INTRODUCTION

Motion sequence numbers 003 and 004 are consolidated herein for disposition.

Plaintiffs Mill Financial, LLC ("Mill Financial") and Mill Football Holdings, PLC (collectively with Mill Financial, "Mill" or "Plaintiffs") bring this breach of contract action against the former owners, and one creditor, of the Liverpool Football Club of the English Premier League (the "Club"). Although the Complaint asserts claims against multiple entities related to George N. Gillet, Jr., the instant motions solely relate to claims against Defendant The Royal Bank of Scotland, PLC ("RBS"). Mill asserts that RBS breached a tri-party intercreditor agreement (the "Tri-Party Agreement") between Mill Financial, RBS and [*2]Wachovia Bank, N.A., succeeded by Wells Fargo Bank, N.A. ("Wells Fargo"). Mill alleges that RBS enforced its interest under the terms of applicable loan documents without first providing written notice to Mill. Plaintiffs also bring a claim against RBS for breach of the implied covenant of good faith and fair dealing inherent in the Tri-Party Agreement.

In motion sequence 003, RBS moves for reargument of this Court's Decision and Order dated July 23, 2012, which dismissed the First Amended Complaint's breach of contract cause of action with leave to replead, but denied dismissal of the cause of action for breach of the implied covenant of good faith ("July 2012 Decision"). On September 10, 2012, Plaintiffs filed the Second Amended Complaint. In motion sequence 004, RBS moves to dismiss the Second Amended Complaint pursuant to CPLR 3211(a)(1) and (7).

Background ^[FN1]

On January 25, 2008, RBS and Wells Fargo loaned funds to Kop Football Holdings Limited ("KFHL"), certain of its subsidiaries, George Gillett and Tom Hicks (the "Owners") to purchase the Club (the "RBS Loan"). (Cmpl. ¶ 10; Affidavit of Sharon Potter ("Potter Aff.") Exs. B, C). The Club was a wholly owned subsidiary of Kop Football Limited ("Kop Football"), and Kop Football was a wholly owned subsidiary of KFHL. (Cmpl. ¶ 7). Under a related credit agreement, Mill Financial loaned $70 million to Gillett Football, LLC ("Gillett Football"), secured by its 50% ownership interest in the Club. (Cmpl. ¶ 9).

A.The Tri-Party Agreement

Also on January 25, 2008, RBS, Wells Fargo and Mill Financial entered into the Tri-Party Agreement. (Cmpl. ¶¶ 11-13, Ex. E). The Tri-Party Agreement memorialized and protected their rights as creditors holding security interests in the Club. (Cmpl. ¶ 12). Pursuant to Section 7 of the Tri-Party Agreement, RBS, Mill and Wells Fargo (collectively, the "Gillett Creditors") agreed to mutually notice certain events. (Cmpl. Ex. E at 9-10). Each Gillett Creditor agreed to provide to all other Gillett Creditors copies of any notice sent or received by each Gillett Creditor relating to the Tri-Party Agreement, the Intercreditor Agreement, or any individual loan agreements. Id. Further, Section 7.7 required that the Gillet Creditors provide each other with notice about any demands or enforcement actions that a Gillett Creditor was planning to take under their respective loan documents. Id.

B.Default Under The RBS Loan

By April 2010, after RBS had agreed to extend the repayment date of the Club's loans eight previous times, the Club again defaulted on the RBS Loan. (Cmpl. Ex. F). On April 16 and April 30, 2010, RBS sent three letters to the Club (the "Side Letters") that delineated the terms by which RBS would grant the Club its ninth, and allegedly final, extension. Id. As per RBS's requested terms, KFHL, a parent company of the Club, and KFHL's [*3]subsidiaries agreed to appoint a new non-executive chairman (the "Chairman") to KFHL's board of directors. (Cmpl. Ex. F).

Under the terms of the Side Letters, RBS had the right to "approve" whomever was selected as Chairman. (Cmpl. Ex. F). In addition, the newly appointed Chairman of KFHL controlled not only the composition of the KFHL's board, but also the boards of its subsidiaries. See Potter Aff. Ex. D. The Side Letters further required that by April 16, 2010, the Owners and KFHL were to announce an intention to sell 100% of the shares in Kop Football or the Club, with the Chairman leading the process. Id. On April 30, 2010, after the terms of the Side Letters were met, RBS amended the RBS Credit Agreement for the ninth time. (Potter Aff. Ex. D).

C.Default Under the Mill Loan

By August 13, 2010, Gillett Football defaulted on the Mill Loan Agreement. (Cmpl. ¶ 44). In August 2010, Mill approached RBS about Mill repaying the Club's and Kop Football's debt to RBS. (Cmpl. ¶ 73). A Managing Director of RBS, Richard Holliday, allegedly informed Mill that: (1) RBS would not sell the loans to Mill because RBS wanted to remain a creditor; and (2) the Club's board of directors would not approve the debt repayment if current ownership would remain. (Cmpl. ¶ 74).

Mill alleges that it made substantial efforts to purchase the Club. The Complaint alleges that Holliday verbally outlined an offer to Mill, with the specific terms that would be acceptable to RBS. (Cmpl. ¶ 75). As per this alleged interaction, in September 2010, Mill submitted a written proposal to buy the Club. Mill offered to pay £100 million of the debt owed to RBS and to assume the remaining amounts of the RBS debt. (Cmpl. ¶ 76). RBS allegedly represented to Mill that it would waive the £20 million "ticking fees" that, pursuant to the Side Letters, would accrue on certain specified dates until the loan facilities under the RBS Loan were repaid in full. Id.

Despite Mill's efforts, it was unsuccessful in buying the Club. Mill alleges that both RBS representatives and the Club's RBS approved Chairman, Martin Broughton, met with New England Sports Ventures in early September 2010. (Cmpl. ¶ 77). New England Sports Ventures purchased the Club just a month later, in October 2010. (Cmpl. ¶ 84). The Complaint alleges that New England Sports Ventures paid a price that was below market value and significantly lower than Mill's bid. (Cmpl. ¶ 84).

Mill asserts that (i) RBS breached the Tri-Party Agreement by taking control of the Club's board of directors via the Side Letters, without first providing written notice to Mill; and (ii) RBS breached the implied covenant of good faith and fair dealing inherent in the Tri-Party Agreement by taking control of the Club's board and selling the Club to New England Sports Ventures for a low price that covered only RBS's debt.

RBS seeks reargument of the July 2012 Decision on the basis that the Court failed to consider Metro Capital Funding, LLC v. Nomura Credit & Capital, Inc., 22 Misc 3d 1125(A) (Sup. Ct. NY Cnty. 2009). In motion sequence 004, RBS moves to dismiss the [*4]Second Amended Complaint pursuant to CPLR 3211(a)(1) and (7).

I.RBS's Motion to Reargue

As an initial matter, RBS's motion to reargue is denied. The Second Amended Complaint differs from First Amended Complaint regarding both causes of action asserted. See Thompson v. Cooper, 24 AD3d 203, 205 (1st Dep't 2005) ("Since the original complaint was superseded by the amended complaints, the sufficiency of the allegations in the earlier complaints is rendered academic"). Accordingly, the law-of-the-case arguments propounded by both sides, based on the July 2012 Decision, are moot. All issues will be considered in the context of RBS's motion to dismiss the Second Amended Complaint.

II.RBS's Motion to Dismiss

The Second Amended Complaint asserts causes of action for (i) breach of contract and (ii) breach of the implied covenant of good faith and fair dealing. RBS moves to dismiss the Second Amended Complaint pursuant to CPLR 3211(a)(1) and (a)(7), on the grounds that the Plaintiffs fail to state a cause of action and that the terms of the Tri-Party Agreement foreclose Plaintiffs' claims.

A.Motion to Dismiss Standard

On a motion to dismiss a complaint for failure to state a cause of action, all factual allegations must be accepted as truthful, the complaint must be construed in a light most favorable to the plaintiffs and the plaintiffs must be given the benefit of all reasonable inferences. Allianz Underwriters Ins. Co. v. Landmark Ins. Co., 13 AD3d 172, 174 (1st Dep't 2004). "We . . . determine only whether the facts as alleged fit within any cognizable legal theory." Leon v. Martinez, 84 NY2d 83, 87-88 (1994). This Court must deny a motion to dismiss, "if from the pleadings' four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law." 511 W. 232nd Owners Corp. v. Jennifer Realty Co., 98 NY2d 144, 152 (2002) (internal quotation marks and citations omitted). However, on a CPLR 3211(a)(1) motion, "[i]t is well settled that bare legal conclusions and factual claims, which are either inherently incredible or flatly contradicted by documentary evidence . . . are not presumed to be true on a motion to dismiss for legal insufficiency." O'Donnell, Fox & Gartner v. R-2000 Corp., 198 AD2d 154, 154 (1st Dep't 1993). The court is not required to accept factual allegations that are contradicted by documentary evidence or legal conclusions that are unsupported in the face of undisputed facts. See Zanett Lombardier, Ltd. v. Maslow, 29 AD3d 495, 495 (1st Dep't 2006) (citing Robinson v. Robinson, 303 AD2d 234, 235 (1st Dep't 2003).Ultimately, under CPLR 3211(a)(1), "dismissal is warranted only if the documentary evidence submitted conclusively establishes a defense to the asserted claims as a matter of law." Leon, 84 NY2d at 88.

B.Breach of Contract [*5]

1.No Waiver

RBS raises the threshold issue of waiver by arguing that Plaintiffs had actual knowledge of the alleged breach of the Tri-Party Agreement, and instead of notifying RBS of the breach, Plaintiffs chose to affirm the contract through continued performance. Plaintiffs contend that they did not have actual knowledge of any cause of action against RBS and so could not waive any right to sue. Relevant here, Section 8 of the Tri-Party Agreement states that "[a]ny modification or waiver . . . shall not be effective in any event unless the same is in writing signed by each of the Gillett Creditors . . . ." (Potter Aff. Ex. A at 11).

Waiver is the intentional relinquishment of a right, made with both knowledge of its existence and the intent to relinquish that right. See City of NY v. State, 40 NY2d 659, 669 (1976) (quoting Werking v. Amity Estates, 2 NY2d 43, 52 (1956)). A waiver "should not be lightly presumed." See Gilbert Frank Corp. v. Federal Ins. Co., 70 NY2d 966, 968 (1988). The burden of proving a defense of waiver is on the party which asserts it. See Rosenthal v. City of NY, 283 AD2d 156, 160 (1st Dep't, 2001). Contractual clauses that require waivers to be in writing are valid and enforceable. See Jefpaul Garage Corp. v. Presbyterian Hosp. in City of NY, 61 NY2d 442, 446 (1984).

Here, RBS has failed to meet its burden, as the party advocating waiver, to show that Plaintiffs knowingly waived their right to sue for breach of contract. RBS merely points to Plaintiffs' happenstance receipt from a third party of the Side Letters to show that Plaintiff had actual knowledge of its claim. However, RBS has not pointed to any writing that meets the waiver requirements of Section 8 of the Tri-Party Agreement. Without a writing showing that Plaintiffs intended to waive a known claim, this Court finds that Plaintiffs have not waived any claims.

2.Breach of Tri-Party Agreement Section 7.7

RBS next argues that Plaintiffs have failed to adequately allege a breach of Section 7.7 of the Tri-Party Agreement. Section 7.7 of the Tri-Party Agreement provides that:

Each of the Gillett Creditors agrees not to make any demand, take any enforcement action, institute any Proceedings, or otherwise exercise any remedy under any of its applicable Loan Documents unless it has given each of the other Gillett Creditors prior written notice of the initial such action taken by such Gillett Creditor.

(Potter Aff. Ex. A at 10).

RBS contends that the Tri-Party Agreement solely required notice of "formal act[s] to effect an acceleration of payment or foreclose on security." RBS argues that the Complaint does not allege that RBS took any formal action requiring notice, and therefore could not have breached the contract. RBS further argues that because only notice of the "initial" action must be given, Section 7.7 was intended to require notice of "formal acts" that would trigger cross-defaults on all loan documents and allow for contemporaneous foreclosure. [*6]

Plaintiffs contend that they were entitled to notice of the Side Letters, which allegedly allowed RBS to seize control of the Club, protect RBS's security interest, and destroy the Plaintiffs' security interest. Plaintiffs aver that RBS's actions constituted a demand, enforcement action, or remedy that required notice. Plaintiffs argue that Section 7.7 contains broad language, such as "any demand "or "any enforcement action," and that the qualifier "any" compels a broad meaning. Plaintiffs also argue that because the operative words in Section 7.7, "demand," "enforcement," and "remedy," are not defined, they must be given their common meaning.

When dealing with issues of contract interpretation, courts must construe the agreement according to the parties' intent, and the best evidence of what parties to a written agreement intended is what was said in the writing. See, e.g., Slatt v. Slatt, 64 NY2d 966, 966 (1985). Courts may not fashion a new contract for the parties under the guise of interpreting the writing. See, e.g., Tonking v. Port. Auth. of NY & N.J., 3 NY3d 486, 490 (2004); Flag Wharf, Inc. v. Merrill Lynch Capital Corp., 40 AD3d 506, 507 (1st Dep't 2007) ("Courts will not rewrite contracts that have been negotiated between sophisticated, counseled commercial entities"). The courts also determine, as a matter of law, whether ambiguity exists by examining the agreement as a whole. See Kass v. Kass, 91 NY2d 554, 566 (1998); Nappy v. Nappy, 40 AD3d 825, 826 (2d Dep't 2007). An agreement is ambiguous where it is, on its face, susceptible to two or more interpretations. See Nappy, 40 AD3d at 826.

This Court finds that Section 7.7 of the Tri-Party Agreement is not ambiguous and that the broad language of the Tri-Party Agreement can be read to include the actions taken by RBS. The Tri-Party Agreement mandated notice to all Gillett Creditors upon enforcement of provisions under the various loan documents so that the other Gillett Creditors could take appropriate action and prevent the loss of their security interest. RBS attempts to sidestep the purpose of the agreement by introducing the "formality" requirement to the wording of Section 7.7.

However, there is no such requirement of any "formal" enforcement action before the duty to notify is triggered. The forced sale of the Club, as required by RBS in the Side Letters, can reasonably be inferred to be an act compelling the Club's compliance with the RBS Loan, also known as "enforcement." See Black's Law Dictionary (9th ed. 2009) (defining enforcement as "[t]he act or process of compelling compliance with a[n] . . . agreement."). Therefore, RBS was obligated to provide notice of its enforcement action.

RBS also argues that Courts waive strict compliance with notice provisions when a party had actual notice. The cases cited by RBS are not relevant here because they involve parties that actually sent the contractually required notice, but not in the technical form designated in the contract. See Rockland Exposition, Inc. v. Alliance of Auto. Serv. Providers of New Jersey, 706 F. Supp. 2d 350, 360 (S.D.NY 2009) ("that the notice was too early to be effective is hypertechnical in the extreme.") (internal quotation omitted); Suarez v. Ingalls, 282 AD2d 599, 599-600 (2d Dep't 2001) ("There is no merit to the plaintiff's argument that [*7]the cancellation was ineffective because it was not sent by certified mail.") Here, the deficiency in the notice was not "hypertechnical," but rather a complete lack of any notice whatsoever. Plaintiffs were entitled, under Section 7.7 of the Tri-Party Agreement, to advance notice of any enforcement action, not the happenstance delivery of the Side Letters by a third-party.^[FN2] This Court declines to dismiss Plaintiffs' breach of contract claim.

C.Breach of the Implied Covenant of Good Faith and Fair Dealing

"In New York, all contracts imply a covenant of good faith and fair dealing in the course of performance." 511 W. 232nd Owners Corp. v. Jennifer Realty Co., 98 NY2d 144, 153 (2002) (citations omitted). Courts define this covenant as requiring that neither party "do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract." Id. (quoting Dalton v. Educational Testing Serv., 87 NY2d 348, 389 (1995)). The "fruits of the contract" include any promise that a reasonable person, in the promisee's position, would be justified in understanding was included, which does not contradict express terms of the contract. See id. (quoting Rowe v. Great Atl. & Pac. Tea Co., 46 NY2d 62, 69 (1978)); Murphy v. American Home Prods. Corp., 58 NY2d 293, 304 (1983).

RBS argues that the purpose of the Tri-Party Agreement was to set forth the respective rights and obligations of the Gillett Creditors, and that the purpose behind Section 7.7's notice provision was to trigger cross-defaults on all loan documents and allow for contemporaneous foreclosure. See Reply Memorandum in Further Support of RBS's Motion to Dismiss at 13. Under RBS's persuasive interpretation, the "fruit of the contract" was to allow for the Gillett Creditors to "contemporaneously foreclose against Gillett in an orderly manner." See id.

The issue then becomes whether or not RBS's actions had "the effect of destroying or injuring the right of" Mill Financial to "contemporaneously foreclose against Gillett." The Complaint alleges that RBS forced the Club's sale because RBS valued new ownership and wanted to remain the Club's creditor. See Cmpl. ¶ 74. The Complaint alleges that in order for RBS to securely accomplish these goals, RBS directed the Club's sale, in secret. See Cmpl. ¶ 77. Plaintiffs allege that the Club's sale to New England Sports Ventures destroyed Mill Financial's interest in the collateral backing the Mill Loan. See Cmpl. ¶¶ 75-83.

The implied covenant of good faith and fair dealing inherent in the Tri-Party Agreement imposed a duty on RBS not to intentionally destroy Mill Financial's security [*8]interest unnecessarily, thereby depriving Mill Financial of the right to "contemporaneously foreclose against Gillett." This Court concludes that RBS's control of the Club's board of directors and peremptory sale of the Club could have had the effect of destroying or injuring the right of Mill Financial to contemporaneously foreclose on Mill Financial's security interest in the Club. Therefore, the Complaint adequately alleges that RBS deprived Mill Financial of the "fruits of the contract," and states a cause of action for breach of the Tri-Party Agreement's implied covenant of good faith and fair dealing.

RBS also argues that the cause of action for breach of the implied covenant of good faith and fair dealing should be dismissed as duplicative of the breach of contract claim. Two claims are only duplicative when they both arise from the same facts and seek identical damages. See Amcan Holdings, Inc. v. Canadian Imperial Bank of Commerce, 70 AD3d 423, 426 (1st Dep't 2010). RBS's contention is unavailing because the Complaint avers different wrongs for each claim. In the breach of contract claim, the alleged wrong is the failure to provide notice of the enforcement action. In the breach of the implied covenant of good faith claim, the alleged wrong is the enforcement action itself, whereby RBS knowingly and purposefully destroyed Mill Financial's security interest by directing the Club's penurious sale.

D.Contractual Bar of Consequential Damages Does Not Preclude Claims

RBS next argues that the Tri-Party Agreement's preclusion of consequential damages bars all of Plaintiffs' claims because the Complaint only seeks recompense for indirect damages. Plaintiffs argue that they allege direct damages. Section 18 of the Tri-Party Agreement states, in part:

To the fullest extend permitted by law, [each party] waives any rights that it may have to claim or receive consequential or special damages in connection with any legal proceeding arising out of or relating to this Agreement

(Potter Aff. Ex. A at 13)

Damages for breach of contract typically include general damages and consequential damages. See e.g., Bi-Econ. Mkt., Inc. v. Harleysville Ins. Co. of New York, 10 NY3d 187, 192 (2008). General damages are those that "are the natural and probable consequence of the breach. Special, or consequential damages, [are those] which do not so directly flow from the breach," such as lost profits. Id. (internal citations and quotations omitted).

1.Damages for Breach of Section 7.7

Plaintiffs argue that the purpose of Section 7.7 was to allow each Gillett Creditor to protect its security interest before the security interest was destroyed. Plaintiffs contend that the "natural and probable consequence" of RBS's failure to notify of the enforcement action (i.e., forcing the sale of the Club), was that Mill Financial's security interest would be detrimentally affected. Further, Plaintiffs argue that if its loss of loan collateral does not [*9]constitute direct damages, then the Tri-Party Agreement would be illusory.

RBS argues that the only injury suffered by Mill Financial is the failure of Gillet to repay its $70 million loan. RBS contends that Plaintiffs do not seek the value of the performance promised under the Tri-Party Agreement, but rather that Plaintiffs seek the ability to profit from the related Gillett loan transaction. RBS also argues that the Tri-Party Agreement is not illusory because it contains obligations regarding the relative priority of the Gillett Creditors.

In this Court's view, Plaintiffs have the better reasoning. The performance promised by RBS was to notify its fellow creditors of actions it was taking to enforce its debt instruments. The purpose of Section 7.7 was to allow all Gillett Creditors to contemporaneously enforce their rights against Gillett in an orderly manner. The value of the notice was Mill Financial's ability to protect its security interest.

Therefore, the loss of Plaintiffs' ability to even attempt to enforce its rights in the Club is a natural and probable consequence of RBS's failure to notify Plaintiffs of its enforcement action, in violation of Section 7.7. The damages suffered by Plaintiffs due to RBS's breach of Section 7.7 were direct damages that are not barred by the Tri-Party Agreement.

2.Damages for Breach of Implied Covenant of Good Faith

RBS's breach of the implied convent of good faith and fair dealing also caused Mill Financial to suffer direct damages. As stated above, the Tri-Party Agreement imposed on RBS a duty not to intentionally destroy Mill Financial's security interest unnecessarily. The Complaint avers that RBS covertly engineered the Club's sale at a price that "covered only the amount of the RBS debt." Cmpl. ¶ 84. The purpose of the Tri-Party Agreement was to delineate rights and obligations concerning the security rights of the Gillett Creditors. At the motion to dismiss stage, this Court cannot say, as a matter of law, that the destruction of Mill Financial's security interest was an indirect loss that did not flow naturally from RBS's forced sale of the Club at an allegedly below market-value price.

Plaintiffs' other arguments are rendered moot. The Court has considered RBS's other arguments and finds them unpersuasive.

For the reasons stated above, it is hereby

ORDERED that defendant RBS's motion to dismiss is denied; and it is further

ORDERED that counsel are directed to appear for a preliminary conference in Room 442, 60 Centre Street, on October 22, 2013, at 10:00 A.M.

This constitutes the decision and order of the Court.

Dated: New York, New York

September 27, 2013

ENTER:/s/ [*10]

_______________________________

Hon. Eileen Bransten, J.S.C.