discovered Defendants underreported fees, misallocated reserve funds, and otherwise mismanaged the Hotel; Defendants allege Plaintiffs engaged in forcible self-help (lockouts, removal of branding, etc.).
- Procedurally: Plaintiffs sued for declaratory/injunctive relief to stop ICC arbitration and obtained a preliminary injunction; Defendants answered with counterclaims (fraud, fraudulent inducement, fraudulent concealment, tortious interference, breach); Plaintiffs moved to dismiss several counterclaims and sought leave to file an amended complaint adding fraud, conversion, and breach claims.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Fraud (fraud, fraudulent inducement, fraudulent concealment) | Defs fail to plead fraud with particularity and their allegations are merely breaches of BSA duties | Plaintiffs made false pre-meeting assurances and concealed material facts; Defs relied and were harmed | Dismissed: fraud claims fail Rule 9(b) and are duplicative of contract; alleged misstatements were promissory/contractual, not collateral fraud |
| Fraudulent inducement (specific) | Same as above — inducement duplicates contract promises | Promissory statements induced consent to sale and were false | Dismissed as duplicative of breach of contract (Bridgestone principle) |
| Fraudulent concealment (specific) | Duty to disclose is contractual; duplicative | Plaintiffs concealed their true purpose | Dismissed: duty alleged is identical to contractual duty; no separate duty pleaded |
| Tortious interference with HMA and Lundgren Settlement | Interference was privileged because Ithaca entities had an economic interest / some were parties | Plaintiffs intentionally procured breach and used unlawful means (forcible conduct); acted with knowledge of agreements | Denied dismissal: claims survive at pleading stage; economic-interest defense is affirmative and malice/illegality alleged so not resolved on 12(b)(6) |
| Claims against Fintiklis (individual) | Must pierce the corporate veil to sue individual officer | Fintiklis personally participated and controlled Ithaca entities | Denied dismissal: corporate veil piercing not required where officer actively participates; claims against Fintiklis may proceed |
| Motion for leave to amend (add fraud, conversion, breach) | Plaintiffs seek to add claims based on discovery after injunction | Judicial estoppel, undue delay/bad faith, futility | Granted: judicial estoppel inapplicable; delay not shown to be bad faith; proposed claims not futile at pleading stage |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (U.S. 2009) (plausibility standard for pleading and limits on conclusory allegations)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (pleading must state plausible claim; Twombly standard)
- Bridgestone/Firestone, Inc. v. Recovery Credit Servs. Inc., 98 F.3d 13 (2d Cir. 1996) (fraud claims collateral to contract required to proceed)
- ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (Rule 9(b) particularity for fraud pleading)
- Forman v. Davis, 371 U.S. 178 (U.S. 1962) (standard favoring leave to amend under Rule 15)
- TVT Records v. Island Def Jam Music Grp., 412 F.3d 82 (2d Cir. 2005) (duty to disclose must be independent of contractual duty)
- White Plains Coat & Apron Co. v. Cintas Corp., 460 F.3d 281 (2d Cir. 2006) (economic-interest justification as defense to tortious interference)
- Cohen v. Koenig, 25 F.3d 1168 (2d Cir. 1994) (fraud extraneous to contract may support claim if predates and induces contract)
- Foster v. Churchill, 87 N.Y.2d 744 (N.Y. 1996) (economic justification in tortious interference context)
- New York v. Seventh Regiment Fund Inc., 98 N.Y.2d 249 (N.Y. 2002) (conversion defined as unauthorized assumption of ownership)