Scaminaci v. Jaffrey

Background

Andres Scaminaci and Omar Jaffrey were co-owners and managers of the Melody Capital family of investment funds. The funds included Telecom Funds holding wireless-communication assets and Credit Funds making credit-related investments. Melody Wireless Infrastructure, Inc. was the company through which the Telecom Funds owned wireless infrastructure assets.

Scaminaci and Jaffrey entered into an agreement on March 30, 2020, intended to govern Melody’s operations after the end of its investment period. Section 3(c) provided that neither partner, nor entities controlled by either partner, could cause certain Melody entities or investment funds to enter a legally binding agreement or arrangement without the other partner’s prior consent, subject to a possible joint delegation of authority.

Scaminaci tried to sell the Telecom Funds’ assets, including MWI. He signed nondisclosure agreements with potential buyers without obtaining Jaffrey’s prior consent. Scaminaci signed those agreements on behalf of his separate investment firm, Melody Capital Group, although the opinion states that the firm had no ownership or rights in MWI and therefore could not authorize agreements concerning MWI’s confidential information.

Scaminaci later obtained an offer from Digital Colony that included a post-sale role and financial interest for him. He disclosed the offer to Jaffrey and Melody’s largest investors and acknowledged that his financial interest and proposed employment created a conflict. He agreed not to participate in Melody’s evaluation of that offer. After an investigation by Hogan Lovells, Jaffrey and MWI’s general counsel decided not to consider the offer and excluded Scaminaci from participating in MWI’s sale process.

The parties disputed the scope of the exclusion. Scaminaci sometimes described it as exclusion from all Melody Funds or from management of the Telecom Funds. Jaffrey stated that Scaminaci was excluded only from the MWI sales process and continued to participate in other aspects of Melody’s business. Jaffrey also stated that he intended to present a final proposed sale to Scaminaci for his consent at the end of a fair sales process.

Motion and Legal Standard

Scaminaci moved for a preliminary injunction, which is a temporary court order issued before final judgment. He sought an order preventing Jaffrey from causing covered Melody entities to enter agreements without Scaminaci’s prior consent and requiring disclosure of agreements already entered.

To obtain that relief, Scaminaci had to show a likelihood of success on the merits, a likelihood of irreparable harm without an injunction, that the balance of hardships favored him, and that the injunction would not harm the public interest.

At the hearing, Scaminaci’s counsel admitted that Scaminaci breached the 2020 Agreement by entering the nondisclosure agreements. Counsel argued that the breaches were merely technical and not important.

Contract Claim

The 2020 Agreement contained a New York choice-of-law provision. Under New York law, a breach-of-contract claim requires an agreement, adequate performance by the plaintiff, a breach by the defendant, and damages.

The court found that Scaminaci had not shown a likelihood of success. Although Scaminaci argued that Jaffrey breached the agreement by causing MWI to enter nondisclosure agreements and by retaining Hogan Lovells and Goldman Sachs without Scaminaci’s consent, Scaminaci also had to show that he performed his own contractual obligations. The record established, and Scaminaci admitted, that he breached the agreement during his efforts to sell MWI.

The court stated that Scaminaci could not obtain a preliminary injunction requiring Jaffrey to follow an agreement that Scaminaci had materially breached. The court could not determine on the record then before it that Scaminaci’s breaches were unimportant. In particular, Scaminaci described his own nondisclosure agreements as merely supporting efforts to obtain offers, while arguing that Jaffrey’s similar agreements were serious violations. The court did not decide that Jaffrey’s alleged breaches were immaterial; it declined to find at that stage that Scaminaci’s similar breaches were immaterial.

Fiduciary-Duty Claim

Scaminaci also argued that Jaffrey breached fiduciary duties owed to him as a partner in a joint venture by excluding him from management decisions. The court found that Scaminaci likewise had not shown a likelihood of success on this claim.

The court first noted Jaffrey’s argument that the fiduciary-duty claim duplicated the contract claim. The parties agreed that Delaware law governed the fiduciary-duty claim. Under the rule applied by the court, fiduciary claims based on the same facts as contractual obligations may be barred as unnecessary duplicates. At that stage, Scaminaci had not identified facts unique to the fiduciary-duty claim.

The court also found that the equitable defense of unclean hands created a significant obstacle. This defense can prevent a person who engaged in improper conduct related to the dispute from obtaining equitable relief. The court noted that Scaminaci had secretly arranged a buy-side offer from Digital Colony and solicited similar offers from other potential buyers, while Jaffrey argued that these actions caused the conflict underlying Scaminaci’s exclusion. The court stated that both parties appeared to have violated their obligations, although Jaffrey’s violations might have been more serious and extensive.

Irreparable Harm and Disposition

The court further found that Scaminaci had not shown irreparable harm, meaning harm that could not adequately be remedied later. Although the court accepted that loss of bargained-for management rights could constitute irreparable harm, it found that Scaminaci’s delay in seeking an injunction undermined the urgency of his request. By his own account, Jaffrey began excluding him from Telecom Funds management in July 2020, and Scaminaci waited at least two months after it became clear that Jaffrey would continue excluding him from the MWI sales process.

The court therefore denied Scaminaci’s motion for a preliminary injunction. The opinion did not state that the motion was granted in part, dismiss the case, or enter a final judgment on the underlying claims.