Rosen v. Sapir

Background

Rotem Rosen sued Alex Sapir and 260-261 Madison Avenue Junior Mezzanine LLC. Rosen and Sapir were former business partners and former brothers-in-law. Their separation was documented in a June 2017 letter of intent and a promissory note. Under those documents, Sapir agreed to pay Rosen approximately $75 million, including $60,456,308 through installment payments, and 260-261 Madison guaranteed Sapir’s debt.

The agreements identified events that could make the remaining debt immediately payable. One involved refinancing debt or a line of credit on property owned through 260-261 Madison by more than $500,000 above the existing amount being refinanced. Rosen alleged that Sapir refinanced a $30 million line of credit, whose outstanding amount had been $17,200,000, and then refused to disclose the refinancing amount.

The parties also signed a broad mutual release in March 2018. Sapir later sued Rosen, alleging misappropriation of confidential and trade-secret information. Rosen claimed that lawsuit violated the release because it involved conduct occurring before the release. Rosen also challenged a press statement by Sapir’s lawyers that said Rosen had “siphon[ed] tens of millions of dollars,” asserting claims for defamation and breach of the letter of intent’s non-disparagement provision.

Claims and Legal Standard

Rosen brought six claims: (1) a declaration that a refinancing default occurred; (2) a declaration that Sapir defaulted by violating the release; (3) breach of the implied duty of good faith and fair dealing based on refusing to disclose the refinancing amount; (4) breach of the release; (5) breach of the non-disparagement provision; and (6) defamation.

The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint alleges enough facts to state a legally plausible claim. The court accepted the complaint’s factual allegations as true for purposes of the motion and applied New York law.

Rulings

The court held that Rosen plausibly stated the refinancing-default claim. The refinancing provision was ambiguous because it could reasonably be read to use either the outstanding amount of the line of credit or a larger figure that included other debt. The court also found that Sapir’s refusal to disclose the refinancing amount supported a reasonable inference that a default might have occurred. The first claim therefore survived.

The court also held that Rosen plausibly stated a claim for breach of the implied covenant of good faith and fair dealing. According to the allegations, Rosen could not determine whether a refinancing default occurred without information that only the defendants could provide, and the refusal to provide that information allegedly prevented him from receiving the benefit of the agreement. The third claim therefore survived.

The court dismissed Rosen’s declaratory-judgment and breach-of-contract claims based on the release. It concluded that the separate lawsuit against Rosen relied on alleged post-release conduct and did not require proof of pre-release conduct. The court also dismissed the defamation and non-disparagement claims. It found that the press statement was a substantially accurate report of the allegations in the separate lawsuit and was protected by New York Civil Rights Law § 74. Judge Ronnie Abrams therefore granted in part and denied in part the motion to dismiss, and Rosen may proceed with his first and third causes of action.