Cipciao, LLC v. M Chow One, LLC

21-929
Cipciao, LLC v. M Chow One, LLC
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 19th day of October, two thousand twenty-one.
PRESENT:
JOHN M. WALKER, JR.,
ROBERT D. SACK,
SUSAN L. CARNEY,
Circuit Judges.
_________________________________________
CIPCIAO, LLC,
Plaintiff-Appellant,
v. No. 21-929
M CHOW ONE, LLC, MICHAEL CHOW,
Defendants-Appellees.
_________________________________________
FOR APPELLANT: STEPHEN B. MEISTER, Meister Seelig &
Fein LLP, New York, NY.
FOR APPELLEES: PETER J.W. SHERWIN (Lee Popkin, Shiloh
Rainwater, on the brief), Proskauer Rose
LLP, New York, NY.
Appeal from a judgment of the United States District Court for the Southern District
of New York (Furman, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,
ADJUDGED, AND DECREED that the judgment entered on March 25, 2021, is
AFFIRMED.
Cipciao, LLC, appeals from the district court’s order dismissing its complaint under
Federal Rule of Civil Procedure 12(b)(6). In its complaint, Cipciao alleges state law claims for
breach of contract against M Chow One, LLC (“MCO”), the owner of a chain of upscale
restaurants, as well as various related claims against MCO and its principal, Michael Chow.
In January 2020, Cipciao and MCO entered into a written agreement (the Membership
Interest Purchase Agreement, or “MIPA”) under which Cipciao, a restaurant acquisition
enterprise, would purchase a 90% interest in MCO’s “Mr. Chow” restaurant chain and
certain related licensing rights for $68 million. Upon execution of the MIPA, Cipciao made a
“good faith non-refundable payment” (the “Initial Payment”) to MCO in two installments
totaling $5 million. J.A. 97. Both parties exercised their respective rights to terminate the
MIPA before the closing date. Cipciao then sued for return of the Initial Payment. The
district court dismissed Cipciao’s complaint for failure to state a claim, finding that the
MIPA’s relevant terms unambiguously entitled MCO to retain the Initial Payment. We
assume the parties’ familiarity with the underlying facts, procedural history, and arguments
on appeal, and refer to them only as necessary to explain our decision to affirm.
Cipciao acknowledges that Section 8.2(b) of the MIPA entitles it to recover the Initial
Payment if and only if two conditions are met: (1) the restaurant lease consents (the
“Consents”) were not obtained by the closing date—a condition precedent to closing set by
Section 7.2(b)—and (2) Cipciao terminated the MIPA under and in accordance with Section
8.1(c). See Cipciao, LLC v. M Chow One, LLC, No. 20-5982, 2021 WL 1141567, at *3
(S.D.N.Y. Mar. 24, 2021). The parties agree that MCO did not obtain the Consents by the
closing date and that the Section 7.2(b) condition was not satisfied. This development gave
Cipciao the right to terminate the MIPA and not proceed with the transaction.
Cipciao asserts, however, that the district court erred in concluding that Cipciao’s
termination was not made under Section 8.1(c)—the only termination that would entitle it to
recover the Initial Payment. Cipciao first argues that the district court misinterpreted Section
2
8.1(c) to require an independent breach or failure by MCO giving rise to the failure of the
Section 7.2(b) condition. Under Cipciao’s interpretation, MCO’s failure to obtain the
Consents is enough to bring Cipciao’s termination within Section 8.1(c). In the alternative,
Cipciao submits that its complaint contains sufficient factual allegations of an independent
breach or failure by MCO to sustain Cipciao’s claim that it exercised its termination rights
under Section 8.1(c).
I. Section 8.1(c)
Section 8.1(c) describes the only method of termination under which Cipciao could
recover the Initial Payment. It allows Cipciao to terminate the MIPA in the event of
a breach, inaccuracy in or failure to perform any representation,
warranty, covenant or agreement made by [MCO] pursuant to this
Agreement that would give rise to the failure of any of the conditions
set forth in Section 7.2, and such breach, inaccuracy or failure is
incapable of being cured by [certain deadlines].
J.A. 122. In other words, a Section 8.1(c) termination requires that (1) MCO have committed
a breach or failure to perform any covenant or agreement in the MIPA, and (2) such breach
or failure to perform, in turn, gave rise to the failure of a Section 7.2 condition. Section
7.2(b) sets forth that Cipciao’s obligation to consummate the MIPA transactions was subject
to the satisfaction of the condition that “all Consents required under the Restaurant
Leases . . . shall have been obtained.” J.A. 120.
Cipciao argues that the failure of the Consent condition—and that failure alone,
regardless of any related contractual obligation in MCO—is enough to permit Cipciao to
terminate the contract under Section 8.1(c). We disagree. Cipciao’s interpretation of Section
8.1(c)’s operation is circular: Cipciao asserts that MCO’s failure to obtain the Consents
“g[a]ve rise to the failure of” the Section 7.2(b) condition—that the Consents have been
obtained. J.A. 122. Cipciao’s interpretation would make redundant the two components of
Section 8.1(c)—that there be a breach and that the breach give rise to the failure of a
condition. Further, it would make all of Section 8.1(b) superfluous: a Section 8.1(b)
termination right may be exercised where, as here, a party has simply failed to satisfy a
3
Section 7.2 condition, not by reason of any independent breach or failure to perform. If
Section 8.1(c) required nothing more than the failure of a Section 7.2 condition, as Cipciao
contends, then it would cover termination under the same conditions as Section 8.1(b). See
generally Shaw Grp. Inc. v. Triplefine Int’l Corp., 322 F.3d 115, 124 (2d Cir. 2003) (“[U]nder New
York law an 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 and alteration omitted)).
Cipciao offers no persuasive rebuttal to this point. Indeed, its briefing contains no
discussion of the import of Section 8.1(b). Instead, it advances the sweeping additional
argument that the reading of Section 8.1(c) adopted by the district court, and with which we
agree, is “absurd and commercially unreasonable” because procuring the Consents was an
“express condition precedent” to closing. Appellant’s Br. at 34. According to Cipciao, our
interpretation “gives no effect to Section 7.2(b).” Id. at 35. This contention is easily rebuffed:
as a result of the failure of a Section 7.2 condition, Cipciao—while losing its $5 million Initial
Payment, it is true—could decline to go forward with the whole $68 million transaction and
terminate the MIPA under Section 8.1(b). As the district court aptly noted, “there is nothing
commercially absurd or unreasonable about a contract that provides for a non-refundable
deposit amounting to a fraction of the total value of a transaction negotiated by
sophisticated, commercial entities—let alone sufficiently absurd to justify disregarding the
plain meaning of the parties’ written agreement under New York law.” Cipciao, 2021 WL
1141567, at *4.
II. The sufficiency of the complaint’s other allegations
As described above, to effect a termination under Section 8.1(c), Cipciao must
plausibly allege that MCO committed an independent breach or failed to perform an
agreement that “gave rise to” the failure of the Consent condition. Cipciao argues that the
complaint contains sufficient allegations to support a claim that MCO did so. In support, it
points to MCO’s obligations under both Sections 6.1 and 4.12(b) of the MIPA.
4
As an initial matter, MCO and Chow submit that Cipciao has waived any such
contention because Cipciao explicitly argued before the district that MCO did not breach the
MIPA other than by its failure to return the Initial Payment. Cipciao calls this is a
mischaracterization and counters that it conceded only that MCO’s failure to obtain the
Consents was not itself necessarily a breach of the MIPA. We need not resolve the waiver
dispute because we decide, in any event, that Cipciao has not adequately alleged an
independent breach under either Section 6.1 or Section 4.12(b).
A. Section 6.1
Section 6.1 requires that each party “use its reasonable best efforts to obtain, at the
earliest practicable date, all Consents necessary in connection with the consummation of the
transactions contemplated under this Agreement.” J.A. 112. Thus, for a breach under this
section to provide a foundation for a Section 8.1(c) termination, Cipciao must plausibly
allege that MCO failed to make its “reasonable best efforts” to obtain the Consents. Cipciao
has failed to do so.
At the threshold, we note that the complaint makes no reference to Section 6.1. In
contending nonetheless that its complaint contains plausible allegations of a Section 6.1
breach, Cipciao points to several paragraphs of its complaint. But the factual allegations in
these paragraphs are wholly insufficient. Their thrust is either that MCO failed to obtain the
Consents or, conclusorily, that MCO “breached the MIPA.” J.A. 21, 28.
The complaint goes beyond those two assertions only in paragraphs 30 and 31, which
state in full:
30. Plaintiff attempted diligently to assist MCO in securing the
requisite Consents.
31. Nevertheless, some of Mr. Chow’s landlords responded in
writing to MCO’s request for the Consents by demanding conditions
to the Consents that were not permitted under the MIPA. On certain
other leases, Plaintiff was aware of no communication or progress
whatsoever to obtain the requisite Consents.
5
J.A. 21. As is evident, paragraph 30 is conclusory, and, in any event, whether or not Cipciao
attempted to assist MCO in securing the Consents has no bearing on whether MCO made
its “reasonable best efforts” to do so.
As to paragraph 31, Cipciao submits that its own lack of knowledge regarding MCO’s
efforts and communications somehow gives rise to a “reasonable inference” that MCO did
not, in fact, make its “reasonable best efforts” but instead “abandoned its efforts” after
being faced with resistance from one or more landlords. Appellant’s Br. at 41. We are not
persuaded that this lack of knowledge is enough to sustain Cipciao’s allegations of breach.
What Cipciao “was aware of” is of no bearing here; rather, we look to whether Cipciao has
stated sufficient factual allegations to make a plausible claim that MCO committed a relevant
breach. In evaluating whether the pleadings satisfy the plausibility standard, the Court must
make reasonable inferences favorable to the plaintiff—not make unsupported assumptions
based on the plaintiff’s lack of knowledge, as Cipciao in effect now proposes.
Accordingly, we conclude that Cipciao has failed to make any plausible allegation that
MCO violated Section 6.1.
B. Section 4.12(b)
Cipciao further submits that it has sufficiently alleged that MCO breached Section
4.12(b), although the complaint does not even hint at any allegation of a breach under that
section. Section 4.12(b) contains MCO’s representation that, to its knowledge, certain of its
real estate leases “are in full force and effect.” J.A. 106.
Cipciao first raised this argument in the district court in the form of a surreply request
letter filed more than three months after briefing on the motion to dismiss concluded. The
district court considered the argument “forfeited,” Cipciao, 2021 WL 1141567, at *5, and
MCO argues that Cipciao is precluded from raising it on appeal. We have considerable
“discretion to decide the merits of a forfeited claim” where the issue is “purely legal,” but we
may decline to do so where, as here, “there is no justification for the failure to pursue it”
earlier. Patterson v. Balsamico, 440 F.3d 104, 112–13 (2d Cir. 2006). Because Cipciao has
provided no such justification, we decline to consider this forfeited argument.
6
Accordingly, notwithstanding MCO’s failure to satisfy a condition set forth in Section
7.2 (i.e., failure to obtain the lease consents), Cipciao does not plausibly allege that any
independent breach or failure to perform by MCO gave rise to such failure of the condition.
* * *
In sum, Cipciao did not terminate the MIPA under Section 8.1(c). Instead, under the
unambiguous terms of the MIPA, Cipciao exercised the termination rights that it had under
Section 8.1(b). Accordingly, Cipciao is not entitled to recover the Initial Payment under
Section 8.2(b), and Cipciao has failed to state a claim for breach of contract against MCO for
its failure to repay it.
As Cipciao acknowledges, its remaining claims (for unjust enrichment, constructive
trust, fraudulent conveyance, and others) turn on a determination that it is entitled to the
return of its initial payment under the MIPA. The complaint therefore fails to state any claim
on which relief can be granted.
We have considered Cipciao’s remaining arguments and find in them no basis for
reversal. The judgment of the district court is AFFIRMED.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk of Court
7