Forstl v. Morgan Creek Capital Management

Background

Michael Forstl sued his former employer, Morgan Creek Capital Management, LLC (MCCM), and Mark Yusko. He alleged that MCCM, under Yusko’s direction, breached agreements governing fees, commissions, and his interest in investment-related business. His claims included breach of contract, a request for a declaratory judgment, tortious interference, promissory estoppel, and breach of the duty of good faith and fair dealing.

The central Fee Agreement created a system under which certain revenues could be transferred from MCCM to Morgan Creek Capital Distributors, LLC (MCCD), for Forstl’s benefit. The agreement divided investment products into categories and required MCCM’s permission to add products to one category and written consent before transferring revenues from those products. Forstl alleged that MCCM failed to transfer revenues from investment products he developed or supervised, used an improper method to calculate assets under management, hired outside placement firms, and wound down MCCD.

Forstl also relied on a Commission Agreement concerning commissions for sales to new relationships or new capital. He alleged that MCCM improperly gave half of a commission to a junior analyst and that Yusko promised to continue paying commissions after Forstl left Morgan Creek. Defendants moved to dismiss for improper venue and failure to state a claim.

Venue

The court held that venue was proper for Counts I through X and XIV because substantial events connected to the Fee Agreement occurred in the Southern District of New York. Forstl worked from MCCM’s Manhattan office for much of the relevant period, performed work there, developed and marketed investment products there, and participated in related meetings there.

The court held that venue was improper for Counts XI through XIII, which concerned the Commission Agreement and the alleged promise to pay commissions after Forstl’s departure. The Commission Agreement was executed after MCCM’s Manhattan office had closed, and the record did not show that the agreement contemplated performance in New York or that significant events concerning those claims occurred there. The court did not decide whether to transfer those claims because it dismissed them under the alternative failure-to-state-a-claim grounds.

Contract Claims

The court dismissed Counts II through VII and IX, which alleged breaches of the Fee Agreement, MCCD’s operating agreement, or both. It concluded that Counts II through VII depended on Forstl’s assumption that all of the investment products he called the “MCCD Products” automatically qualified for fee transfers. The Fee Agreement instead required MCCM to add products to the relevant category and to give prior written consent for the transfer of their revenues. Forstl did not plausibly allege that those steps occurred for the products supporting Counts II through VII.

The court also dismissed Count IX, which concerned the winding down of MCCD and related funds. Forstl did not identify a contract provision requiring his consent before MCCD could be wound down, and he did not provide sufficient factual allegations showing how the alleged actions violated the agreements.

The court allowed Count VIII to proceed in part. Forstl plausibly alleged that MCCM breached the Fee Agreement by hiring Gondola Capital to raise money for the Morgan Creek Blockchain Opportunities Fund I, or MCBO I, during a period when MCBO I appeared in the agreement’s list of covered investment products. The court found the agreement’s notation concerning investor listings insufficiently clear at the dismissal stage. But Forstl did not plausibly allege that hiring Trailmark or Frontier Solutions involved products within the covered business, so those theories did not survive as independent bases for Count VIII.

Count XI alleged that MCCM breached the Commission Agreement by reallocating half of Forstl’s commission. The court dismissed that claim because MCCD, not MCCM, was the counterparty that promised to pay commissions under the agreement. The court therefore concluded that Forstl sued the wrong entity.

Tortious Interference and Promissory Estoppel

The court dismissed Counts X and XIII, which alleged that Yusko tortiously interfered with the Fee Agreement and Commission Agreement. Applying North Carolina law, the court explained that a corporate officer’s actions are presumed justified when taken for the corporation’s interests. Forstl did not allege facts showing that Yusko acted for his own personal interest rather than for legitimate business purposes.

The court dismissed Count XII, which asserted promissory estoppel based on Yusko’s alleged promise to continue paying commissions after Forstl left Morgan Creek. The court did not resolve whether North Carolina or New York law governed because the claim failed under either approach. Under North Carolina law, the theory was not available as the standalone claim asserted. Under New York law, the alleged promise merely repeated an existing contractual obligation, and promissory estoppel generally cannot replace a claim enforcing an express contract covering the same subject.

Claims Not Dismissed

Defendants did not adequately brief dismissal of Count I, which sought a declaration about MCCM’s obligations under the Fee Agreement, or Count XIV, which alleged that MCCM breached the duty of good faith and fair dealing by suppressing asset figures used in calculating the threshold. The court therefore denied the motion to dismiss those counts.

Disposition

Judge John P. Cronan granted Defendants’ motion in part. The court dismissed Counts II, III, IV, V, VI, IX, XI, and XII with prejudice. It dismissed Counts VII, X, and XIII without prejudice. It denied the motion to dismiss Counts I, VIII, and XIV. Defendants were ordered to answer the surviving counts by October 14, 2025.