MV Realty PBC, LLC v. Innovatus Capital

18‐3671 (L)
MV Realty PBC, LLC v. Innovatus Capital
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT.
CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1,
2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF
APPELLATE PROCEDURE 32.1 AND THIS COURT=S LOCAL RULE 32.1.1.
WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS
COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN
ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”).
A PARTY CITING TO A SUMMARY ORDER MUST SERVE A COPY OF IT
ON ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit,
held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the
City of New York, on the 30th day of December, two thousand nineteen.
PRESENT: AMALYA L. KEARSE,
CHRISTOPHER F. DRONEY,
RICHARD J. SULLIVAN,
Circuit Judges.
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MV REALTY PBC, LLC,
Plaintiff‐Counter‐Defendant‐Appellee,
v. No. 18‐3671
INNOVATUS CAPITAL PARTNERS, LLC,
Defendant‐Counter‐Claimant‐Appellant.
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INNOVATUS CAPITAL PARTNERS, LLC,
Plaintiff‐Counter‐Defendant‐Appellant,
v. No. 18‐3676
DARYL CLARK, RITZ ADVISORS, LLC, ANTONY
MITCHELL, AMANDA ZACHMAN, JONATHAN
NEUMAN, GREG WILLIAMS,
Defendants‐Counter‐Claimants‐Appellees.
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FOR APPELLANT: LEO G. KAILAS (Edward P. Grosz, on
the brief), Reitler Kailas & Rosenblatt,
LLC, New York, NY.
FOR APPELLEES: JASON C. RAOFIELD (Nishchay H.
Maskay & Ravi Doshi, on the brief),
Covington & Burling LLP,
Washington, DC.
Appeals from judgments of the United States District Court for the Southern
District of New York (Louis L. Stanton, Judge).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,
ADJUDGED, AND DECREED that the judgments of the district court are
REVERSED and REMANDED.
Appellant Innovatus Capital Partners, LLC (“Innovatus”) appeals from a
decision of the United States District Court for the Southern District of New York
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(Stanton, J.), granting judgment on the pleadings and dismissing Innovatus’s
claims in two actions involving the same business dispute. In a single opinion, the
district court concluded that the parties’ non‐disclosure agreement was based on
a mutual mistake, and did not prevent Appellees Daryl Clark, Ritz Advisors, LLC,
Antony Mitchell, Amanda Zachman, Jonathan Neuman, Greg Williams, and MV
Realty from entering certain “right to list agreements.” We disagree.
I.
In August 2017, Innovatus entered into a Non‐Disclosure Agreement (“2017
NDA”) with Neuman and Mitchell – officers for MV Realty, a real estate brokerage
firm – and Ritz Advisors for the purpose of jointly pursuing a business
opportunity “related to the purchase, and subsequent securitization, of real estate
forward contracts.” Joint Appendix (“App’x”) at 52. The agreement both
prevented the disclosure of confidential information (the “Non‐Disclosure
Provision”), and prevented Neuman, Mitchell, and Ritz Advisors from working
with others “in connection with the Business Opportunity . . . unless such approval
is specifically granted in written form by [Innovatus] on a case‐by‐case basis” (the
“Non‐Circumvention Provision”). App’x at 53.
The 2017 NDA defined “Business Opportunity” as “a possible business
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opportunity related to the purchase, and subsequent securitization, of real estate
forward contracts.” App’x at 52. In broad strokes, the business opportunity was
expected to proceed as follows: First, Appellees would enter into “forward
contracts” with homeowners, pursuant to which the homeowner would receive an
upfront sum, and in return, grant the broker the right of first refusal to list the
house for sale should the homeowner later sell. At step two, those agreements –
referred to as “right to list agreements” – would then be bundled into securities to
be sold by Innovatus to investors. In November 2017, MV Realty began entering
into right to list agreements with homeowners; around that time, the parties
learned that a patent from 2008 (the “Harrington Patent”) disclosed a similar
business scheme.1
Nevertheless, that same month, Innovatus and MV Realty executed NDAs
with Zachman and Williams, two of MV Realty’s real estate agents.2 Then, in
January 2018, Innovatus, Mitchell, Neuman, and Ritz also signed an NDA with
Daryl Clark, who was expected to serve as the CFO for the joint venture. These
1 We note, as Innovatus does, that it is not clear that the Harrington Patent is enforceable
or that this business model is even patentable.
2 While the Zachman and Williams NDAs are dated October 20, 2017, the parties agree
that these NDAs were not executed until November 14, 2017.
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NDAs defined the Business Opportunity more broadly than the 2017 NDA to
include activities “related to the real estate brokerage business.” App’x at 80, 85.
In the months that followed, the parties took substantial steps to build the joint
venture, but in April 2018, Neuman and Mitchell allegedly told representatives
from Innovatus that MV Realty and the other Appellees intended to pursue the
Business Opportunity without Innovatus.
In May 2018, Innovatus brought this action against Appellees (not including
MV Realty) for breach of contract and anticipatory repudiation. MV Realty
countered with a suit of its own, seeking a declaratory judgment permitting it to
enter into right to list agreements with homeowners. The district court granted
judgment on the pleadings in both actions in favor of Appellees and dismissed
Innovatus’s claims, finding that the NDA was based on a mutual mistake and
voiding the Non‐Circumvention Provision to the extent that it prevented
Appellees from entering right to list transactions. This appeal followed.
II.
“We review de novo a district court’s decision to grant a motion for
judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c).”
Altman v. J.C. Christensen & Assocs., Inc., 786 F.3d 191, 193 (2d Cir. 2015). Moreover,
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“[w]e employ the same standard applicable to dismissals pursuant to [Federal
Rule of Civil Procedure 12(b)(6) . . . in that] we accept all factual allegations in the
complaint as true and draw all reasonable inferences in plaintiff’s favor.” Id.
(internal citations, quotation marks, and alterations omitted). We assume the
parties’ familiarity with the underlying facts and prior record of proceedings.
III.
On appeal, Appellant primarily argues that the district court erred in
entering judgment on the pleadings in favor of Appellees on the basis of mutual
mistake. We agree. “A mutual mistake occurs when both . . . parties to a bilateral
transaction share the same erroneous belief and their acts do not in fact accomplish
their mutual intent.” Healy v. Rich Prod. Corp., 981 F.2d 68, 73 (2d Cir. 1992)
(internal quotation marks and citation omitted). Importantly, “the mistake must
be so material that . . . it goes to the foundation of the agreement.” Simkin v. Blank,
19 N.Y.3d 46, 52 (2012) (internal quotation marks omitted). Indeed, “to overcome
the heavy presumption that a deliberately prepared and executed written
instrument manifested the true intention of the parties, evidence of a very high
order is required.” George Backer Mgmt. Corp. v. Acme Quilting Co., 46 N.Y.2d 211,
219 (1978). Generally, a mutual mistake should be raised as an affirmative defense,
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which is waived if not raised in the answer. See Fed. R. Civ. P. 8(c); see also, e.g.,
Keane v. Zitomer Pharmacy, Inc., No. 06‐cv‐5981 (RJS) (KNF), 2010 WL 624285, at *5
(S.D.N.Y. Feb. 23, 2010); In re Indesco Int’l, Inc., 451 B.R. 274, 301 n.116 (Bankr.
S.D.N.Y. 2011).
Here, none of the parties in either action asserted mutual mistake as an
affirmative defense in their answers or in their briefs on Appellees’ motions to
dismiss and for judgment on the pleadings. Nevertheless, the district court
concluded that the parties’ written agreement was based on a mutual mistake
because, at the time of signing, both parties believed that the Business Opportunity
was not public, only to later discover that the “Harrington Patent” identified a
similar business model nearly a decade earlier. The district court therefore
determined that this mutual mistake of fact voided “any reading of the NDAs that
would prevent [MV Realty’s] independent pursuit of” right to list agreements.
Innovatus Capital Partners, LLC v. Neuman, No. 18‐cv‐4252 (LLS), 2018 WL 6332901,
at *1 (S.D.N.Y. Nov. 7, 2018).
At the pleading stage, we cannot agree that the presumed originality of the
business model was so material to the agreement that it voided the Non‐
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Circumvention Provision of the NDAs as to right to list agreements.3 To be sure,
there appears to be no dispute that, at the time the parties entered into the 2017
NDA, they were unaware of the Harrington Patent and believed the Business
Opportunity to be the first of its kind. That turned out to be incorrect – in the sense
that the general idea for securitization of right to list agreements was not original
to the parties. But the 2017 NDA at least arguably contemplates a joint venture
that consists of more than just the identification of the business model, extending
as well to the development and execution of that model. This was borne out by
the fact that the parties continued with the joint venture even after they learned
about the Harrington Patent, going so far as to sign at least one new NDA with
Clark that largely resembled the 2017 NDA. Therefore, Innovatus’s allegations,
accepted as true, create at least a plausible inference that the originality (and
confidentiality) of the business model was not central to the NDAs. See Asset
3 We also find that the doctrine of mutual mistake is plainly inapplicable to at least one
of the NDAs – the Clark NDA – because it was executed in January 2018, two months
after the parties discovered the Harrington Patent. See Simkin, 19 N.Y.3d at 52 (“[T]he
mutual mistake must exist at the time the contract [was] entered into[.]” (internal
quotation marks and citation omitted)). The parties have not specified precisely when in
November 2017 they discovered the patent, so it is unclear if the Zachman and Williams
NDAs, which were executed on November 14, 2017, were also executed after that
discovery. In any event, those NDAs are also not voidable for mutual mistake for the
reasons that follow.
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Mgmt. & Capital Co. v. Nugent, 925 N.Y.S.2d 653, 654 (2d Dp’t 2011) (“[P]roof of
mutual mistake must be of the highest order, and must show clearly and beyond
doubt that there has been a [mutual] mistake. . . .” (internal quotation marks and
citations omitted)).
IV.
Appellees argue that, even absent the mutual mistake apparently relied
upon by the district court, dismissal was still appropriate because the 2017 NDA
contemplated a two‐step Business Opportunity – first, entering right to list
agreements, and second, securitizing those agreements – and Innovatus does not
allege that Appellees have attempted the second step. But this argument
presupposes that the agreements are unambiguous – a threshold inquiry the
district court did not explicitly address. Under New York contract law, which the
parties agree governs this dispute, “the question of whether a written contract is
ambiguous is a question of law for the court.” JA Apparel Corp. v. Abboud, 568 F.3d
390, 396 (2d Cir. 2009). In making this determination, a court looks only to the four
corners of the contract; extrinsic evidence may be considered only once the court
has concluded that the contract is ambiguous. See id. at 397. Moreover, “the
contract should be construed so as to give full meaning and effect to all of its
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provisions.” Olin Corp. v. Am. Home Assurance Co., 704 F.3d 89, 99 (2d Cir. 2012)
(internal quotation marks omitted).
At this stage of the proceedings, we cannot agree with the district court that,
on the face of the NDAs, the “’Business Opportunity’ is a term of art expressing
the idea of combining both the [right to list agreements] and securitization
endeavors.” Innovatus Capital Partners, 2018 WL 6332901, at *1 (emphasis added).
The complaint and documents attached to it suggest that the agreements
encompassed the creation and development of the joint venture, not merely the idea
of it. Indeed, the Non‐Circumvention Provision, which appears in a substantially
identical form in each NDA, broadly states that the parties “agree not to undertake
any transaction or a series of transactions of any kind in connection with the Business
Opportunity without the express prior written agreement of” Innovatus. App’x
at 53 (emphasis added). This expansive language supports the inference that the
NDAs were not limited to the “idea” of purchasing right to list agreements and
then securitizing them. See Olin Corp., 704 F.3d at 99 (“Any interpretation of a
contract that has the effect of rendering at least one clause superfluous or
meaningless is not preferred and will be avoided if possible.” (internal quotation
marks, citation, and alterations omitted)). Therefore, we cannot conclude on the
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face of the contracts that the term “Business Opportunity” was unambiguous.4
V.
In dismissing Innovatus’s complaint in its entirety, the district court also
silently terminated additional causes of action that had nothing to do with the
Non‐Circumvention Provision. Specifically, Innovatus alleges in its complaint
that Defendants in that action breached the Non‐Disclosure Provision of the NDA
by “using, relying on and/or disclosing Confidential Information” created by the
parties during their brief courtship, and seeks both monetary damages and
injunctive relief as a remedy. App’x at 26. There is no reason to think that the
existence of the Harrington Patent obviated the parties’ clear interest in preventing
the disclosure of confidential information, including materials prepared by
Innovatus and turned over to Appellees during the course of their joint venture.
And while the district court cryptically ordered that MV Realty “may not utilize
or disclose material or techniques not otherwise in general use, proprietary to
Innovatus, and furnished by it to MV in confidence,” Innovatus Capital Partners,
2018 WL 6332901, at *1, it nevertheless entered judgment dismissing all of
4 We also note – without offering any opinion on the issue – that the NDAs may
ultimately require independent constructions, given that they were executed on different
dates by different parties. See, e.g. Fundamental Long Term Care Holdings. LLC v. Cammebyʹs
Funding LLC, 20 N.Y.3d 438, 445 (2013).
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Innovatus’s claims, notwithstanding the fact that Innovatus also sought damages
for past breaches of the Non‐Disclosure Provisions. Clearly, this was error, and
Innovatus must be permitted to pursue its claims for damages concerning
Appellee’s alleged misuse of confidential materials created or provided by
Innovatus in the course of the joint venture.
VI.
Accordingly, we REVERSE the judgment of the district court and
REMAND for proceedings consistent with this order.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk of Court
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