Rhee v. Sante Ventures

Background

Youngjoo Rhee worked for SHVMS, LLC, doing business as SANTE VENTURES, beginning in 2010 as Director of Marketing and Investor Relations. Her employment agreement provided for base compensation, a cash bonus tied to capital she directly raised, and carried interest in Fund II. Rhee was not a licensed broker. She later helped PSERS qualify as an investor in Fund III, connected PSERS personnel with Santé representatives, maintained communications, provided requested materials, and helped arrange due diligence. PSERS agreed to invest in Fund III and Fund IV.

In March 2020, Santé sent Rhee a letter offering a discretionary $300,000 bonus and a 0.50% carried-interest grant in Fund III. Rhee never received the carried interest, and her employment ended in July 2020. The record disputed whether she was terminated or resigned. Her remaining claims were breach of contract, unjust enrichment, and breach of fiduciary duty.

Breach of contract

Santé argued that the contract was unenforceable because paying Rhee transaction-based compensation for raising capital would require illegal performance: Rhee was not registered as a broker or associated with a registered broker. Rhee argued that the limited partnership interests were not securities and that she acted as a finder rather than a broker.

The court rejected Rhee’s argument that the limited partnership interests were not securities. Applying the Supreme Court’s investment-contract test, the court concluded that the interests in Funds III and IV were securities because investors placed money into common enterprises, expected profits, and relied on Santé and the portfolio companies to produce those profits, while the limited partners were passive.

The court nevertheless denied summary judgment on the contract claim. It held that the existing evidence did not establish as a matter of law that Rhee was a broker rather than a finder. The evidence showed that she contacted potential investors, provided information, made introductions, maintained contact, sent materials, and helped with due diligence, but did not show enough about the regularity of her investor contacts, her other job duties, the substance of her communications, or whether she participated in negotiations or sales. Those factual issues had to be resolved at trial.

Rhee also raised a claim for breach of the implied duty of good faith and fair dealing for the first time in her opposition to summary judgment. The court granted summary judgment on that claim because it was not included in the Third Amended Complaint, and Rhee could not amend her complaint through motion papers.

Unjust enrichment

The court granted summary judgment dismissing the unjust-enrichment claim. If the contract required illegal performance, Rhee could not use an equitable claim to recover compensation for that performance. If the contract was legal, the unjust-enrichment claim duplicated the contract claim because the agreement would define Rhee’s compensation. The court also ruled that Rhee had not shown that her work with PSERS exceeded her duties as Director of Marketing and Investor Relations. Success in performing assigned duties did not establish an entitlement to additional compensation through unjust enrichment.

Breach of fiduciary duty

The court granted summary judgment dismissing the fiduciary-duty claim. An ordinary employer-employee relationship does not create a fiduciary relationship under the New York law discussed by the court. Rhee argued that the employment agreement and the 2020 Bonus Letter made her a member of Fund III or Fund IV, but the court found that neither document established the required fiduciary relationship.

The employment agreement provided carried interest only in Fund II, and Rhee did not receive a membership interest in that fund. The Bonus Letter referred to a discretionary carried-interest grant whose details and vesting schedule required a separate transfer and admission agreement. That agreement was never signed, and Rhee never received the carried interest. The court also reasoned that the alleged misconduct either occurred before any fiduciary relationship could have existed or consisted of denying the membership interest that Rhee claimed would create the relationship.

Disposition

The court granted in part and denied in part Santé’s motion for summary judgment. It denied summary judgment on the breach-of-contract claim and granted summary judgment on the unjust-enrichment claim, the breach-of-fiduciary-duty claim, and the newly raised good-faith-and-fair-dealing claim. Judge Lewis J. Liman directed the Clerk of Court to close the motion.