Starr v. Firstmark Corp.

13-3913-cv
Starr v. Firstmark Corp.
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 24th day of April, two thousand fourteen.
PRESENT: JOHN M. WALKER, JR.,
DENNY CHIN,
CHRISTOPHER F. DRONEY,
Circuit Judges.
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MARC A. STARR,
Plaintiff-Appellant,
-v- 13-3913-CV
FIRSTMARK CORP.,
Defendant-Appellee.
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FOR PLAINTIFF-APPELLANT: LEAH MARY CAMPBELL, Katten Muchin
Rosenman LLP, New York, New York
FOR DEFENDANT-APPELLEE: ERIC L. UNIS, Troutman Sanders
LLP, New York, New York
Appeal from the United States District Court for the
Eastern District of New York (Feuerstein, J.).
UPON DUE CONSIDERATION, IT IS ORDERED, ADJUDGED, AND
DECREED that the judgment of the district court is AFFIRMED.
Plaintiff-appellant Marc A. Starr appeals from the
district court's judgment entered September 11, 2013 dismissing
his second amended complaint and denying leave to file a third
amended complaint. By opinion and order filed September 9,
2013, the district court granted the motion of defendant-
appellee Firstmark Corp. ("Firstmark") to dismiss pursuant to
Fed. R. Civ. P. 12(b)(6) and denied Starr's letter motion for
leave to file a third amended complaint. We assume the parties'
familiarity with the facts, procedural history, and issues on
appeal.
This case arises out of a stock purchase agreement
("SPA") through which Firstmark acquired Centroid, Inc.
("Centroid"), a company that manufactures and assembles
replacement parts for military applications, from Starr. As the
former owner of Centroid, Starr was eligible for periodic "Earn-
Out Payments" depending upon Centroid's performance during the
two years following Firstmark's acquisition. Starr makes three
arguments on appeal: the district court erred in (1) concluding
that he failed to sufficiently allege a claim for breach of the
implied covenant of good faith, (2) failing to accept as true
the factual allegations of the second amended complaint and
failing to draw all reasonable inferences in his favor as
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required on a Rule 12(b)(6) motion, and (3) failing to grant
leave to file a third amended complaint.
We review de novo a district court's grant of a motion
to dismiss under Rule 12(b)(6). See Simmons v. Roundup Funding,
LLC, 622 F.3d 93, 95 (2d Cir. 2010). While we generally review
a district court's denial of a motion for leave to amend a
pleading for abuse of discretion, where the denial is based on
rulings of law, our review is de novo. See Spiegel v.
Schulmann, 604 F.3d 72, 78 (2d Cir. 2010) (per curiam); Kassner
v. 2nd Ave. Delicatessen Inc., 496 F.3d 229, 242 (2d Cir. 2007).
1. The Implied Covenant of Good Faith
The SPA provided that Firstmark would prepare
financial statements in accordance with generally accepted
accounting principles ("GAAP") and that any disputes over the
calculations would be decided by an independent accountant. The
parties agreed that the accountant's findings would "be final
and binding upon the Parties and [would] not be subject to
judicial review." (App. 47). Starr concedes that an
independent auditor jointly chosen by the parties found that
Firstmark's accounting complied with GAAP. Nevertheless, he
argues that Firstmark breached Delaware's implied covenant of
good faith in the way it applied GAAP to calculate Centroid's
revenue.
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The duty of good faith and fair dealing attaches to
every contract under Delaware law and encompasses "the
obligation to preserve the spirit of the bargain rather than the
letter, the adherence to substance rather than form." Pierce v.
Int'l Ins. Co. of Ill., 671 A.2d 1361, 1366 (Del. 1996)
(internal quotation mark omitted).1 Delaware law also provides,
however, that "where a dispute arises from obligations that are
expressly addressed by contract, that dispute will be treated as
a breach of contract claim." Nemec v. Shrader, 991 A.2d 1120,
1129 (Del. 2010); see also id. at 1128 ("Delaware's implied duty
of good faith and fair dealing is not an equitable remedy for
rebalancing economic interests after events that could have been
anticipated, but were not, that later adversely affected one
party to a contract.").
Starr posits that Firstmark's application of GAAP "in
a particular manner" violated the duty of good faith. (Reply
Br. at 4). But Starr and Firstmark did not agree to a
particular application of GAAP, as the SPA merely provided that
Firstmark would "cause [Centroid] to prepare internal financial
statements in accordance with GAAP." (App. 44). Hence, the SPA
did not require only a particular application of GAAP, and,
indeed, Starr notes that "[i]t is well recognized . . . that
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As the parties agree and as it provides, the SPA is governed by
Delaware law.
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GAAP is 'flexible.'" (Appellant's Br. at 15). Nor has Starr
pointed to anything in the SPA that implies that the parties
would have agreed to a particular application of GAAP had they
"specifically addressed the issue at the time of contract."
Nemec, 991 A.2d at 1127; see also Fitzgerald v. Cantor, No.
16297-NC, 1998 WL 842316, at *1 (Del. Ch. Ct. Nov. 10, 1998)
("Since a court can only imply a contractual obligation when the
express terms of the contract indicate that the parties would
have agreed to the obligation had they negotiated the issue, the
plaintiff must advance provisions of the agreement that support
this finding in order to allege a sufficiently specific
contractual obligation."). The independent accountant specified
in the contract's dispute resolution provision reviewed
Firstmark's calculations and found that they adhered to GAAP.
Starr is therefore bound by the independent accountant's
decision and he is barred from repackaging his claims under
Delaware's contractual duty of good faith. "A party does not
act in bad faith by relying on contract provisions for which
that party bargained where doing so simply limits advantages to
another party." Nemec, 991 A.2d at 1128.
2. The Rule 12(b)(6) Standard
Starr also contends that the district court did not
"accept[] as true [his] allegations concerning the course of
[his] negotiations" with Firstmark. (Appellant's Br. at 20).
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In particular, he points to an email he received from
Firstmark's CFO about how it would calculate Centroid's year-end
earnings. The email, which is referenced in the second amended
complaint, purportedly provided assurance that Firstmark would
not make certain adjustments. The district court did not,
however, interpret the email in a manner inconsistent with
Starr's interpretation, and the email did not form the basis for
the district court's dismissal. Instead, the district court
merely cited the email as evidence that the parties specifically
discussed accounting methodology prior to executing the SPA, and
it noted that the parties could have included similar language
in the SPA -- but they did not. Contrary to Starr's suggestion,
therefore, the district court's reference to the email did not
contravene the requirements of Rule 12(b)(6).
3. Leave to Amend
Finally, we agree with the district court that leave
to amend would have been futile. Starr had already filed three
complaints. His proposed fourth iteration added no new facts or
legal theories. Starr accepts as much, conceding that the third
amended complaint "asserts the same claims." (Appellant's Br.
at 28). Because Starr has not identified any new facts that, if
pleaded, "could cure the deficiencies that led to the dismissal
of [his initial] complaint," Wilson v. Merrill Lynch & Co., 671
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F.3d 120, 140 (2d Cir. 2011), the district court did not abuse
its discretion in denying leave to amend.
We have considered appellant's remaining arguments and
conclude they are without merit. For the foregoing reasons, we
AFFIRM the judgment of the district court.
FOR THE COURT:
Catherine O'Hagan Wolfe, Clerk
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