Natura Development N.V. v. HEH Advisors LLC

Background

Natura Development N.V. brought a diversity action against HEH Advisors LLC and Andrew J. Herzberg. Natura alleged that it retained HEH under a November 30, 2018 agreement to act as an equity or capital advisor and find financing of $57 million for construction of a hotel in Aruba. Natura paid a $150,000 retainer. The agreement provided for an additional placement fee of 2% of a loan amount if HEH obtained an approved funding source, and it stated that Natura’s retention of HEH was non-exclusive.

Natura alleged that, in December 2018, Herzberg advised Natura’s representative to sign a term sheet with Oz Real Estate while falsely representing that the term sheet was non-exclusive. Natura later terminated negotiations with Oz. Natura sought recovery of the $150,000 retainer and asserted claims for breach of contract, breach of the implied covenant of good faith and fair dealing, fraud, breach of fiduciary duty, conversion, unjust enrichment, and money had and received. HEH counterclaimed for breach of the agreement, alleging that Natura willfully failed to complete the Oz transaction and thereby deprived HEH of a commission.

Legal standard

The court applied the standard for a motion to dismiss for failure to state a claim to the parties’ motions for judgment on the pleadings under Federal Rule of Civil Procedure 12(c). At this stage, the court accepted the complaint’s allegations as true and drew reasonable inferences for the nonmoving party. The allegations had to state a claim that was plausible on its face.

Natura’s claims

The breach-of-contract claim against HEH was not challenged by defendants’ motion. The court dismissed the contract claim against Herzberg because the agreement was between Natura and HEH, not Herzberg, and Natura’s allegation that Herzberg was HEH’s alter ego was conclusory and did not plausibly support disregarding the company’s separate legal status.

The court dismissed Natura’s claim for breach of the implied covenant of good faith and fair dealing against both defendants. The claim alleged only nonperformance of the agreement, sought the same damages as the contract claim, and did not plausibly allege that defendants sought to prevent performance or withhold the agreement’s benefits.

The court divided Natura’s fraud claim into two parts. It allowed the part alleging that defendants falsely represented the Oz term sheet to be non-exclusive to continue. The court concluded that this alleged a specific, collateral misrepresentation that induced Natura to sign the term sheet and caused the second half of the retainer to become payable. The court dismissed the part alleging that defendants falsely promised to perform the agreement but never intended to do so, because those allegations repeated the contract claim and did not plead particular facts showing an intent not to perform when the agreement was made.

The court also divided the breach-of-fiduciary-duty claim. It dismissed the portion based on defendants’ alleged failure to perform the agreement and their alleged retention of the retainer because that portion duplicated the contract claim. It allowed the portion based on allegedly advising Natura to sign the Oz term sheet on a non-exclusive basis to continue because that alleged conduct was collateral to the agreement.

The court dismissed the conversion claim against both defendants. The $150,000 was paid as compensation under the agreement, was not alleged to have been separately segregated or specifically identified, and the alleged failure to perform was governed by contract rather than conversion principles.

The court dismissed the unjust-enrichment claim against both defendants. The written agreement covered the alleged conduct, and Natura’s allegations against Herzberg did not show that he received the benefit in a capacity separate from his position as an HEH member.

The court dismissed the money-had-and-received claim against both defendants. Natura alleged that the money was paid to HEH under the agreement, not that the transfer resulted from a mistake or was unlawful or unauthorized.

HEH’s counterclaim

The court denied Natura’s motion for judgment on the pleadings against HEH’s breach-of-contract counterclaim. The agreement stated that HEH could receive its compensation if Natura entered a term sheet and the transaction failed because of Natura’s willful default, subject to the lapse of a cure period. Although the agreement did not identify a cure period, the court held that HEH had plausibly alleged that Natura entered the Oz term sheet, paid Oz $250,000, and then withdrew from the term sheet without cause or justification. The counterclaim therefore remained pending.

The opinion also states that HEH withdrew its second counterclaim and that the court dismissed it.

Disposition

Judge Castel granted defendants’ motion for judgment on the pleadings to the extent that the contract claim against Herzberg and the claims for breach of the implied covenant, conversion, unjust enrichment, and money had and received were dismissed. The court granted in part and denied in part defendants’ motion concerning the fraud and fiduciary-duty claims. The court denied Natura’s motion seeking dismissal of HEH’s breach-of-contract counterclaim. The court also dismissed HEH’s withdrawn second counterclaim.