Conde Panama LLC v. AECOS, Ltd.

Background

Conde Panama LLC and AECOS, Ltd. are construction management firms. Conde alleged that Brian Howells and Graham Stewart, both AECOS shareholders, made misrepresentations in 2016 to persuade Conde to invest in AECOS. The alleged statements concerned whether Howells and Stewart had authority to transfer AECOS shares or bind AECOS, AECOS’s financial condition—including Howells’s alleged $500,000 borrowing from AECOS—and AECOS’s exposure in ongoing New Jersey and Nevada litigation.

The parties signed an agreement dated December 29, 2016, with an effective date of June 13, 2016. Under it, Conde agreed to invest $510,000 in exchange for a 24% membership interest in AECOS. The parties later signed an addendum stating that the 24% interest was a private sale from Howells’s personal shareholding and that no shares would be formalized or transferred until the litigation facing AECOS was resolved. Conde transferred at least $460,000 to AECOS, but no shares were transferred. The opinion states that the bulk of the invested funds were personally misappropriated by Howells.

Against AECOS, Conde asserted claims under section 10(b) of the Securities Exchange Act and Rule 10b-5, fraudulent inducement, breach of contract, civil conspiracy to commit fraud, and unjust enrichment. Conde also sought a constructive trust and an accounting. AECOS moved for summary judgment on each claim against it. AECOS had also filed an earlier motion to dismiss, which remained pending when it moved for summary judgment.

Legal standard

The court applied the summary-judgment standard under Rule 56 of the Federal Rules of Civil Procedure. Summary judgment is appropriate when there is no genuine dispute about a fact that could affect the result and the moving party is entitled to judgment as a matter of law. The party with the burden of proof must provide evidence supporting each element of its claim. If it does so, the opposing party must identify specific evidence showing a genuine issue for trial.

Discussion

State-law vicarious liability. AECOS argued that it could not be held responsible for Howells’s alleged misrepresentations because he acted outside the scope of his employment and for his own purposes. The court applied New York law after finding no relevant conflict between New York and New Jersey law. Under New York law, an employer may be vicariously liable for an employee’s tort only when the employee acted to further the employer’s business and within the scope of employment. The court noted that an employer can remain liable when an employee has mixed personal and professional motives, but not when the employee acts purely personally.

Conde acknowledged that the record contained no evidence showing that AECOS benefited from Howells’s misrepresentations. The court held that Conde, not AECOS, had the burden of producing evidence supporting its theory that Howells acted to benefit AECOS. Because Conde failed to do so, the court granted summary judgment on the fraudulent-inducement and fraud-conspiracy claims to the extent they depended on AECOS’s vicarious liability.

Securities-fraud claim. AECOS argued that the same lack of evidence prevented Conde from holding AECOS liable under section 10(b) and Rule 10b-5. The court stated that an officer’s intent to deceive cannot be attributed to a corporation when the officer acts entirely for personal interests and against the corporation’s interests. Because Conde produced no evidence that AECOS benefited from the alleged conduct, the court found no triable issue on the federal securities-fraud claim and granted summary judgment to AECOS.

Breach of contract. Conde alleged that AECOS breached the agreement by failing to provide the 24% membership interest. The court held that the addendum unambiguously delayed the obligation to transfer the interest until the litigation facing AECOS was resolved. Both parties identified that litigation as a New Jersey lawsuit involving Charles Thornton, Thornton-Thermohlen Group Corporation, AECOS, Howells, and Leonard Neuhaus, and the opinion states that those proceedings were still ongoing. The court therefore held that the obligation to transfer the interest had not yet been triggered and that no breach had occurred.

Conde responded that AECOS had already breached the agreement by accepting and continuing to take money while violating duties of good faith, fair dealing, and fiduciary obligations. The court stated that Conde’s complaint did not allege that AECOS—not the individual defendants—breached those duties. It also stated that such allegations, even if made, would not answer whether AECOS breached the contract’s express terms. The court granted summary judgment to AECOS on the contract claim.

Unjust enrichment. Conde alleged that AECOS was unjustly enriched by accepting and retaining the investment. The court held that unjust-enrichment relief is unavailable when an express, binding, enforceable contract covers the same subject matter, including when the plaintiff seeks to impose liability on a non-signatory. Because the agreement covered the investment transaction, the court held that the unjust-enrichment claim failed.

Constructive trust and accounting. Conde also sought a constructive trust and an accounting. The court held that Conde was not entitled to either equitable remedy without a viable unjust-enrichment claim. Because it granted summary judgment to AECOS on unjust enrichment, it dismissed the constructive-trust and accounting claims.

Disposition

The court’s conclusion states that AECOS’s motion for summary judgment was GRANTED. AECOS’s motion to dismiss was DENIED as moot because the summary-judgment ruling disposed of the claims against AECOS. The clerk was directed to close the motions at Docket Numbers 31 and 46. The court also directed Conde’s counsel to serve the opinion and order on pro se defendant Brian Howells and file proof of service.