Preview
FILED: WESTCHESTER COUNTY CLERK 01/12/2024 04:02 PM INDEX NO. 67017/2023
NYSCEF DOC. NO. 35 RECEIVED NYSCEF: 01/12/2024
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF WESTCHESTER
ORAL ARGUMENT
JOHN J. SHAIA, REQUESTED
Plaintiff,
Index No. 67017/2023
-against-
SAW MILL CAPITAL LLC,
SAW MILL CAPITAL ASSOCIATES, LP, and
SAW MILL CAPITAL HOLDINGS, LP,
Defendants
PLAINTIFF JOHN J. SHAIA’S MEMORANDUM OF
LAW IN OPPOSITION TO DEFENDANTS’ MOTION
TO DISMISS THE COMPLAINT AND FOR SANCTIONS
Mintz & Gold LLP
600 Third Avenue, 25th Floor
New York, New York 10016
Tel: (212) 696-4848
Fax: (212) 696-1231
Counsel for Plaintiff John J. Shaia
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TABLE OF CONTENTS
PRELIMINARY STATEMENT…………………………………………………………………………………1
FACTUAL AND PROCEDURAL BACKGROUND………………………………………………………5
I. Facts………………………………………………………………………………………………………5
II. Decision…………………………………………………………………………………………………6
ARGUMENT…………………………………………………………………………………………………………7
I. Res Judicata Does Not Bar Shaia’s Claims…………………………………………..…….8
II. Collateral Estoppel Does Not Bar Shaia’s Claims………………………………………17
III. The Statute of Limitations Does Not Bar Shaia’s Claims……………………………18
IV. There Is No Basis For Sanctions……………………………………………………………..22
CONCLUSION……………………………………………………………………………………………………..23
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TABLE OF AUTHORITIES
Cases
464-468 Street Associates, LLC v. Colon,
41 Misc.3d 137(A), 2013 WL 6098427 (Sup. Ct., App. Term 2d Dep’t Nov. 12, 2013) ... 9
Cappelli v. State Farm Mut. Auto Ins. Co.,
259 A.D.2d 581 (2d Dep’t 1999) .................................................................................... 13
Catlin v. Manilow,
170 A.D.2d 357 (1st Dep’t 1991) ..................................................................................... 19
Chan v. Karakash,
Index No. 651238/201, 2012 WL 692047 (Sup. Ct. N.Y. Cnty. Feb. 23, 2012) .......... 8, 9
Cognetta v. Valencia Developers, Inc.,
8 A.D.3d 318 (2d Dep’t 2004) ....................................................................................... 15
County of Rockland v. Homicki,
227 A.D.2d 477 (2d Dep’t 1996)..................................................................................... 15
Faison v. Lewis,
25 N.Y.3d 220 (2015) ....................................................................................................... 7
Gilberg v. Barbieri,
53 N.Y.2d 285 (1981) ......................................................................................................17
Gross v. Capital One, N.A.,
204 A.D.3d 761 (2d Dep’t 2022) ...................................................................................... 7
Hahn Automotive Warehouse, Inc. v. Am. Zurich Ins. Co.,
18 N.Y.3d 765 (2012) ....................................................................................................... 8
J-Bar Reinforcement Inc. v. Crest Hill Capital LLC,
Index No. 654712/2019, 2020 WL 2332855 (Sup. Ct. N.Y. Cnty. May 11, 2020) ... 10, 11
Landau v. LaRossa, Mitchell & Ross,
11 N.Y.3d 8 (2008) ..................................................................................................... 4, 12
Lawlor v. Nat’l Screen Serv. Corp.,
349 U.S. 322 (1955)......................................................................................................... 11
Lebedev v. Blavatnik,
144 A.D.3d 24 (1st Dep’t 2016) .......................................................................... 18, 19, 20
Lucente v. Int’l Bus. Machines Corp.,
310 F.3d 243 (2d Cir. 2002) .................................................................................... 20, 21
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Mullin v. WL Ross & Co.,
173 A.D.3d 520 (1st Dep’t 2019) .................................................................................... 20
O’Brien v. City of Syracuse,
54 N.Y.2d 353 (1981)........................................................................................................ 8
Parker v. Blauvelt Volunteer Fire Co.,
93 N.Y.2d 343 (1999) .................................................................................................. 8, 11
Powers v. Cent. Therapeutics Mgmt., LLLP,
Index No. 652844/2016, 2018 WL 452014 (Sup. Ct. N.Y. Cnty. Jan. 17, 2018) .... 19, 20
Ryan v. New York Tel. Co.,
62 N.Y.2d 494 (1984) ......................................................................................................17
Savasta v. 470 Newport Assocs.,
82 N.Y.2d 763 (1993) ....................................................................................................... 3
Simon v. FrancInvest, S.A.,
192 A.D.3d 565 (1st Dep’t 2021) .................................................................................... 18
Statharos v. Statharos,
219 A.D.3d 651 (2d Dep’t 2023) .................................................................................... 18
Sudarksy v. City of New York,
220 A.D.2d 353 (1st Dep’t 1995) .................................................................................... 10
U.S. Bank Nat’l Assoc. v. Greenberg,
170 A.D.3d 1237 (2d Dep’t 2019) ................................................................................... 18
UBS Securities LLC v. Highland Cap. Management, L.P.,
159 A.D.3d 512 (1st Dep’t 2018)....................................................................................... 9
Wald v. Graev,
137 A.D.3d 573 (1st Dep’t 2016)................................................................................. 8, 18
Rules
CPLR 213(2) ...................................................................................................................... 19
CPLR 3211(a)(5) ............................................................................................................... 1, 7
Regulations
22 NYCRR § 130-1.1 ............................................................................................................ 1
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Plaintiff John J. Shaia (“Shaia”) submits this memorandum of law in opposition
to Defendants’1 motion: (i) to dismiss Shaia’s complaint (“Complaint”) under CPLR
3211(a)(5); and (ii) for an award of sanctions under 22 NYCRR § 130-1.1.
PRELIMINARY STATEMENT
It is true that the New York State Supreme Court, Westchester County, Hon. Alan
D. Scheinkman (“Prior Court”) rejected Shaia’s breach of contract, quantum meruit, and
unjust enrichment claims in the Decision After Trial, entered on August 25, 2017 (the
“Decision”), in the 2014 Action.2 But, contrary to Defendants’ assertions, the Decision
did not eliminate all legal obligations between the parties. The Prior Court held that the
parties’ relationship is governed by an express contract, one that entitles Shaia to
carried interest or “carry.” The Prior Court also held that SMC did not promise when
the investments would be realized and the carried interest distributed. Thus, the Prior
Court rejected Shaia’s claim that SMC had breached the contract because, as of the Prior
Court’s ruling, nothing in the parties’ contract created an existing obligation to pay. This
case is about an issue the Prior Court did not resolve, namely, when does SMC have to
pay Shaia his carry. By this action, Shaia seeks to apply—not relitigate—the Decision.
In the 2014 Action, Shaia sought, among other things, his carried interest—a
share of the profits—arising from SMC’s largest investment during Shaia’s employment,
called the “Main Fund.”3 SMC and Shaia entered into an enforceable employment
1 Saw Mill Capital LLC (“SMC”), Saw Mill Capital Associates, LP (“Associates”),
and Saw Mill Capital Holdings, LP (“Holdings”; collectively, “Defendants”).
2 Shaia v. Saw Mill Capital LLC, et al. No. 59787/2014 (Sup. Ct. Westchester
Cnty.).
3 The Main Fund is SMC’s first blind-pool fund, a single investment vehicle for
which SMC secured capital commitments to acquire multiple portfolio companies that
had not yet been identified at the time the Main Fund was established.
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contract that provided for his carry (“2002 Agreement”). In the Decision, the Prior
Court held:
The 2002 Agreement provides that Shaia . . . would receive . . . carried
interest in each investment closed by SMC . . .
and that:
SMC promised in the 2002 Agreement that Shaia would be permitted to
participate in SMC-sponsored investments and to provide carry . . .
Decision (Mark Lerner Affirm. in Support of Defendants’ Motion to Dismiss
(“Lerner Affirm.”), Ex. 5) (Dkt. No. 11) at 30, 36. But even though the Prior Court
held that the 2002 Agreement entitled Shaia to carry, it concluded that
Defendants had not committed a breach because
SMC did not make any promises with regard to when the investments
would be realized and proceeds distributed.
Decision at 36 (emphasis added). Thus, the Prior Court found the 2002 Agreement to be
an enforceable contract that entitles Shaia to carried interest, but concluded the contract
is silent on when that carry must be paid. Shaia has brought this action to answer that
question. When must SMC pay Shaia his 2002 Agreement compensation for more than
half of his time working for SMC—compensation in the form of Main Fund carried
interest? Although this language from the Decision is essential to the res judicata
question and is quoted in the Complaint, Defendants fail to even acknowledge, much
less address it, in their brief.
Applying the logic of the Decision, Shaia’s contract claim was not actionable in
2017 because SMC’s obligation to pay carried interest had not yet accrued. Indeed, after
the Decision, SMC could have avoided breaching the 2002 Agreement by paying the
carried interest it owes Shaia. In any event, the Prior Court found that a breach of
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contract had not occurred as of the Decision. The Prior Court, therefore, dismissed
Shaia’s prior breach of contract claim—not because the contract was invalid (indeed, the
Prior Court found it was enforceable) or because Shaia failed to perform—but because
SMC had not (at that point) breached its contractual payment obligation.
The conclusion in the Decision that, at that time, SMC had no current obligation
to pay Shaia, undermines the rationale for Defendants’ motion to dismiss. Neither res
judicata nor collateral estoppel precludes assertion of a claim that had not accrued at
the time of a prior decision. And Defendants’ statute of limitations argument also fails
because, based on the Decision, the accrual date of Shaia’s claims cannot be earlier than
October 30, 2017.4 Defendants’ res judicata, collateral estoppel, and statute of
limitations arguments therefore lack merit, as does Defendants’ motion for sanctions.
The Decision does not address when SMC is obligated to pay Shaia, other than to
point out that SMC had not promised when payment would be made. But, as the Prior
Court found, the lack of an express agreement on the timing of SMC’s payment
obligation did not prevent the creation of an enforceable contract, nor does it preclude a
judicial determination of when payment is due. “When a contract does not specify time
of performance, the law implies a reasonable time.” Savasta v. 470 Newport Assocs., 82
N.Y.2d 763, 765 (1993). During the 2014 Action, neither party asserted that the time for
SMC’s payment of carry had not yet arrived nor asserted a time it would arrive in the
future; the issue of timing of payment was not litigated in the 2014 Action. The purpose
4 The Prior Court entered the Decision on August 25, 2017, and judgment was
entered on October 30, 2017. See Lerner Affirm. Exs. 5 & 6 (Dkt. Nos. 11 & 12).
Defendants do not identify any relevant event that occurred between the date of entry
and the judgment date. Accordingly, for ease of reference, throughout this brief Shaia
uses October 30, 2017 as the date of the Decision.
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of this litigation is to resolve the parties’ unresolved and unlitigated dispute over when
carry payment is required under the 2002 Agreement.
The timing question is ripe now because SMC is winding down the Main Fund. As
such, the compensation SMC owes Shaia has now become or will soon become due, as
the legal entities that would make the carried interest payments will soon be dissolved.
But SMC still has not paid. If SMC is correct that Shaia is not allowed to bring a claim to
determine when payment is due, the effect would be to immunize SMC from any breach
of a contractual obligation the Prior Court specifically recognized in the Decision.
In sum, in bringing this action, Shaia does not collaterally attack the Decision.
Rather he seeks to enforce the contract the Decision expressly recognized. It is for this
Court to determine when SMC defaulted or would default on the 2002 Agreement—
when SMC must pay Shaia the compensation to which he is entitled.
Defendants would have this Court believe that SMC never needs to honor its
obligation under the 2002 Agreement to pay Shaia the Main Fund carry that he has
earned. If SMC avoids paying Shaia carried interest on the Main Fund, it will constitute
a breach of the 2002 Agreement, as construed by the Prior Court, and result in
substantial injustice. Shaia would be denied the lion’s share of his compensation for
more than half a decade’s worth of work for SMC. And dismissing this action would
work a grave injustice. The Court of Appeals has warned against improper application of
res judicata that can cause injustice because “in properly seeking to deny a litigant two
days in court, courts must be careful not to deprive him of one.” Landau v. LaRossa,
Mitchell & Ross, 11 N.Y.3d 8, 14 (2008).
Moreover, dismissal would run contrary to both a plain reading of, and the logic
that informed, the Decision. The Prior Court’s finding that the 2002 Agreement is an
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enforceable contract was integral to the logic of the Decision. This finding was the cited
reason that the Prior Court dismissed the quasi-contractual causes of action of quantum
meruit and unjust enrichment, finding that “[s]ince [Shaia’s] employment was at all
times governed by enforceable agreements, Shaia may not assert a claim for . . .
quantum meruit” and that Shaia’s “unjust enrichment claim is barred by the existence of
actual, enforceable agreements governing his compensation[.]” Decision at 37.
Since the Prior Court found the 2002 Agreement to be an enforceable contract,
SMC cannot avoid the obligation to pay unless either (1) Shaia materially breached the
contract or (2) SMC prevailed on a pleaded affirmative defense. But the Prior Court did
not find that Shaia breached the 2002 Agreement. Nor did the Prior Court find that
SMC established an affirmative defense to its obligation to pay Shaia. SMC, therefore,
should not be permitted to avoid its obligations to pay Shaia by inaccurately and
illogically interpreting both the Decision and the Complaint.
Shaia worked on the SMC investment known as the Main Fund for the majority
of his SMC employment. He invested his own money in the Main Fund and had to pay
taxes on the carry distributions from that fund that Shaia never received. That should
not stand. Shaia should not be deprived of his carry under the enforceable 2002
Agreement. The Court should deny Defendants’ motion.
FACTUAL AND PROCEDURAL BACKGROUND
I. Facts
The relevant facts underlying Shaia’s claims are alleged in the Complaint in this
action and are as found by the Prior Court in the Decision.
Shaia worked for SMC for more than a decade, from January 2002 to April 2012.
See Decision at 1, 5, 23; Complaint (Dkt. No. 1) ¶ 25. The 2002 Agreement governed
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Shaia’s relationship with SMC, stating he would receive a share of the “carried interest
in each investment closed by” SMC during his employment. Decision at 5-6, 30; 2014
Action, Dkt. No. 185 (2002 Agreement) at 1; Complaint ¶¶ 42, 43, 45. “[E]ach
investment closed by” SMC during that period includes the Main Fund. Decision at 5-6,
30; Complaint ¶ 14. The Prior Court found that a letter from Howard Unger (“Unger”),
SMC’s Managing Partner, to Shaia on January 30, 2012 (after notifying Shaia of the
termination of his employment from SMC (“2012 Letter”)) was binding and modified
the 2002 Agreement. The 2012 Letter expressly reaffirmed Shaia’s entitlement to Main
Fund carry, stating that his carried interest “would continue to vest through the end of
2011.” 2014 Action, Dkt. No. 184 (2012 Letter) at 1; Complaint ¶¶ 139-40; see Decision
at 19-20, 34. To date, however, SMC has not paid Shaia any carried interest from the
Main Fund. Complaint ¶ 162.
II. Decision
The Prior Court held a bench trial and entered the Decision dismissing Shaia’s
claims for breach of contract, quantum meruit, and unjust enrichment. See Decision.
The Clerk entered Judgment on October 30, 2017. See Lerner Affirm., Ex. 6 (Dkt. No.
12). The Decision found the following:
• Shaia and SMC executed the 2002 Agreement, an enforceable contract
covering the entirety of Shaia’s employment. Decision at 37-38.
• In the 2002 Agreement, SMC agreed to pay Shaia carry for “all investments
closed by” SMC during his employment, including the Main Fund. Decision at
5-6, 30.
• The 2002 Agreement never stated when SMC must pay Shaia. See Decision
at 36.
• As of the Decision, SMC had not paid Shaia any carry from the Main Fund.
See Decision at 3.
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• SMC had not defaulted as of 2017, because the 2002 Agreement did not
include a time for payment. See Decision at 36-37.
Thus, the Prior Court’s dismissal of Shaia’s breach of contract claim recognized
that SMC owes Shaia Main Fund carry under the 2002 Agreement, as modified by the
2012 Letter, but that Shaia could not recover as of 2017. The Decision left unresolved
the question of when the 2002 Agreement requires payment of carry.
In their motion to dismiss, Defendants mischaracterize and misrepresent the
Decision by ignoring critical language and citing other language out of context, as
described in detail below. For purposes of ruling on Defendants’ pre-answer motion to
dismiss, what the Prior Court does not say in the Decision may outweigh what it did
find. The Prior Court did not find:
• That Shaia failed to perform under the 2002 Agreement or breached that
agreement in any other way.
• That the 2012 Letter replaced entirely the 2002 Agreement or eliminated
Shaia’s right to Main Fund carry.
• That Shaia “repudiated” the 2002 Agreement, as modified by the 2012 Letter.
• That Shaia’s not signing a written separation agreement or release barred him
from recovering his carry.
• That Shaia lost his opportunity to receive carried interest because he did not
sign the Associates and Holdings Agreements.
• That SMC established any valid affirmative defenses to Shaia’s legal claims.
ARGUMENT
On a motion to dismiss under CPLR 3211(a)(5), including motions based on res
judicata, collateral estoppel, and statute of limitations, “the court must ‘accept the facts
as alleged in the complaint as true [and] accord the plaintiff[] the benefit of every
possible favorable inference.’” Gross v. Capital One, N.A., 204 A.D.3d 761, 763 (2d Dep’t
2022) (quoting Faison v. Lewis, 25 N.Y.3d 220, 224 (2015)).
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I. Res Judicata Does Not Bar Shaia’s Claims
The doctrine of res judicata does not apply here. The Prior Court’s Decision
applied only to claims that could have been brought at that time. The Prior Court
found that although Shaia had an express contract with SMC that entitled him to carry,
SMC was not in breach of that contract because its obligation to pay had not come due.
However, a judicial determination that Shaia’s carry was not due as of 2017 does not
preclude a claim that it is due in 2024, much less a claim seeking a declaratory judgment
of when such payment will be due.
Under New York’s transactional approach to res judicata, “once a claim is
brought to a final conclusion, all other claims arising out of the same transaction or
series of transactions are barred, even if based upon different theories or if seeking a
different remedy.” Parker v. Blauvelt Volunteer Fire Co., 93 N.Y.2d 343, 347 (1999)
(citation omitted; emphasis added). Critically, however, “allegations and claims arising
from acts occurring after a prior lawsuit are not barred by res judicata.” Chan v.
Karakash, Index No. 651238/201, 2012 WL 692047 (Sup. Ct. N.Y. Cnty. Feb. 23, 2012)
(citing O’Brien v. City of Syracuse, 54 N.Y.2d 353, 358 (1981)).
Here, the Prior Court found SMC had not breached its contract with Shaia at the
time of the 2017 trial. The Prior Court held the 2002 Agreement obligates SMC to
pay Shaia carried interest but that agreement was silent as to when SMC must pay that
carried interest—though that date had not yet arrived as of the Decision. The “right to
sue on an obligation does not accrue until an amount is due and payable.” Wald v.
Graev, 137 A.D.3d 573, 574 (1st Dep’t 2016); see Hahn Automotive Warehouse, Inc. v.
Am. Zurich Ins. Co., 18 N.Y.3d 765, 770 (2012) (claim for contract payment accrues
when plaintiff has legal right to demand payment). Because the Prior Court found
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payment of carry was not due in 2017, Shaia could not have asserted claims for that
carry in the 2014 Action.5
Given the Prior Court’s focus on whether SMC had already breached the 2002
Agreement, it did not address (much less determine) when the carry payments would
become due. Thus, the Decision does not serve as the “final conclusion” to Shaia’s
present claim to determine when SMC must pay Shaia his carry, and res judicata does
not attach. See Chan, 2012 WL 692047 (unjust enrichment and breach of contract
claims not barred by res judicata because they did not accrue until after prior action);
see also UBS Securities LLC v. Highland Cap. Management, L.P., 159 A.D.3d 512, 513
(1st Dep’t 2018) (“where a claim could not have been raised in the prior litigation
because it had not yet matured, res judicata does not apply”); 464-468 Street
Associates, LLC v. Colon, 41 Misc.3d 137(A), 2013 WL 6098427, at *1 (Sup. Ct., App.
Term 2d Dep’t Nov. 12, 2013) (claim not barred by res judicata because rent sought had
not accrued when plaintiff commenced prior action).
To that end, Shaia does not collaterally attack the Decision. To the contrary,
Shaia merely applies the Prior Court’s conclusion that Shaia’s claims for carry are
enforceable, even though carry was not due in 2017, and seeks a determination of when
carry was or is due. Contrary to what Defendants argue, the Prior Court never said that
Shaia “is not entitled to any recovery” ever. See Dft. MOL at 5. Rather, the Prior Court
simply found that Shaia “failed to prove his breach of contract cause of action,” Decision
5 To that end, res judicata does not bar this action merely because Shaia asserts the
“same claims” against the “same parties.” See Memo of Law in Support of Defendants’
Motion to Dismiss (Dkt. No. 27) (“Dft. MOL”) at 9-10. The parties and claims are the
same as those in the 2014 Action because the Prior Court held SMC has an obligation to
pay Shaia, but not before October 2017.
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at 37, because SMC did not promise “when the investments would be realized and
proceeds distributed.” Decision at 36 (emphasis added). Thus, the Decision does not
reflect a final decision on Shaia’s breach of contract claim for carry in this action.
Indeed, a logical reading of the Decision, including the “when” language, yields
the following conclusions: The enforceable 2002 Agreement provided for Shaia to
receive carried interest from the Main Fund. Because the Prior Court never concluded
that Shaia breached the 2002 Agreement, nor that SMC had established any affirmative
defenses, the 2002 Agreement remains enforceable. The contract does not contain a
term establishing a due date for SMC’s payment. So, Shaia’s claims had not then
accrued. Indeed, as argued by the Defendants in their brief, when a contract does not
specify a time for performance, the court should infer such a time. See Dft. MOL at 14.
The Prior Court did not specify a time for performance, and neither party argued during
the 2014 Action for a specific time for performance. The timing for carry payment is an
open and unlitigated question. Shaia now asks this Court to determine when SMC
should have or must in the future pay Shaia what SMC contractually agreed to in the
2002 Agreement and again in the 2012 Letter.
The lack of finality as to claims that had not yet accrued—i.e., were not ripe—as of
the Decision precludes the application of res judicata. “[D]ismissal of a claim on the
ground of ripeness does not constitute a final determination on the merits and therefore
is not a ground for the application of res judicata.” J-Bar Reinforcement Inc. v. Crest
Hill Capital LLC, Index No. 654712/2019, 2020 WL 2332855, *4 (Sup. Ct. N.Y. Cnty.
May 11, 2020) (citing Sudarksy v. City of New York, 220 A.D.2d 353, 354 (1st Dep’t
1995)).
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Justice Borrok’s decision in J-Bar is instructive. In J-Bar, the defendants-
borrowers’ obligation to repay a loan to the plaintiffs-lenders was contractually
subordinate to the defendants’ duty to repay debt issued by two senior lenders.
Nevertheless, before the defendants fully repaid the senior lenders, the plaintiffs filed a
proceeding against the defendants seeking repayment. The trial court found in favor of
plaintiffs, but the Appellate Division, First Department, reversed, because the language
of the subordination agreement and governing promissory note precluded plaintiffs’
declaration of default and demand for payment, since the defendants had not yet repaid
the senior lenders. Six months after the First Department issued its decision, plaintiffs
filed a new action against the defendants, seeking a declaratory judgment of a default
under the promissory note. Defendants moved to dismiss and argued that the First
Department’s decision was res judicata and barred plaintiffs’ new breach of contract
claim. The court rejected defendants’ argument, however, because res judicata does not
bar “claims that could not have been raised in the prior litigation.” J-Bar, 2020 WL
2332855 at *4.
The court in J-Bar explained that a prior judgment “cannot be given the effect of
extinguishing claims which did not even then exist and which could not possibly have
been sued upon in the previous case.” Id. (quoting Lawlor v. Nat’l Screen Serv. Corp.,
349 U.S. 322, 327-28 (1955)). Since the plaintiffs’ prior claim was dismissed as unripe,
the dismissal did not constitute a final decision on the merits. “Rather, the import of the
[First Department’s] holding [in the prior action] is that the claim was not ripe until the
senior debt is satisfied. Put another way, the First Department ‘expressly reserved the
plaintiff’s right to maintain the second action.’” Id. at *4 (quoting Parker, 93 N.Y.2d at
349). Because the First Department previously held the plaintiff did not have the right
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to demand payment until satisfaction of the senior debt, the cause of action for breach of
contract had not accrued when the prior action was filed. Indeed, “[t]he First
Department did not hold that the [s]ubordination [a]greement was a complete bar
to recovery for payment on the [n]ote forever.” Id. (emphasis added). The plaintiffs’
“day in court has arrived. Finding otherwise would work considerable injustice[.]” Id.
(citing Landau, 11 N.Y.3d at 14).
Like the plaintiffs in J-Bar, Shaia’s “day in court has arrived,” because, as alleged
in the Complaint, the circumstances have changed since the Decision. As SMC winds
down the Main Fund, SMC’s obligation to pay Shaia carry under the 2002 Agreement
has ripened. And, as in J-Bar, res judicata should not bar Shaia’s claim because the
prior decision dismissed the breach of contract claim—not for being unenforceable—but
for not having accrued.
In arguing that res judicata bars Shaia’s claim for carried interest, Defendants fail
to address or even acknowledge the critical language from the Decision stating that
“Shaia . . . would receive . . . carried interest . . . [but] SMC did not make any promises
with regard to when the investments would be realized and proceeds distributed.”
Decision at 30, 36 (emphasis added).
Further, Defendants interpret the Decision in a manner that clashes with its text
and logical import. As noted above, the Prior Court concluded that the 2002 Agreement
is enforceable.6 But Defendants twist the words in the Decision to argue that it is not a
binding contract. Their arguments should be rejected.
6 Throughout the 2014 Action, Shaia and SMC agreed that the 2002 Agreement
governed their work relationship for the entirety of Shaia’s employment. In their post-
trial brief, Defendants stated that “Shaia and SMC entered into a valid and binding
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For example, Defendants argue that Shaia “did not” comply with his performance
obligations under the contract. See Dft. MOL at 14. But the Decision does not state that
Shaia failed to perform under the 2002 Agreement or breached it in any way. In fact,
Unger recognized Shaia’s significant contributions to establishing the Main Fund. See
Shaia v. Saw Mill Capital LLC, et al., Case No. 2017-13431 (2d Dep’t 2017), Dkt. No. 9
(Record on Appeal, Vol. 5) at 2495-96 (testifying at trial that Shaia “was very effective”).
Defendants also contend that the 2012 Letter replaced the 2002 Agreement. See
Dft. MOL at 18 (mischaracterizing the Decision as stating that “the only operative
agreement between the parties was the 2012 [Letter]”). Not so. The Prior Court found
that the 2012 Letter modified, but did not replace the 2002 Agreement. See Decision at
34 (“whatever relationship the parties had or might or have as a result of the 2002
Agreement . . . was effectively modified by” the oral agreement between Shaia and
Unger and the 2012 Letter) (emphasis added). Any terms from the 2002 Agreement not
changed in the 2012 Letter—including SMC’s promise to pay Shaia carry—remain in
place. See Cappelli v. State Farm Mut. Auto Ins. Co., 259 A.D.2d 581, 582 (2d Dep’t
1999) (“The modification of a contract results in the creation of a new contract between
the parties which pro tanto supplants the affected provisions of the original agreement
while leaving the balance of it intact.”) And in any event, the 2012 Letter reaffirmed
SMC’s obligation to pay Shaia Main Fund carry. 2014 Action, Dkt. No. 184 at 1. Indeed,
the Prior Court concluded that the 2012 Letter stated Shaia’s carry would “[v]est
through and until December 2011.” Decision at 19-20, 34.
employment agreement on or about January 31, 2002 . . . which governed Shaia’s
employment and compensation at SMC[.]” 2014 Action, Dkt. No. 304 at 7.
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Further, contrary to Defendants’ argument, the Prior Court did not find that
Shaia “repudiated” the 2002 Agreement, as modified by the 2012 Letter. See Dft. MOL
at 10, 14 (accusing Shaia of “repudiation of the [2002 Agreement] and Associates
Agreement”) (emphasis added). Quite the opposite. The Decision states that the parties
“agreed to the terms of the [2012] Letter” and Shaia “accepted the terms” of the 2012
Letter, reaffirming the 2002 Agreement. Decision at 35-36.7
Nor did the Prior Court conclude that Shaia had to sign a separation agreement
or release as a condition to receive his carry. See Dft. MOL at 5-6 (incorrectly stating
that Shaia was “entitled to nothing because [he] evaded and never signed the required
written separation agreement and release in order to receive its benefits”). To the
contrary, the Decision does not state that the absence of a signed separation agreement
or signed release somehow precludes Shaia from recovering carry. The Prior Court
found that Shaia was never provided a separation agreement. See Decision at 20-21.
Thus, the Prior Court found no legal consequences to Shaia’s not signing a separation
agreement and release (that SMC never provided him). Indeed, the Prior Court simply
justified Unger’s not drafting a separation agreement. See Decision at 20-21.
The Prior Court also did not hold that Shaia’s failure to sign the Associates and
Holdings Agreements barred his claims. See Dft. MOL at 5 (mischaracterizing Decision
and arguing that Shaia’s repudiation of the Associates and Holdings agreements meant
he “was not entitled to any recovery”); 9-10 (conflating Associates Agreement with 2002
Agreement and thereby misrepresenting the Appellate Division, Second Department’s
7 Indeed, had the Prior Court found that Shaia had repudiated the 2002
Agreement and 2012 Letter, the court would not have bothered to find that the carry
payments were not due under the 2002 Agreement as of the Decision because the
enforceable contract did not specify a time for payment.
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Decision & Order affirming the Prior Court’s Decision (Dkt. No. 18)). Defendants quote
the Appellate Division’s Decision & Order out of context. The Decision states, “[w]ith
regard to Associates and Holdings [limited partnership agreements], . . .
Shaia cannot rely on those documents as a basis for his breach of contract claim.”
Decision at 37 (emphasis added). But Shaia does not do so. As the Prior Court
recognized, Shaia “has not claimed in his pleading that such partnership contracts were
breached.” Decision at 37.8 Rather, Shaia maintains that the 2002 Agreement, as
modified, provides for his carry. See Decision at 3; Complaint ¶¶ 42-43.
The Prior Court stated that Shaia’s interactions with Unger regarding the Main
Fund did not modify the 2002 Agreement. But the 2012 Letter, which came after the
2010 Associates Agreement, reaffirmed Shaia’s right to receive carry. 2014 Action, Dkt.
No. 184 at 1; see Decision at 19-20, 34. Thus, the proposed Associates and Holdings
Agreements played—and play—no role in his claims then or now. See 2014 Action, Dkt.
No. 96 at 15, 36-37; Decision at 37. To that end, Shaia’s claim does not require that the
Court find him to be a “partner” of Associates and Holdings in order to receive his carry.
Whether the Prior Court found that Shaia had to sign the 2010 Associates Agreement to
become a partner of Associates is not relevant, as Shaia bases his claim exclusively on
the enforceable 2002 Agreement.
And the Prior Court did not find that SMC established any affirmative defenses to
preclude Shaia from recovering on his breach of contract claim.9
8 Indeed, the 2015 decision on Defendants’ motion to dismiss expressly states that
Shaia did not sue under the Associates and Holdings Agreements. See 2014 Action, Dkt.
No. 96, at 15, 36-37.
9 SMC argues that Shaia’s “deceptive conduct precluded him from recovering
anything in equity,” see Dft. MOL at 10, but this does not impact Shaia’s breach of
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In sum, the Prior Court dismissed Shaia’s breach of contract claim, but not—as
Defendants argue—because Shaia failed to perform, or because of the 2012 Letter, or
because of a supposed failure to sign a separation agreement or release, or because he
rejected the Associates and Holdings Agreements, or because of any purported
“deceptive conduct.” Rather, the Prior Court dismissed Shaia’s claim because the court
concluded that SMC had not breached the 2002 Agreement at the time of the Decision.
In their repeated attempts to argue that the 2002 Agreement is unenforceable,
Defendants simply ignore the Prior Court’s express language. Indeed, if Defendants’
characterization of the Decision were accurate, it would make no sense for the Prior
Court to conclude that “SMC did not make any promises with regard to when the
investments would be realized and proceeds distributed.” That language makes sense
only if the Court found that Shaia had an enforceable entitlement to carry, but the time
for payment had not arrived.
The conclusion that the Prior Court found the 2002 Agreement remains an
enforceable contract is reinforced by the Prior Court’s explanation for dismissing Shaia’s
quasi-contractual claims:
Since [Shaia’s] employment was at all times governed by enforceable
agreements, Shaia may not assert a claim for additional compensation by
way of quantum meruit. . . . [Shaia’s] unjust enrichment claim is barred by
the existence of actual, enforceable agreements governing his
compensation.
Decision at 37-38 (emphasis added).
contract claim. “Deceptive conduct,” unclean hands, laches, or any other arguments
based in equity are not defenses to a claim at law for breach of contract. See, e.g.,
Cognetta v. Valencia Developers, Inc., 8 A.D.3d 318, 319 (2d Dep’t 2004) (equitable
defense of laches unavailable against legal claim for repayment); County of Rockland v.
Homicki, 227 A.D.2d 477 (2d Dep’t 1996) (legal claim for breach of contract not subject
to equitable defense of laches).
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In light of this language, Shaia includes in his Complaint claims for quantum
meruit and unjust enrichment merely as a backstop in the unlikely event that this Court
finds—contrar
Preview
FILED: WESTCHESTER COUNTY CLERK 01/12/2024 04:02 PM INDEX NO. 67017/2023 NYSCEF DOC. NO. 35 RECEIVED NYSCEF: 01/12/2024 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF WESTCHESTER ORAL ARGUMENT JOHN J. SHAIA, REQUESTED Plaintiff, Index No. 67017/2023 -against- SAW MILL CAPITAL LLC, SAW MILL CAPITAL ASSOCIATES, LP, and SAW MILL CAPITAL HOLDINGS, LP, Defendants PLAINTIFF JOHN J. SHAIA’S MEMORANDUM OF LAW IN OPPOSITION TO DEFENDANTS’ MOTION TO DISMISS THE COMPLAINT AND FOR SANCTIONS Mintz & Gold LLP 600 Third Avenue, 25th Floor New York, New York 10016 Tel: (212) 696-4848 Fax: (212) 696-1231 Counsel for Plaintiff John J. Shaia 1 of 28 FILED: WESTCHESTER COUNTY CLERK 01/12/2024 04:02 PM INDEX NO. 67017/2023 NYSCEF DOC. NO. 35 RECEIVED NYSCEF: 01/12/2024 TABLE OF CONTENTS PRELIMINARY STATEMENT…………………………………………………………………………………1 FACTUAL AND PROCEDURAL BACKGROUND………………………………………………………5 I. Facts………………………………………………………………………………………………………5 II. Decision…………………………………………………………………………………………………6 ARGUMENT…………………………………………………………………………………………………………7 I. Res Judicata Does Not Bar Shaia’s Claims…………………………………………..…….8 II. Collateral Estoppel Does Not Bar Shaia’s Claims………………………………………17 III. The Statute of Limitations Does Not Bar Shaia’s Claims……………………………18 IV. There Is No Basis For Sanctions……………………………………………………………..22 CONCLUSION……………………………………………………………………………………………………..23 2 of 28 FILED: WESTCHESTER COUNTY CLERK 01/12/2024 04:02 PM INDEX NO. 67017/2023 NYSCEF DOC. NO. 35 RECEIVED NYSCEF: 01/12/2024 TABLE OF AUTHORITIES Cases 464-468 Street Associates, LLC v. Colon, 41 Misc.3d 137(A), 2013 WL 6098427 (Sup. Ct., App. Term 2d Dep’t Nov. 12, 2013) ... 9 Cappelli v. State Farm Mut. Auto Ins. Co., 259 A.D.2d 581 (2d Dep’t 1999) .................................................................................... 13 Catlin v. Manilow, 170 A.D.2d 357 (1st Dep’t 1991) ..................................................................................... 19 Chan v. Karakash, Index No. 651238/201, 2012 WL 692047 (Sup. Ct. N.Y. Cnty. Feb. 23, 2012) .......... 8, 9 Cognetta v. Valencia Developers, Inc., 8 A.D.3d 318 (2d Dep’t 2004) ....................................................................................... 15 County of Rockland v. Homicki, 227 A.D.2d 477 (2d Dep’t 1996)..................................................................................... 15 Faison v. Lewis, 25 N.Y.3d 220 (2015) ....................................................................................................... 7 Gilberg v. Barbieri, 53 N.Y.2d 285 (1981) ......................................................................................................17 Gross v. Capital One, N.A., 204 A.D.3d 761 (2d Dep’t 2022) ...................................................................................... 7 Hahn Automotive Warehouse, Inc. v. Am. Zurich Ins. Co., 18 N.Y.3d 765 (2012) ....................................................................................................... 8 J-Bar Reinforcement Inc. v. Crest Hill Capital LLC, Index No. 654712/2019, 2020 WL 2332855 (Sup. Ct. N.Y. Cnty. May 11, 2020) ... 10, 11 Landau v. LaRossa, Mitchell & Ross, 11 N.Y.3d 8 (2008) ..................................................................................................... 4, 12 Lawlor v. Nat’l Screen Serv. Corp., 349 U.S. 322 (1955)......................................................................................................... 11 Lebedev v. Blavatnik, 144 A.D.3d 24 (1st Dep’t 2016) .......................................................................... 18, 19, 20 Lucente v. Int’l Bus. Machines Corp., 310 F.3d 243 (2d Cir. 2002) .................................................................................... 20, 21 -ii- 3 of 28 FILED: WESTCHESTER COUNTY CLERK 01/12/2024 04:02 PM INDEX NO. 67017/2023 NYSCEF DOC. NO. 35 RECEIVED NYSCEF: 01/12/2024 Mullin v. WL Ross & Co., 173 A.D.3d 520 (1st Dep’t 2019) .................................................................................... 20 O’Brien v. City of Syracuse, 54 N.Y.2d 353 (1981)........................................................................................................ 8 Parker v. Blauvelt Volunteer Fire Co., 93 N.Y.2d 343 (1999) .................................................................................................. 8, 11 Powers v. Cent. Therapeutics Mgmt., LLLP, Index No. 652844/2016, 2018 WL 452014 (Sup. Ct. N.Y. Cnty. Jan. 17, 2018) .... 19, 20 Ryan v. New York Tel. Co., 62 N.Y.2d 494 (1984) ......................................................................................................17 Savasta v. 470 Newport Assocs., 82 N.Y.2d 763 (1993) ....................................................................................................... 3 Simon v. FrancInvest, S.A., 192 A.D.3d 565 (1st Dep’t 2021) .................................................................................... 18 Statharos v. Statharos, 219 A.D.3d 651 (2d Dep’t 2023) .................................................................................... 18 Sudarksy v. City of New York, 220 A.D.2d 353 (1st Dep’t 1995) .................................................................................... 10 U.S. Bank Nat’l Assoc. v. Greenberg, 170 A.D.3d 1237 (2d Dep’t 2019) ................................................................................... 18 UBS Securities LLC v. Highland Cap. Management, L.P., 159 A.D.3d 512 (1st Dep’t 2018)....................................................................................... 9 Wald v. Graev, 137 A.D.3d 573 (1st Dep’t 2016)................................................................................. 8, 18 Rules CPLR 213(2) ...................................................................................................................... 19 CPLR 3211(a)(5) ............................................................................................................... 1, 7 Regulations 22 NYCRR § 130-1.1 ............................................................................................................ 1 -iii- 4 of 28 FILED: WESTCHESTER COUNTY CLERK 01/12/2024 04:02 PM INDEX NO. 67017/2023 NYSCEF DOC. NO. 35 RECEIVED NYSCEF: 01/12/2024 Plaintiff John J. Shaia (“Shaia”) submits this memorandum of law in opposition to Defendants’1 motion: (i) to dismiss Shaia’s complaint (“Complaint”) under CPLR 3211(a)(5); and (ii) for an award of sanctions under 22 NYCRR § 130-1.1. PRELIMINARY STATEMENT It is true that the New York State Supreme Court, Westchester County, Hon. Alan D. Scheinkman (“Prior Court”) rejected Shaia’s breach of contract, quantum meruit, and unjust enrichment claims in the Decision After Trial, entered on August 25, 2017 (the “Decision”), in the 2014 Action.2 But, contrary to Defendants’ assertions, the Decision did not eliminate all legal obligations between the parties. The Prior Court held that the parties’ relationship is governed by an express contract, one that entitles Shaia to carried interest or “carry.” The Prior Court also held that SMC did not promise when the investments would be realized and the carried interest distributed. Thus, the Prior Court rejected Shaia’s claim that SMC had breached the contract because, as of the Prior Court’s ruling, nothing in the parties’ contract created an existing obligation to pay. This case is about an issue the Prior Court did not resolve, namely, when does SMC have to pay Shaia his carry. By this action, Shaia seeks to apply—not relitigate—the Decision. In the 2014 Action, Shaia sought, among other things, his carried interest—a share of the profits—arising from SMC’s largest investment during Shaia’s employment, called the “Main Fund.”3 SMC and Shaia entered into an enforceable employment 1 Saw Mill Capital LLC (“SMC”), Saw Mill Capital Associates, LP (“Associates”), and Saw Mill Capital Holdings, LP (“Holdings”; collectively, “Defendants”). 2 Shaia v. Saw Mill Capital LLC, et al. No. 59787/2014 (Sup. Ct. Westchester Cnty.). 3 The Main Fund is SMC’s first blind-pool fund, a single investment vehicle for which SMC secured capital commitments to acquire multiple portfolio companies that had not yet been identified at the time the Main Fund was established. 5 of 28 FILED: WESTCHESTER COUNTY CLERK 01/12/2024 04:02 PM INDEX NO. 67017/2023 NYSCEF DOC. NO. 35 RECEIVED NYSCEF: 01/12/2024 contract that provided for his carry (“2002 Agreement”). In the Decision, the Prior Court held: The 2002 Agreement provides that Shaia . . . would receive . . . carried interest in each investment closed by SMC . . . and that: SMC promised in the 2002 Agreement that Shaia would be permitted to participate in SMC-sponsored investments and to provide carry . . . Decision (Mark Lerner Affirm. in Support of Defendants’ Motion to Dismiss (“Lerner Affirm.”), Ex. 5) (Dkt. No. 11) at 30, 36. But even though the Prior Court held that the 2002 Agreement entitled Shaia to carry, it concluded that Defendants had not committed a breach because SMC did not make any promises with regard to when the investments would be realized and proceeds distributed. Decision at 36 (emphasis added). Thus, the Prior Court found the 2002 Agreement to be an enforceable contract that entitles Shaia to carried interest, but concluded the contract is silent on when that carry must be paid. Shaia has brought this action to answer that question. When must SMC pay Shaia his 2002 Agreement compensation for more than half of his time working for SMC—compensation in the form of Main Fund carried interest? Although this language from the Decision is essential to the res judicata question and is quoted in the Complaint, Defendants fail to even acknowledge, much less address it, in their brief. Applying the logic of the Decision, Shaia’s contract claim was not actionable in 2017 because SMC’s obligation to pay carried interest had not yet accrued. Indeed, after the Decision, SMC could have avoided breaching the 2002 Agreement by paying the carried interest it owes Shaia. In any event, the Prior Court found that a breach of -2- 6 of 28 FILED: WESTCHESTER COUNTY CLERK 01/12/2024 04:02 PM INDEX NO. 67017/2023 NYSCEF DOC. NO. 35 RECEIVED NYSCEF: 01/12/2024 contract had not occurred as of the Decision. The Prior Court, therefore, dismissed Shaia’s prior breach of contract claim—not because the contract was invalid (indeed, the Prior Court found it was enforceable) or because Shaia failed to perform—but because SMC had not (at that point) breached its contractual payment obligation. The conclusion in the Decision that, at that time, SMC had no current obligation to pay Shaia, undermines the rationale for Defendants’ motion to dismiss. Neither res judicata nor collateral estoppel precludes assertion of a claim that had not accrued at the time of a prior decision. And Defendants’ statute of limitations argument also fails because, based on the Decision, the accrual date of Shaia’s claims cannot be earlier than October 30, 2017.4 Defendants’ res judicata, collateral estoppel, and statute of limitations arguments therefore lack merit, as does Defendants’ motion for sanctions. The Decision does not address when SMC is obligated to pay Shaia, other than to point out that SMC had not promised when payment would be made. But, as the Prior Court found, the lack of an express agreement on the timing of SMC’s payment obligation did not prevent the creation of an enforceable contract, nor does it preclude a judicial determination of when payment is due. “When a contract does not specify time of performance, the law implies a reasonable time.” Savasta v. 470 Newport Assocs., 82 N.Y.2d 763, 765 (1993). During the 2014 Action, neither party asserted that the time for SMC’s payment of carry had not yet arrived nor asserted a time it would arrive in the future; the issue of timing of payment was not litigated in the 2014 Action. The purpose 4 The Prior Court entered the Decision on August 25, 2017, and judgment was entered on October 30, 2017. See Lerner Affirm. Exs. 5 & 6 (Dkt. Nos. 11 & 12). Defendants do not identify any relevant event that occurred between the date of entry and the judgment date. Accordingly, for ease of reference, throughout this brief Shaia uses October 30, 2017 as the date of the Decision. -3- 7 of 28 FILED: WESTCHESTER COUNTY CLERK 01/12/2024 04:02 PM INDEX NO. 67017/2023 NYSCEF DOC. NO. 35 RECEIVED NYSCEF: 01/12/2024 of this litigation is to resolve the parties’ unresolved and unlitigated dispute over when carry payment is required under the 2002 Agreement. The timing question is ripe now because SMC is winding down the Main Fund. As such, the compensation SMC owes Shaia has now become or will soon become due, as the legal entities that would make the carried interest payments will soon be dissolved. But SMC still has not paid. If SMC is correct that Shaia is not allowed to bring a claim to determine when payment is due, the effect would be to immunize SMC from any breach of a contractual obligation the Prior Court specifically recognized in the Decision. In sum, in bringing this action, Shaia does not collaterally attack the Decision. Rather he seeks to enforce the contract the Decision expressly recognized. It is for this Court to determine when SMC defaulted or would default on the 2002 Agreement— when SMC must pay Shaia the compensation to which he is entitled. Defendants would have this Court believe that SMC never needs to honor its obligation under the 2002 Agreement to pay Shaia the Main Fund carry that he has earned. If SMC avoids paying Shaia carried interest on the Main Fund, it will constitute a breach of the 2002 Agreement, as construed by the Prior Court, and result in substantial injustice. Shaia would be denied the lion’s share of his compensation for more than half a decade’s worth of work for SMC. And dismissing this action would work a grave injustice. The Court of Appeals has warned against improper application of res judicata that can cause injustice because “in properly seeking to deny a litigant two days in court, courts must be careful not to deprive him of one.” Landau v. LaRossa, Mitchell & Ross, 11 N.Y.3d 8, 14 (2008). Moreover, dismissal would run contrary to both a plain reading of, and the logic that informed, the Decision. The Prior Court’s finding that the 2002 Agreement is an -4- 8 of 28 FILED: WESTCHESTER COUNTY CLERK 01/12/2024 04:02 PM INDEX NO. 67017/2023 NYSCEF DOC. NO. 35 RECEIVED NYSCEF: 01/12/2024 enforceable contract was integral to the logic of the Decision. This finding was the cited reason that the Prior Court dismissed the quasi-contractual causes of action of quantum meruit and unjust enrichment, finding that “[s]ince [Shaia’s] employment was at all times governed by enforceable agreements, Shaia may not assert a claim for . . . quantum meruit” and that Shaia’s “unjust enrichment claim is barred by the existence of actual, enforceable agreements governing his compensation[.]” Decision at 37. Since the Prior Court found the 2002 Agreement to be an enforceable contract, SMC cannot avoid the obligation to pay unless either (1) Shaia materially breached the contract or (2) SMC prevailed on a pleaded affirmative defense. But the Prior Court did not find that Shaia breached the 2002 Agreement. Nor did the Prior Court find that SMC established an affirmative defense to its obligation to pay Shaia. SMC, therefore, should not be permitted to avoid its obligations to pay Shaia by inaccurately and illogically interpreting both the Decision and the Complaint. Shaia worked on the SMC investment known as the Main Fund for the majority of his SMC employment. He invested his own money in the Main Fund and had to pay taxes on the carry distributions from that fund that Shaia never received. That should not stand. Shaia should not be deprived of his carry under the enforceable 2002 Agreement. The Court should deny Defendants’ motion. FACTUAL AND PROCEDURAL BACKGROUND I. Facts The relevant facts underlying Shaia’s claims are alleged in the Complaint in this action and are as found by the Prior Court in the Decision. Shaia worked for SMC for more than a decade, from January 2002 to April 2012. See Decision at 1, 5, 23; Complaint (Dkt. No. 1) ¶ 25. The 2002 Agreement governed -5- 9 of 28 FILED: WESTCHESTER COUNTY CLERK 01/12/2024 04:02 PM INDEX NO. 67017/2023 NYSCEF DOC. NO. 35 RECEIVED NYSCEF: 01/12/2024 Shaia’s relationship with SMC, stating he would receive a share of the “carried interest in each investment closed by” SMC during his employment. Decision at 5-6, 30; 2014 Action, Dkt. No. 185 (2002 Agreement) at 1; Complaint ¶¶ 42, 43, 45. “[E]ach investment closed by” SMC during that period includes the Main Fund. Decision at 5-6, 30; Complaint ¶ 14. The Prior Court found that a letter from Howard Unger (“Unger”), SMC’s Managing Partner, to Shaia on January 30, 2012 (after notifying Shaia of the termination of his employment from SMC (“2012 Letter”)) was binding and modified the 2002 Agreement. The 2012 Letter expressly reaffirmed Shaia’s entitlement to Main Fund carry, stating that his carried interest “would continue to vest through the end of 2011.” 2014 Action, Dkt. No. 184 (2012 Letter) at 1; Complaint ¶¶ 139-40; see Decision at 19-20, 34. To date, however, SMC has not paid Shaia any carried interest from the Main Fund. Complaint ¶ 162. II. Decision The Prior Court held a bench trial and entered the Decision dismissing Shaia’s claims for breach of contract, quantum meruit, and unjust enrichment. See Decision. The Clerk entered Judgment on October 30, 2017. See Lerner Affirm., Ex. 6 (Dkt. No. 12). The Decision found the following: • Shaia and SMC executed the 2002 Agreement, an enforceable contract covering the entirety of Shaia’s employment. Decision at 37-38. • In the 2002 Agreement, SMC agreed to pay Shaia carry for “all investments closed by” SMC during his employment, including the Main Fund. Decision at 5-6, 30. • The 2002 Agreement never stated when SMC must pay Shaia. See Decision at 36. • As of the Decision, SMC had not paid Shaia any carry from the Main Fund. See Decision at 3. -6- 10 of 28 FILED: WESTCHESTER COUNTY CLERK 01/12/2024 04:02 PM INDEX NO. 67017/2023 NYSCEF DOC. NO. 35 RECEIVED NYSCEF: 01/12/2024 • SMC had not defaulted as of 2017, because the 2002 Agreement did not include a time for payment. See Decision at 36-37. Thus, the Prior Court’s dismissal of Shaia’s breach of contract claim recognized that SMC owes Shaia Main Fund carry under the 2002 Agreement, as modified by the 2012 Letter, but that Shaia could not recover as of 2017. The Decision left unresolved the question of when the 2002 Agreement requires payment of carry. In their motion to dismiss, Defendants mischaracterize and misrepresent the Decision by ignoring critical language and citing other language out of context, as described in detail below. For purposes of ruling on Defendants’ pre-answer motion to dismiss, what the Prior Court does not say in the Decision may outweigh what it did find. The Prior Court did not find: • That Shaia failed to perform under the 2002 Agreement or breached that agreement in any other way. • That the 2012 Letter replaced entirely the 2002 Agreement or eliminated Shaia’s right to Main Fund carry. • That Shaia “repudiated” the 2002 Agreement, as modified by the 2012 Letter. • That Shaia’s not signing a written separation agreement or release barred him from recovering his carry. • That Shaia lost his opportunity to receive carried interest because he did not sign the Associates and Holdings Agreements. • That SMC established any valid affirmative defenses to Shaia’s legal claims. ARGUMENT On a motion to dismiss under CPLR 3211(a)(5), including motions based on res judicata, collateral estoppel, and statute of limitations, “the court must ‘accept the facts as alleged in the complaint as true [and] accord the plaintiff[] the benefit of every possible favorable inference.’” Gross v. Capital One, N.A., 204 A.D.3d 761, 763 (2d Dep’t 2022) (quoting Faison v. Lewis, 25 N.Y.3d 220, 224 (2015)). -7- 11 of 28 FILED: WESTCHESTER COUNTY CLERK 01/12/2024 04:02 PM INDEX NO. 67017/2023 NYSCEF DOC. NO. 35 RECEIVED NYSCEF: 01/12/2024 I. Res Judicata Does Not Bar Shaia’s Claims The doctrine of res judicata does not apply here. The Prior Court’s Decision applied only to claims that could have been brought at that time. The Prior Court found that although Shaia had an express contract with SMC that entitled him to carry, SMC was not in breach of that contract because its obligation to pay had not come due. However, a judicial determination that Shaia’s carry was not due as of 2017 does not preclude a claim that it is due in 2024, much less a claim seeking a declaratory judgment of when such payment will be due. Under New York’s transactional approach to res judicata, “once a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different remedy.” Parker v. Blauvelt Volunteer Fire Co., 93 N.Y.2d 343, 347 (1999) (citation omitted; emphasis added). Critically, however, “allegations and claims arising from acts occurring after a prior lawsuit are not barred by res judicata.” Chan v. Karakash, Index No. 651238/201, 2012 WL 692047 (Sup. Ct. N.Y. Cnty. Feb. 23, 2012) (citing O’Brien v. City of Syracuse, 54 N.Y.2d 353, 358 (1981)). Here, the Prior Court found SMC had not breached its contract with Shaia at the time of the 2017 trial. The Prior Court held the 2002 Agreement obligates SMC to pay Shaia carried interest but that agreement was silent as to when SMC must pay that carried interest—though that date had not yet arrived as of the Decision. The “right to sue on an obligation does not accrue until an amount is due and payable.” Wald v. Graev, 137 A.D.3d 573, 574 (1st Dep’t 2016); see Hahn Automotive Warehouse, Inc. v. Am. Zurich Ins. Co., 18 N.Y.3d 765, 770 (2012) (claim for contract payment accrues when plaintiff has legal right to demand payment). Because the Prior Court found -8- 12 of 28 FILED: WESTCHESTER COUNTY CLERK 01/12/2024 04:02 PM INDEX NO. 67017/2023 NYSCEF DOC. NO. 35 RECEIVED NYSCEF: 01/12/2024 payment of carry was not due in 2017, Shaia could not have asserted claims for that carry in the 2014 Action.5 Given the Prior Court’s focus on whether SMC had already breached the 2002 Agreement, it did not address (much less determine) when the carry payments would become due. Thus, the Decision does not serve as the “final conclusion” to Shaia’s present claim to determine when SMC must pay Shaia his carry, and res judicata does not attach. See Chan, 2012 WL 692047 (unjust enrichment and breach of contract claims not barred by res judicata because they did not accrue until after prior action); see also UBS Securities LLC v. Highland Cap. Management, L.P., 159 A.D.3d 512, 513 (1st Dep’t 2018) (“where a claim could not have been raised in the prior litigation because it had not yet matured, res judicata does not apply”); 464-468 Street Associates, LLC v. Colon, 41 Misc.3d 137(A), 2013 WL 6098427, at *1 (Sup. Ct., App. Term 2d Dep’t Nov. 12, 2013) (claim not barred by res judicata because rent sought had not accrued when plaintiff commenced prior action). To that end, Shaia does not collaterally attack the Decision. To the contrary, Shaia merely applies the Prior Court’s conclusion that Shaia’s claims for carry are enforceable, even though carry was not due in 2017, and seeks a determination of when carry was or is due. Contrary to what Defendants argue, the Prior Court never said that Shaia “is not entitled to any recovery” ever. See Dft. MOL at 5. Rather, the Prior Court simply found that Shaia “failed to prove his breach of contract cause of action,” Decision 5 To that end, res judicata does not bar this action merely because Shaia asserts the “same claims” against the “same parties.” See Memo of Law in Support of Defendants’ Motion to Dismiss (Dkt. No. 27) (“Dft. MOL”) at 9-10. The parties and claims are the same as those in the 2014 Action because the Prior Court held SMC has an obligation to pay Shaia, but not before October 2017. -9- 13 of 28 FILED: WESTCHESTER COUNTY CLERK 01/12/2024 04:02 PM INDEX NO. 67017/2023 NYSCEF DOC. NO. 35 RECEIVED NYSCEF: 01/12/2024 at 37, because SMC did not promise “when the investments would be realized and proceeds distributed.” Decision at 36 (emphasis added). Thus, the Decision does not reflect a final decision on Shaia’s breach of contract claim for carry in this action. Indeed, a logical reading of the Decision, including the “when” language, yields the following conclusions: The enforceable 2002 Agreement provided for Shaia to receive carried interest from the Main Fund. Because the Prior Court never concluded that Shaia breached the 2002 Agreement, nor that SMC had established any affirmative defenses, the 2002 Agreement remains enforceable. The contract does not contain a term establishing a due date for SMC’s payment. So, Shaia’s claims had not then accrued. Indeed, as argued by the Defendants in their brief, when a contract does not specify a time for performance, the court should infer such a time. See Dft. MOL at 14. The Prior Court did not specify a time for performance, and neither party argued during the 2014 Action for a specific time for performance. The timing for carry payment is an open and unlitigated question. Shaia now asks this Court to determine when SMC should have or must in the future pay Shaia what SMC contractually agreed to in the 2002 Agreement and again in the 2012 Letter. The lack of finality as to claims that had not yet accrued—i.e., were not ripe—as of the Decision precludes the application of res judicata. “[D]ismissal of a claim on the ground of ripeness does not constitute a final determination on the merits and therefore is not a ground for the application of res judicata.” J-Bar Reinforcement Inc. v. Crest Hill Capital LLC, Index No. 654712/2019, 2020 WL 2332855, *4 (Sup. Ct. N.Y. Cnty. May 11, 2020) (citing Sudarksy v. City of New York, 220 A.D.2d 353, 354 (1st Dep’t 1995)). -10- 14 of 28 FILED: WESTCHESTER COUNTY CLERK 01/12/2024 04:02 PM INDEX NO. 67017/2023 NYSCEF DOC. NO. 35 RECEIVED NYSCEF: 01/12/2024 Justice Borrok’s decision in J-Bar is instructive. In J-Bar, the defendants- borrowers’ obligation to repay a loan to the plaintiffs-lenders was contractually subordinate to the defendants’ duty to repay debt issued by two senior lenders. Nevertheless, before the defendants fully repaid the senior lenders, the plaintiffs filed a proceeding against the defendants seeking repayment. The trial court found in favor of plaintiffs, but the Appellate Division, First Department, reversed, because the language of the subordination agreement and governing promissory note precluded plaintiffs’ declaration of default and demand for payment, since the defendants had not yet repaid the senior lenders. Six months after the First Department issued its decision, plaintiffs filed a new action against the defendants, seeking a declaratory judgment of a default under the promissory note. Defendants moved to dismiss and argued that the First Department’s decision was res judicata and barred plaintiffs’ new breach of contract claim. The court rejected defendants’ argument, however, because res judicata does not bar “claims that could not have been raised in the prior litigation.” J-Bar, 2020 WL 2332855 at *4. The court in J-Bar explained that a prior judgment “cannot be given the effect of extinguishing claims which did not even then exist and which could not possibly have been sued upon in the previous case.” Id. (quoting Lawlor v. Nat’l Screen Serv. Corp., 349 U.S. 322, 327-28 (1955)). Since the plaintiffs’ prior claim was dismissed as unripe, the dismissal did not constitute a final decision on the merits. “Rather, the import of the [First Department’s] holding [in the prior action] is that the claim was not ripe until the senior debt is satisfied. Put another way, the First Department ‘expressly reserved the plaintiff’s right to maintain the second action.’” Id. at *4 (quoting Parker, 93 N.Y.2d at 349). Because the First Department previously held the plaintiff did not have the right -11- 15 of 28 FILED: WESTCHESTER COUNTY CLERK 01/12/2024 04:02 PM INDEX NO. 67017/2023 NYSCEF DOC. NO. 35 RECEIVED NYSCEF: 01/12/2024 to demand payment until satisfaction of the senior debt, the cause of action for breach of contract had not accrued when the prior action was filed. Indeed, “[t]he First Department did not hold that the [s]ubordination [a]greement was a complete bar to recovery for payment on the [n]ote forever.” Id. (emphasis added). The plaintiffs’ “day in court has arrived. Finding otherwise would work considerable injustice[.]” Id. (citing Landau, 11 N.Y.3d at 14). Like the plaintiffs in J-Bar, Shaia’s “day in court has arrived,” because, as alleged in the Complaint, the circumstances have changed since the Decision. As SMC winds down the Main Fund, SMC’s obligation to pay Shaia carry under the 2002 Agreement has ripened. And, as in J-Bar, res judicata should not bar Shaia’s claim because the prior decision dismissed the breach of contract claim—not for being unenforceable—but for not having accrued. In arguing that res judicata bars Shaia’s claim for carried interest, Defendants fail to address or even acknowledge the critical language from the Decision stating that “Shaia . . . would receive . . . carried interest . . . [but] SMC did not make any promises with regard to when the investments would be realized and proceeds distributed.” Decision at 30, 36 (emphasis added). Further, Defendants interpret the Decision in a manner that clashes with its text and logical import. As noted above, the Prior Court concluded that the 2002 Agreement is enforceable.6 But Defendants twist the words in the Decision to argue that it is not a binding contract. Their arguments should be rejected. 6 Throughout the 2014 Action, Shaia and SMC agreed that the 2002 Agreement governed their work relationship for the entirety of Shaia’s employment. In their post- trial brief, Defendants stated that “Shaia and SMC entered into a valid and binding -12- 16 of 28 FILED: WESTCHESTER COUNTY CLERK 01/12/2024 04:02 PM INDEX NO. 67017/2023 NYSCEF DOC. NO. 35 RECEIVED NYSCEF: 01/12/2024 For example, Defendants argue that Shaia “did not” comply with his performance obligations under the contract. See Dft. MOL at 14. But the Decision does not state that Shaia failed to perform under the 2002 Agreement or breached it in any way. In fact, Unger recognized Shaia’s significant contributions to establishing the Main Fund. See Shaia v. Saw Mill Capital LLC, et al., Case No. 2017-13431 (2d Dep’t 2017), Dkt. No. 9 (Record on Appeal, Vol. 5) at 2495-96 (testifying at trial that Shaia “was very effective”). Defendants also contend that the 2012 Letter replaced the 2002 Agreement. See Dft. MOL at 18 (mischaracterizing the Decision as stating that “the only operative agreement between the parties was the 2012 [Letter]”). Not so. The Prior Court found that the 2012 Letter modified, but did not replace the 2002 Agreement. See Decision at 34 (“whatever relationship the parties had or might or have as a result of the 2002 Agreement . . . was effectively modified by” the oral agreement between Shaia and Unger and the 2012 Letter) (emphasis added). Any terms from the 2002 Agreement not changed in the 2012 Letter—including SMC’s promise to pay Shaia carry—remain in place. See Cappelli v. State Farm Mut. Auto Ins. Co., 259 A.D.2d 581, 582 (2d Dep’t 1999) (“The modification of a contract results in the creation of a new contract between the parties which pro tanto supplants the affected provisions of the original agreement while leaving the balance of it intact.”) And in any event, the 2012 Letter reaffirmed SMC’s obligation to pay Shaia Main Fund carry. 2014 Action, Dkt. No. 184 at 1. Indeed, the Prior Court concluded that the 2012 Letter stated Shaia’s carry would “[v]est through and until December 2011.” Decision at 19-20, 34. employment agreement on or about January 31, 2002 . . . which governed Shaia’s employment and compensation at SMC[.]” 2014 Action, Dkt. No. 304 at 7. -13- 17 of 28 FILED: WESTCHESTER COUNTY CLERK 01/12/2024 04:02 PM INDEX NO. 67017/2023 NYSCEF DOC. NO. 35 RECEIVED NYSCEF: 01/12/2024 Further, contrary to Defendants’ argument, the Prior Court did not find that Shaia “repudiated” the 2002 Agreement, as modified by the 2012 Letter. See Dft. MOL at 10, 14 (accusing Shaia of “repudiation of the [2002 Agreement] and Associates Agreement”) (emphasis added). Quite the opposite. The Decision states that the parties “agreed to the terms of the [2012] Letter” and Shaia “accepted the terms” of the 2012 Letter, reaffirming the 2002 Agreement. Decision at 35-36.7 Nor did the Prior Court conclude that Shaia had to sign a separation agreement or release as a condition to receive his carry. See Dft. MOL at 5-6 (incorrectly stating that Shaia was “entitled to nothing because [he] evaded and never signed the required written separation agreement and release in order to receive its benefits”). To the contrary, the Decision does not state that the absence of a signed separation agreement or signed release somehow precludes Shaia from recovering carry. The Prior Court found that Shaia was never provided a separation agreement. See Decision at 20-21. Thus, the Prior Court found no legal consequences to Shaia’s not signing a separation agreement and release (that SMC never provided him). Indeed, the Prior Court simply justified Unger’s not drafting a separation agreement. See Decision at 20-21. The Prior Court also did not hold that Shaia’s failure to sign the Associates and Holdings Agreements barred his claims. See Dft. MOL at 5 (mischaracterizing Decision and arguing that Shaia’s repudiation of the Associates and Holdings agreements meant he “was not entitled to any recovery”); 9-10 (conflating Associates Agreement with 2002 Agreement and thereby misrepresenting the Appellate Division, Second Department’s 7 Indeed, had the Prior Court found that Shaia had repudiated the 2002 Agreement and 2012 Letter, the court would not have bothered to find that the carry payments were not due under the 2002 Agreement as of the Decision because the enforceable contract did not specify a time for payment. -14- 18 of 28 FILED: WESTCHESTER COUNTY CLERK 01/12/2024 04:02 PM INDEX NO. 67017/2023 NYSCEF DOC. NO. 35 RECEIVED NYSCEF: 01/12/2024 Decision & Order affirming the Prior Court’s Decision (Dkt. No. 18)). Defendants quote the Appellate Division’s Decision & Order out of context. The Decision states, “[w]ith regard to Associates and Holdings [limited partnership agreements], . . . Shaia cannot rely on those documents as a basis for his breach of contract claim.” Decision at 37 (emphasis added). But Shaia does not do so. As the Prior Court recognized, Shaia “has not claimed in his pleading that such partnership contracts were breached.” Decision at 37.8 Rather, Shaia maintains that the 2002 Agreement, as modified, provides for his carry. See Decision at 3; Complaint ¶¶ 42-43. The Prior Court stated that Shaia’s interactions with Unger regarding the Main Fund did not modify the 2002 Agreement. But the 2012 Letter, which came after the 2010 Associates Agreement, reaffirmed Shaia’s right to receive carry. 2014 Action, Dkt. No. 184 at 1; see Decision at 19-20, 34. Thus, the proposed Associates and Holdings Agreements played—and play—no role in his claims then or now. See 2014 Action, Dkt. No. 96 at 15, 36-37; Decision at 37. To that end, Shaia’s claim does not require that the Court find him to be a “partner” of Associates and Holdings in order to receive his carry. Whether the Prior Court found that Shaia had to sign the 2010 Associates Agreement to become a partner of Associates is not relevant, as Shaia bases his claim exclusively on the enforceable 2002 Agreement. And the Prior Court did not find that SMC established any affirmative defenses to preclude Shaia from recovering on his breach of contract claim.9 8 Indeed, the 2015 decision on Defendants’ motion to dismiss expressly states that Shaia did not sue under the Associates and Holdings Agreements. See 2014 Action, Dkt. No. 96, at 15, 36-37. 9 SMC argues that Shaia’s “deceptive conduct precluded him from recovering anything in equity,” see Dft. MOL at 10, but this does not impact Shaia’s breach of -15- 19 of 28 FILED: WESTCHESTER COUNTY CLERK 01/12/2024 04:02 PM INDEX NO. 67017/2023 NYSCEF DOC. NO. 35 RECEIVED NYSCEF: 01/12/2024 In sum, the Prior Court dismissed Shaia’s breach of contract claim, but not—as Defendants argue—because Shaia failed to perform, or because of the 2012 Letter, or because of a supposed failure to sign a separation agreement or release, or because he rejected the Associates and Holdings Agreements, or because of any purported “deceptive conduct.” Rather, the Prior Court dismissed Shaia’s claim because the court concluded that SMC had not breached the 2002 Agreement at the time of the Decision. In their repeated attempts to argue that the 2002 Agreement is unenforceable, Defendants simply ignore the Prior Court’s express language. Indeed, if Defendants’ characterization of the Decision were accurate, it would make no sense for the Prior Court to conclude that “SMC did not make any promises with regard to when the investments would be realized and proceeds distributed.” That language makes sense only if the Court found that Shaia had an enforceable entitlement to carry, but the time for payment had not arrived. The conclusion that the Prior Court found the 2002 Agreement remains an enforceable contract is reinforced by the Prior Court’s explanation for dismissing Shaia’s quasi-contractual claims: Since [Shaia’s] employment was at all times governed by enforceable agreements, Shaia may not assert a claim for additional compensation by way of quantum meruit. . . . [Shaia’s] unjust enrichment claim is barred by the existence of actual, enforceable agreements governing his compensation. Decision at 37-38 (emphasis added). contract claim. “Deceptive conduct,” unclean hands, laches, or any other arguments based in equity are not defenses to a claim at law for breach of contract. See, e.g., Cognetta v. Valencia Developers, Inc., 8 A.D.3d 318, 319 (2d Dep’t 2004) (equitable defense of laches unavailable against legal claim for repayment); County of Rockland v. Homicki, 227 A.D.2d 477 (2d Dep’t 1996) (legal claim for breach of contract not subject to equitable defense of laches). -16- 20 of 28 FILED: WESTCHESTER COUNTY CLERK 01/12/2024 04:02 PM INDEX NO. 67017/2023 NYSCEF DOC. NO. 35 RECEIVED NYSCEF: 01/12/2024 In light of this language, Shaia includes in his Complaint claims for quantum meruit and unjust enrichment merely as a backstop in the unlikely event that this Court finds—contrar