First Department Reinforces Rule That Written Agreements Are To Be Construed In Accordance With The Parties’ Intent, The Best Evidence Of Which Is What They Say In Their Writing

• Posted on: May 13 2024

By: Jeffrey M. Haber

In Cline v. Grodin, 2024 N.Y. Slip Op. 02586 (1st Dept. May 9, 2024) (here), the Appellate Division, First Department was asked to consider whether an agreement involving a limited partnership permitted the general partner to employ and compensate others, including the limited partners, to run the day-to-day business operations of the limited partnership. As discussed below, the Court answered the question in the affirmative.

Cline involved Alcova Capital Management, LP (“ACM” or the “Partnership”), a limited partnership organized and existing under the laws of the State of Delaware, with offices in New York. ACM is an asset management company that provides customized credit solutions for middle-market commercial real estate owners and developers. ACM was initially governed by a written limited partnership agreement dated August 16, 2016 (the “2016 Agreement”).[1] Alcova Capital Management GP LLC (“ACMGP”) is ACM’s sole general partner.   

In early 2019, the parties agreed to amend the 2016 Agreement (the “Agreement”).

The Agreement contained a number of provisions governing the operation of the Partnership. For example, Section 5.1 of the Agreement permitted ACMGP, as the general partner, to “make all day-to-day business decisions of the Partnership, conduct (or cause to be conducted under its supervision) the day-to-day business and affairs of the Partnership and carry out and implement the day-to-day affairs of the Partnership.” Section 5.2 gave ACMGP “full, exclusive, and complete discretion, power and authority, …, to delegate the management, control, administration and operation of the business and affairs of the Partnership or the custody of the Partnership’s assets for all purposes stated in th[e] Agreement.” Section 9.2 expressly permitted ACMGP to contract with limited partners and affiliates for the performance of services to ACM.

On October 31, 2022, plaintiff commenced the action, alleging five causes of action, including (a) breach of contract (second cause of action) and (b) breach of fiduciary duty (third cause of action). In the second cause of action, plaintiff contended that ACMGP breached the Agreement by retaining and compensating the individual defendants for their services in running the business. In the third cause of action, plaintiff alleged that ACMGP breached its fiduciary duty to him by compensating the individual defendants from the Partnership’s assets to perform work that ACMGP was required to perform at no cost to the Partnership under the terms of the Agreement.

Defendants moved to dismiss the complaint, pursuant to CPLR 3211(a)(1) and (7) for failure to state a claim, and based upon documentary evidence. The motion court granted the motion,[2] ruling that the Agreement “utterly refute[d] the claims that are in this complaint in every regard.”

On appeal, the Court unanimously affirmed.

The First Department held that “[t]he [motion] court properly dismissed the second cause of action for breach of a written limited partnership agreement and the third cause of action for breach of fiduciary duty.”[3] The Court found that the “plain terms” of “the amended limited partnership agreement permitted the general partner to contract for services with the limited partners.”[4] Thus, plaintiff’s allegation that “the amended limited partnership agreement prohibited the individual defendants from being hired by defendant general partner to manage the day-to-day operations of the limited partnership, and from getting paid out of the limited partnership’s proceeds” was contracted by the terms of the Agreement.[5]

The Court also held that the motion court correctly dismissed the third cause of action for breach of fiduciary duty because it, like the breach of contract claim, was “based entirely on plaintiff’s allegations that the amended limited partnership agreement prohibited the individual defendants from being hired by defendant general partner to manage the day-to-day operations of the limited partnership, and from getting paid out of the limited partnership’s proceeds.”[6] Thus, though not explicitly stated, the Court concluded that the claim was duplicative of the breach of contract claim.[7]

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Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP.

This article is for informational purposes and is not intended to be and should not be taken as legal advice.

[1] The factual discussion comes from the argument before the motion court and the parties’ briefing on appeal.

[2] The motion court heard oral argument on the motion and following said argument granted the motion to dismiss.

[3] Slip Op. at *1.

[4] Id. (citing Picone/WDF, JV v. City of New York, 193 A.D.3d 433, 434 (1st Dept. 2021); Alden Global Value Recovery Master Fund, L.P. v. KeyBank N.A., 159 A.D.3d 618, 625-626 (1st Dept. 2018)). Under New York law, a written agreement that is clear and unambiguous on its face must be enforced according to the plain meaning of its terms, and extrinsic evidence of the parties’ intent may be considered only if the agreement is ambiguous. See, e.g., W.W.W. Assoc. v. Giancontieri, 77 N.Y.2d 157, 162 (1990). “The best evidence of what parties to a written agreement intend is what they say in their writing.” Slamow v. Del Col, 79 N.Y.2d 1016, 1018 (1992).

[5] Id.

[6] Slip Op. at *1.

[7] Celle v. Barclays Bank P.L.C., 48 A.D.3d 301, 302 (1st Dept. 2008) (“The breach of fiduciary duty claim was properly dismissed as the agreement cover[s] the precise subject matter of the alleged fiduciary duty.”) (internal quotation marks and citation omitted).