CBI Capital LLC v. Mullen

Background

CBI Capital LLC sued Mike Mullen Energy Equipment Resource, Inc. and Mike Mullen based on an agreement to jointly invest in, construct, and lease an offshore accommodation rig. CBI alleged that the agreement gave it an option to sell its investment to MMEER for $6 million plus 12% annual interest. The agreement also stated that Mullen would personally guarantee MMEER’s payment obligation. CBI alleged that it exercised the option in February 2016, but neither MMEER nor Mullen paid.

MMEER asserted a counterclaim alleging that CBI breached an oral agreement to obtain approximately $150 million in debt financing. MMEER also sought an equitable accounting from CBI. MMEER’s third-party complaint against Evan Claar, CBI’s principal, alleged that Claar fraudulently induced MMEER to enter the agreement by representing that he and CBI could obtain the necessary financing.

The court considered two motions to dismiss for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). Mullen moved to dismiss CBI’s second and third claims, involving breach of contract and breach of the personal guarantee. CBI and Claar moved to dismiss MMEER’s counterclaims and third-party complaint.

Mullen’s Motion

The court held that CBI adequately alleged that Mullen intended to accept personal liability. It considered factors including the agreement’s short length, the placement of the guarantee provision, Mullen’s name in that provision, the parties’ negotiations, and Mullen’s role as MMEER’s owner and president.

The court nevertheless held that the guarantee was unenforceable because it was an illusory promise. The provision said that Mullen would provide a personal guarantee to ensure payment in full “if necessary,” but did not define the circumstances that would trigger his obligation or include other essential terms. The court characterized the provision as an unenforceable agreement to agree.

Because the personal guarantee was unenforceable, the court concluded that Mullen could not have breached it or the related contract obligation. The court therefore granted Mullen’s motion to dismiss the breach-of-personal-guarantee claim and the breach-of-contract claim.

Counterclaims and Third-Party Complaint

The court held that the parol evidence rule barred MMEER’s breach-of-contract counterclaim. That rule generally prevents a party from using an earlier or simultaneous oral agreement to add to or change an integrated written contract. The court found that the alleged oral promise to obtain $150 million in financing was closely connected to the written investment agreement and was the kind of promise the parties would ordinarily have included in that writing.

The court granted CBI’s motion to dismiss the equitable-accounting counterclaim because it concerned the same subject as the alleged breach-of-contract claim. Under New York law, an equitable accounting claim cannot coexist with a contract claim covering the same subject matter.

The court found that MMEER’s fraud claim was timely but did not satisfy Federal Rule of Civil Procedure 9(b), which requires fraud to be pleaded with particular detail. MMEER did not adequately identify the content, timing, location, or method of Claar’s alleged statements, and its allegations varied about the amount of financing CBI supposedly promised to obtain. The court also held that MMEER did not plead facts creating a strong inference that Claar acted with fraudulent intent. The court therefore granted Claar’s motion to dismiss the third-party complaint.

Disposition

Judge Analisa Torres’s order granted Mullen’s motion to dismiss claims two and three of CBI’s complaint. It also granted CBI and Claar’s motion to dismiss the counterclaims and third-party complaint. The order does not state whether these dismissals were with or without prejudice. The court directed the parties to follow specified procedures and deadlines if they wished to pursue summary judgment.