Kulick v. Gamma Real Estate LLC

Background

Richard Kulick sued Gamma Real Estate LLC, GRE JV SLP LLC, Gamma Funding Special Limited Partner LLC, JV Management LLC, N. Richard Kalikow, Jonathan Kalikow, John Illuzzi, and Van Nguyen. He alleged that he and certain defendants operated a real-estate investment venture and formed GRE JV SLP LLC (SLP). Under the SLP agreement, Kulick held Class A, Class B, and Class C interests. After his resignation, the defendants allegedly claimed that he had been terminated for cause and redeemed his Class C interests for $0.01. Kulick also alleged that defendants withheld payments connected to other investment entities, including payments from properties in North Carolina.

Kulick’s amended complaint asserted eight causes of action: breach of the SLP agreement; breach of fiduciary duty concerning SLP; unjust enrichment against Gamma Real Estate; an equitable accounting; breach of the GRE Charlotte GP LLC Agreement; breach of fiduciary duty concerning the investment-property entities; aiding and abetting breaches of fiduciary duty; and declaratory judgment.

Motion-to-dismiss standard and documents considered

The defendants moved under Rule 12(b)(6), which tests whether a complaint alleges enough facts to support a legally plausible claim. The court accepted the complaint’s factual allegations as true for purposes of the motion but did not accept conclusory legal assertions.

The defendants asked the court to consider nine “Project Entity Agreements” that were not attached to or clearly incorporated into the amended complaint. The court declined to consider them. It concluded that the agreements were not incorporated by reference, were not shown to be integral to the complaint, and presented disputed questions about their relevance. The defendants could raise defenses based on those agreements later on a fuller record.

The court applied New York choice-of-law rules because the case was in federal court based on diversity jurisdiction. It concluded that New York and Delaware law did not conflict for purposes of the motion and therefore applied Delaware law, as the defendants argued and Kulick did not oppose for the claims at issue.

Fiduciary-duty claims

The court denied dismissal of the fiduciary-duty claim concerning SLP. Although a fiduciary-duty claim generally cannot simply repeat a contract claim, the court found that Kulick alleged different conduct, harm, and timing. His contract claim concerned alleged underpayment for his economic interests, while his fiduciary-duty claim concerned alleged self-dealing, interference with his role as administrative member, and efforts to push him out of the venture.

The court granted dismissal in part as to the fiduciary-duty claim concerning the investment-property entities. To the extent the claim was based on withholding financial information, the court held that Kulick’s access to records was addressed by the relevant LLC agreements. The court also noted that Kulick had not alleged that he tried to obtain the records through the contractual process or that defendants failed to provide records requested through that process.

The court denied dismissal of that same fiduciary-duty claim to the extent it was based on alleged self-dealing and funneling of funds to another entity to diminish the value of Kulick’s interests. Because the Project Entity Agreements were not properly before the court, the court would not use them to contradict the allegations at the motion-to-dismiss stage.

The court also denied dismissal of the aiding-and-abetting claim because the underlying fiduciary-duty claims survived in the relevant respects.

Unjust enrichment and accounting

The court denied dismissal of Kulick’s unjust-enrichment claim against Gamma Real Estate. Under Delaware law, unjust enrichment is generally unavailable when a contract comprehensively governs the parties’ relationship. But the court found that the Manager LLC Agreements before it did not address Gamma Real Estate’s alleged entitlement to funds from the investment properties. Without the Project Entity Agreements, the court could not determine on this motion that the contracts comprehensively governed the relationship.

The court also denied dismissal of the equitable-accounting claim. An equitable accounting may be available when there is no adequate legal remedy. The court concluded that, at this stage, it could not determine that any diverted or misappropriated funds could be recovered through a contract claim against Kulick’s contractual counterparties, particularly because tracing the funds could be complicated.

Declaratory judgment

The court dismissed the eighth cause of action seeking declaratory judgment. Kulick sought declarations confirming his economic interests in the investment-property entities, his management rights, and his entitlement to indemnification for liabilities caused by defendants’ alleged fiduciary-duty breaches.

The court held that the first two requested declarations did not involve an actual controversy because the defendants agreed that Kulick continued to hold his original membership interests in the Manager LLCs. The value of those interests was a subject of other claims, but the requested declarations concerned only whether the interests existed. The court dismissed the indemnification request because Kulick did not respond to the defendants’ argument that there was no current controversy and no alleged contractual basis or incurred liability; the court treated the claim as abandoned.

Disposition

Judge Mary Kay Vyskocil granted in part and denied in part the defendants’ motion to dismiss. The motion was granted to the extent that Cause of Action Eight was dismissed and to the extent that Cause of Action Six could not rely on alleged failures to provide financial records. The motion was denied in all other respects. The defendants were ordered to answer the amended complaint by March 30, 2021.