FILED: NEW YORK COUNTY CLERK 04/29/ :27 PM INDEX NO /2016 NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 04/29/2016

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1 FILED: NEW YORK COUNTY CLERK 04/29/ :27 PM INDEX NO /2016 NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 04/29/2016 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK AMBASE CORPORATION, 111 WEST 57 TH MANAGER FUNDING LLC, and 111 WEST 57 TH INVESTMENT LLC, on behalf of itself and derivatively on behalf of 111 WEST 57 TH PARTNERS LLC, Index No. -against- Plaintiffs, COMPLAINT 111 WEST 57 TH SPONSOR LLC, 111 WEST 57 TH JDS LLC, PMG WEST 57 TH STREET LLC, 111 WEST 57 TH CONTROL LLC, 111 WEST 57 TH DEVELOPER LLC, ELLIOT JOSEPH, KM EQUITY LLC, KEVIN MALONEY, MATTHEW PHILLIPS, MICHAEL STERN, and NED WHITE, 111 WEST 57 TH PARTNERS LLC, Defendants, Nominal Defendant. Plaintiffs AmBase Corporation ( AmBase Corporation ), 111 West 57 th Manager Funding LLC ( Manager Funding, ), 111 West 57 th Investment LLC ( Investment and together with AmBase Corporation and Manager Funding, AmBase ), on behalf of itself and derivatively on behalf of 111 West 57 th Partners LLC (the Company and together with AmBase, Plaintiffs ), by their undersigned attorneys, for their complaint against defendants 111 West 57 th Sponsor LLC ( Sponsor ), 111 West 57 th JDS LLC ( JDS ), PMG West 57 th Street LLC ( PMG ), 111 West 57 th Control LLC ( Control ), 111 West 57 th Developer LLC ( Developer ), Elliot Joseph ( Joseph ), KM Equity LLC ( KM Equity ), Kevin Maloney ( Maloney ), Matthew Phillips ( Phillips ), Michael Stern 1 1 of 48

2 ( Stern ), and Ned White ( White and collectively, Defendants ) and against the Company, as a nominal defendant, allege as follows: NATURE OF THE ACTION 1. This action arises from Defendants unlawful scheme to dilute AmBase s equity interest in a joint real estate venture and to keep for themselves certain financing opportunities in breach of Defendants contractual and fiduciary duties. 2. The parties are investors in a joint venture to acquire and develop property located at West 57 th Street, New York, New York Defendants devised a scheme to increase their ownership interest in the joint venture at the expense of AmBase, while minimizing Defendants financial exposure. Defendants carried out this scheme by artificially driving up development expenses and then issuing unnecessary capital calls to cover the purported costs. Defendants funded their own portion of these capital calls by illicitly obtaining financing on favorable terms from undisclosed third parties, thus limiting their own risk while imposing substantial financial burdens on AmBase. 4. When AmBase refused to pay these improper capital calls in full, Defendants declared a dilution of AmBase s share in the joint venture from a majority interest of 60.3 percent to a minority interest of 45.3 percent. 5. Defendants then announced a distribution to equity holders in the joint venture and paid themselves in proportion to their unlawfully obtained, higher equity stake. Defendants paid this distribution even though the venture had not earned any revenue. 2 2 of 48

3 6. Moreover, Defendants unlawfully concealed from Plaintiffs the third-party financing they had obtained to fund their capital contributions to the joint venture. By failing to offer such favorable financing to Plaintiffs, Defendants misappropriated business opportunities in breach of their fiduciary duties. Thus, while Defendants relied on secret third-party financing, Plaintiff Manager Funding, a fellow member of one of the entities Defendants used to fund the joint venture, was forced to contribute its own funds and assume more risk. 7. Defendants also engaged in other misconduct to advance their own interests to the detriment of Plaintiffs. They transferred interests in the joint venture among themselves in violation of their agreements; they made major decisions on behalf of the joint venture without providing the requisite notice to, or obtaining the requisite approvals from, AmBase; they used joint venture funds to purchase an insurance policy that provided up to $16.5 million in benefits payable solely to one of the Defendants; and they refused AmBase s requests to inspect books and records. 8. Plaintiffs bring this action to recover the distributions Defendants diverted to themselves, to obtain a declaration that AmBase s equity interest in the joint venture has not been diluted, and for the other relief described below. THE PARTIES 9. Plaintiff AmBase Corporation is a corporation organized under the laws of the state of Delaware with its principal place of business located at 1 South Ocean Boulevard, Suite 301, Boca Raton, Florida Plaintiff Investment is a limited liability company organized under the laws of the state of Delaware. Investment is a wholly-owned subsidiary of AmBase Corporation. 3 3 of 48

4 11. Plaintiff Manager Funding is a limited liability company organized under the laws of the state of Delaware. Manager Funding is a subsidiary of AmBase Corporation The Company, a derivative plaintiff and nominal defendant, is a limited liability company organized under the laws of the state of Delaware with its principal place of business located at 5 East 17 th Street, New York, New York Defendant Sponsor is a limited liability company organized under the laws of the state of Delaware. 2 Sponsor is controlled by Defendants PMG and JDS, which together, through other entities, hold a majority interest in Sponsor. 14. Upon information and belief, Defendant JDS is a limited liability company organized under the laws of the state of Delaware with its principal place of business located at 104 Fifth Avenue, New York, New York Upon information and belief, Defendant PMG is a limited liability company organized under the laws of the state of New York with its principal place of business located at 5 East 17 th Street, New York, New York Upon information and belief, Defendant Control is a limited liability company organized under the laws of the state of Delaware with places of business located at 104 Fifth Avenue, New York, New York and 5 East 17 th Street, New York, New York AmBase Corporation owns 83.3% of Manager Funding. The remaining 16.7% of Manager Funding is owned by another entity, which is not a party to this litigation. 2 Through its interest in one of Sponsor s parent entities, Manager Funding holds a 3.8% indirect interest in Sponsor. Through its majority stake in Manager Funding, AmBase Corporation holds a 3.2% indirect interest in Sponsor. 4 4 of 48

5 17. Upon information and belief, Defendant Developer is a limited liability company organized under the laws of the state of Delaware with its principal place of business located at 5 East 17 th Street, New York, New York Defendant Joseph is an individual who, upon information and belief, resides in New York, New York and owns approximately 45% of PMG s equity. 19. Upon information and belief, Defendant KM Equity is a limited liability company organized under the laws of the state of New York with its principal place of business at 5 East 17 th Street, New York, New York Defendant Maloney is an individual who, upon information and belief, resides in New York, New York and owns approximately 45% of PMG s equity. Defendant Maloney is a Principal of Sponsor. 21. Defendant Phillips is an individual who, upon information and belief, resides in New York, New York. Defendant Phillips is the Director of Finance for JDS. 22. Defendant Stern is an individual who, upon information and belief, resides in New York, New York and owns 100% of JDS. Defendant Stern is a Principal of Sponsor. 23. Defendant White is an individual who, upon information and belief, resides in New York, New York and, through his interest in PMG s parent company, holds an indirect equity interest in PMG. 5 5 of 48

6 JURISDICTION 24. This Court has personal and subject matter jurisdiction over this action pursuant to CPLR 301 and 302(a)(1). 25. Venue is proper in New York County pursuant to CPLR 501 because an agreement between the parties fixes New York County as the place for trial and pursuant to CPLR 503(a) because Defendant JDS maintains its principal place of business in New York County. FACTS COMMON TO ALL CLAIMS The Participants in the Joint Venture 26. In June 2013, AmBase Corporation, through two of its subsidiaries Investment and Manager Funding entered into a joint venture (the Joint Venture ) with Stern, Maloney, JDS, PMG, and various affiliated entities to acquire and develop property located at West 57th Street, New York, New York (the Property ). The purpose of the Joint Venture was to redevelop the Property into a 346,000 square-foot luxury residential tower with retail space. 27. To facilitate the Joint Venture, the participants and investors entered into a series of agreements. 28. Control, a limited liability company owned by Defendants PMG, KM Equity, and JDS, 3 joined together with Manager Funding, a limited liability company 3 At formation on June 28, 2013, Control was comprised of two members, PMG and JDS. By amendment dated June 30, 2015, KM Equity was added as a member of Control with a 1.407% stake. As of the date of that amendment, PMG held % of Control and JDS held %. The June 30, 2015 amendment to the agreement governing the members of Control provides that all rights and obligations of KM Equity with respect to its membership in Control are to be exercised by PMG. 6 6 of 48

7 controlled by AmBase Corporation, to form 111 West 57 th Manager LLC ( Manager LLC ). 29. Control owns 89.3% of the equity in Manager LLC and Manager Funding owns the remaining 10.7%. The rights and obligations of Control and Manager Funding with respect to Manager LLC are set forth in an agreement titled 111 West Manager LLC Limited Liability Company Agreement (the Manager LLC Agreement ). 30. Manager LLC and Control thereafter formed Sponsor. Control and Manager LLC s respective rights and obligations relating to Sponsor are set forth in an agreement titled 111 West Sponsor LLC Limited Liability Company Agreement dated June 28, 2013 (the Sponsor LLC Agreement ). 31. Also on June 28, 2013, Sponsor and Investment formed the Company. Investment and Sponsor s rights and obligations with respect to the Company are governed by a limited liability company agreement (the Joint Venture Agreement ) dated June 28, Under the terms of the Joint Venture Agreement, Investment initially contributed $56 million to the Joint Venture in exchange for a 59% interest in the Company. Sponsor initially contributed $39 million to the Joint Venture in exchange for a 41% interest in the Company. These initial contributions are defined under the Joint Venture Agreement as the parties Initial Capital Contributions. 33. By virtue of its 83.3% ownership of Manager Funding (which holds a 3.8% indirect interest in Sponsor), AmBase Corporation invested an additional $1.25 million in the Joint Venture at the time of the Initial Capital Contributions, thereby obtaining an additional 1.3% interest in the Joint Venture. Accordingly, AmBase held an 7 7 of 48

8 aggregate 60.3% interest in the Joint Venture at the time of the Initial Capital Contributions. 34. Following the Initial Capital Contributions, non-party Atlantic 57 LLC ( Atlantic ) acquired a 26.3% interest in the Company through a transfer of Sponsor s membership interests. As a result of Atlantic s contributions to the Joint Venture, Sponsor s interest was adjusted to approximately 14.7%. 35. On or about June 28, 2013, the Company entered into a development agreement (the Development Agreement ) with Developer, a wholly owned subsidiary of Control. 36. An organizational chart depicting the relationships among the parties described above is attached hereto as Exhibit A. AmBase Satisfies Sponsor s Initial Series of Capital Calls 37. Approximately nine months into the Joint Venture, Sponsor began to execute a scheme to dilute AmBase s equity interest. 38. Under the Joint Venture Agreement, Sponsor serves as the Manager of the Company and exercises day-to-day authority to act for the Company. 39. The Joint Venture Agreement authorizes the Manager to request Additional Capital Contributions from each member of the Company in specified circumstances. Parallel provisions governing Additional Capital Contributions appear in the Sponsor LLC Agreement and the Manager LLC Agreement. 40. Under section 2.8 of the Joint Venture Agreement, Sponsor represented and warranted that its capital contributions have not, and will not, include any capital contributions to Sponsor from third parties or managed funds and that Sponsor shall 8 8 of 48

9 disclose to [Investment] any changes to the direct or indirect investors in its holdings. This provision, among other things, protects the participants in the Joint Venture from unwittingly doing business with disreputable investors who might tarnish the Property s brand. 41. On or about March 19, 2014, Maloney and Stern, on behalf of Sponsor, issued a demand to Investment and other members of the Company for an Additional Capital Contribution of $1.8 million (the March 2014 Capital Call ). The purported basis for the March 2014 Capital Call was to acquire certain air rights for the Property. 42. On or about that same day, Maloney and Stern, on behalf of Control, issued a call to Manager Funding and other members of Manager LLC for an Additional Capital Contribution to satisfy Manager LLC s share of the March 2014 Capital Call made by Sponsor. 43. Investment and Manager Funding fully funded the March 2014 Capital Call in proportion to their Percentage Interests in the Joint Venture. 44. Approximately three months later, on or about June 9, 2014, Maloney and Stern, on behalf of Sponsor, issued a call to Investment and other members of the Company for a second Additional Capital Contribution of $9,276, (the June 2014 Capital Call ). The purported basis for the June 2014 Capital Call was to cover costs associated with the extension of existing financing for the Company. 45. On or about that same day, Maloney and Stern, on behalf of Control, issued a call to Manager Funding and other members of Manager LLC for an Additional Capital Contribution to satisfy Manager LLC s share of the June 2014 Capital Call made by Sponsor. 9 9 of 48

10 46. Investment and Manager Funding fully funded the June 2014 Capital Call in proportion to their Percentage Interests. 47. Approximately one month later, on or about July 14, 2014, Maloney and Stern, on behalf of Sponsor, issued a call to Investment and other members of the Company for a third Additional Capital Contribution of $9,686, (the July 2014 Capital Call ). The purported basis for the July 2014 Capital Contribution was to cover hard and soft costs required to construct the project. 48. On or about that same day, Maloney and Stern, on behalf of Control, issued a call to Manager Funding and other members of Manager LLC for an Additional Capital Contribution to satisfy Manager LLC s share of the July 2014 Capital Call made by Sponsor. 49. Investment and Manager Funding fully funded the July 2014 Capital Call in proportion to their Percentage Interests. 50. Upon information and belief, in violation of the Joint Venture Agreement, the Defendants relied on financing from third parties to fund their portions of the March 2014, June 2014 and July 2014 Capital Calls. 51. Defendants did not disclose these financing opportunities to AmBase and instead kept these opportunities for themselves. Sponsor Conceals Its Self-Dealing and Mismanagement 52. Despite the multiple injections of additional capital, Sponsor, Developer, and their affiliates made minimal progress on the development of the Property. By the second half of 2014, AmBase began to question the need for and rationale behind of 48

11 Sponsor s calls for Additional Capital Contributions and became concerned about Sponsor and Developer s satisfaction of their management and development duties. 53. In or about July 2014, Investment hired Sterling Project Development Group, LLC ( Sterling ) as a construction consultant to advise Investment with respect to development and construction related issues, as it was entitled to do under section 7.5 of the Joint Venture Agreement. 54. Defendants were required to take all commercially reasonable efforts to cooperate with and provide information to Sterling. Sponsor and JDS breached this requirement by refusing Sterling s request for a proposed budget and updated plans. 55. During weekly conferences and periodic meetings with representatives of Sponsor, Developer, and Control, AmBase repeatedly requested more information from Defendants Stern, Maloney, Phillips, White and others about the management of the Joint Venture s resources and the development of the Property. 56. Defendants repeatedly evaded the requests and failed to provide full explanations for how the project was being managed and how capital was being spent. 57. Upon information and belief, Defendants deliberately withheld material information to conceal their mismanagement of the Joint Venture. 58. For example, in connection with the construction of the project, Sponsor and Developer were required to obtain certain worker s compensation/casualty insurance. Without Investment s consent or knowledge, Sponsor and/or Developer used the Company s funds to purchase an insurance policy that included a $16.5 million loss fund. Under the terms of the policy, if no covered claims had been made at the close of construction, the funds contributed for the loss fund would be returned of 48

12 59. Upon information and belief, Stern, acting with the authority of Sponsor and Developer, designated himself as the sole beneficiary of any return of funds under the policy. 60. After Stern was confronted concerning his self-dealing, Stern claimed that he directed Liberty Mutual Insurance to make the Company a beneficiary. However, AmBase has been unable to confirm whether Stern in fact made such a direction, and if so, whether it adequately addressed Stern s self-dealing. Indeed, despite repeated requests by AmBase, neither Defendants nor the insurance broker acting at Defendants direction have provided AmBase any further documentation concerning the nature, scope, or terms of the policy. 61. Notably, a significant portion of capital calls issued by Sponsor in October 2014, December 2014, and April 2015, totaling at least $9.8 million, were purportedly to cover insurance costs. Upon information and belief, Stern used these capital calls, in part, to cover the premiums for insurance policies on which he was the personal beneficiary. 62. Upon information and belief, Stern and JDS engaged in further mismanagement and self-dealing by failing to engage in a competitive bidding process for certain contracts 63. Defendants also failed to keep Plaintiffs apprised of Major Decisions it made with respect to the Property and failed to obtain Plaintiffs approval for such decisions. 64. For example, from in or about January through October 2015, Sponsor spent Joint Venture funds to construct a lavish sales office on Fifth Avenue, complete of 48

13 with a full-scale model of a sample luxury apartment. Sponsor never obtained Investment s approval for the sales office even though it constituted a Major Decision. Had Investment been consulted as required, it would have objected to the use of capital reserves on a non-vital sales office, which served the marketing goals of Sponsor rather than the Joint Venture at a time Sponsor claimed the Joint Venture needed more capital. 65. When AmBase representatives visited the Property sales office in or about the fall of 2015, they learned that Sponsor had engaged a sales agent for the Property. Sponsor never informed Investment of the engagement or sought Investment s approval for this Major Decision, as it was required to do under section 7.2(a)(xviii) of the Joint Venture Agreement. 66. Having been left out of the selection process, Investment had no way of knowing what criteria were used to select the sales agent, whether the agent was independent, or whether the selection of this particular agent constituted self-dealing (by, for example, steering business toward a spouse or relative of one of the individual Defendants). 67. Sponsor similarly set condominium prices and filed the Condominium Offering Plan for the Property without notifying Investment or obtaining Investment s approval as it was required to do under section 7.2(a)(i)-(ii) of the Joint Venture Agreement. 68. Despite its position as a majority stakeholder in the Joint Venture, AmBase was essentially excluded from the operations of Joint Venture. 69. Defendants lack of transparency and failure to communicate raised serious doubts as to whether they were, in fact, devoting a substantial portion of their of 48

14 time to [the] development, construction, management, asset management and operation of the Property as they were contractually obligated to do under the Joint Venture Agreement and Development Agreement. 70. Sponsor, Developer and their principals failed to supervise the management and development of the Property as required under the Joint Venture Agreement and Development Agreement. 71. For example, Stern and Maloney were traveling to Miami, Florida for reasons unrelated to the Joint Venture when they were supposed to be managing a critical phase of the construction on the Property. When AmBase s Chairman, Chief Executive Officer and President, Richard Bianco ( Bianco ), contacted Stern, Maloney, and White to obtain information concerning the status of construction, all three despite sharing principal responsibility for supervising construction were unaware of critical details and developments concerning the Property. In particular, when asked about cost overruns, Maloney could not offer a precise estimate. 72. AmBase became increasingly concerned about its significant exposure to the Joint Venture and reluctant to increase that exposure through the funding of Additional Capital Contributions. 73. AmBase s suspicions later proved to be well-founded. By the fall of 2015, AmBase and its principals learned from Maloney that the development project was significantly over-budget and delayed. 74. Such delays and budget overruns were caused by Sponsor and Developer s failure to perform under the Joint Venture Agreement and Development Agreement by, of 48

15 among other things, failing to plan, develop, and construct the project in a timely manner and failing to devote sufficient time and attention to the Joint Venture. The October 2014 Capital Call and February 2015 Shortfall Contribution Call 75. On October 21, 2014, Sponsor made a fourth call to members of the Company for an Additional Capital Contribution of $12,431, (the October 2014 Capital Call ) purportedly to cover hard and soft costs of construction. Approximately $4.5 million of these purported costs related to insurance. 76. The Joint Venture Agreement expressly provides, however, that cost overruns that constitute Manager Overruns overruns the Sponsor should have reasonably... anticipated and budgeted for do not qualify as grounds for calling for Additional Capital Contributions. 77. The Joint Venture Agreement also provides that Investment shall have no obligation to fund any Additional Capital Contribution which would cause the aggregate Capital Contributions made by [Investment] to exceed $57,000, As of the October 2014 Capital Call, Investment had made capital contributions that exceeded $57 million. 79. Section 3.3(a) of the Joint Venture Agreement provides that, if a Member tendered its entire Additional Capital Contribution on or before the Tender Date (a Contributing Member ) and the other Member has failed to tender its entire share of the required Additional Capital Contributions... (a Non-Contributing Member ), the Contributing Member has the right to make a Shortfall Contribution of the amount unpaid by the Non-Contributing Member of 48

16 80. The Contributing Member may, at its election, treat the Shortfall Contribution as either: (1) a Member Loan or (2) dilutive capital if, within five (5) days after funding of the Shortfall Contribution, the Contributing Member provides written Notice to the Non-Contributing Member of its election of the dilution remedy. 81. If the Contributing Member fails to give the notice described in Section 3.2(c), the Contributing Member shall be deemed to have elected to have the Shortfall Contribution treated as a Member Loan. 82. If a Shortfall Contribution is treated as dilutive capital, the Contributing Member s Percentage Interest increases by a multiple of 1.5 times the Shortfall Contribution, and the Non-Contributing Member s Percentage Interest is reduced by the same amount. 83. Due to its concerns about Sponsor s management of the Joint Venture s budget, spending, and capital raising, as it was entitled to do under Section 3.2 of the Joint Venture Agreement, Investment elected not to contribute its full share of the October 2014 Capital Call. 84. Atlantic also did not pay its full share of the October 2014 Capital Call. 85. Sponsor represented that it had paid its entire share of the October 2014 Capital Call, which, pursuant to section 2.8 of the Joint Venture Agreement, could not include any contribution from third parties. Accordingly, Sponsor claimed it was a Contributing Member entitled to make a Shortfall Contribution of 48

17 86. Several months later, on February 24, 2015, Sponsor called for Shortfall Capital Contributions (the February 2015 Shortfall Capital Call ) in connection with the October 2014 Capital Call. 87. In connection with the October 2014 Capital Call and the February 2015 Shortfall Capital Call, Sponsor funded the balance owed on Investment and Atlantic s shares purportedly as a Shortfall Contribution under the terms of the Joint Venture Agreement (the February 2015 Shortfall Contribution ). 88. Upon information and belief, in violation of the Joint Venture Agreement, the Defendants relied on financing from third parties to fund their portion of the October 2014 Capital Call and the February 2015 Shortfall Capital Call. 89. Defendants did not disclose this financing opportunity to AmBase and instead took it for themselves. 90. Sponsor notified Investment that it was electing to treat the February 2015 Shortfall Contribution as dilutive capital. The December 2014 Capital Call 91. Less than six weeks after the October 2014 Capital Call, on December 1, 2014, Sponsor made a fifth call to members of the Company for an Additional Capital Contribution of $17,099,802 (the December 2014 Capital Call ), purportedly to cover borrowing and development costs associated with the Property. Approximately $2.5 million of these purported costs related to insurance. 92. Because Investment remained concerned about Sponsor s performance as Manager of the Company and the resulting risk associated with the Joint Venture, Investment decided not to increase its investment in the Company and, as it was entitled of 48

18 to do under Section 3.2 of the Joint Venture Agreement, declined to pay its share of the December 2014 Capital Call. 93. Atlantic also did not pay its entire share of the December 2014 Capital Call. 94. Sponsor represented that it had paid its entire share of the December 2014 Capital Call, which, pursuant to section 2.8 of the Joint Venture Agreement, could not include any contribution from third parties. Accordingly, Sponsor claimed it was a Contributing Member entitled to make a Shortfall Contribution. 95. On or before December 31, 2014, Sponsor funded the amounts remaining on Investment and Atlantic s Capital Contributions for the December 2014 Capital Call. Sponsor represented that this contribution (the December 2014 Shortfall Contribution ) constituted an appropriate Shortfall Contribution under the Joint Venture Agreement. 96. Upon information and belief, in violation of the Joint Venture Agreement, the Defendants relied on financing from third parties to fund their portion of the December 2014 Capital Call and the December 2014 Shortfall Contribution. 97. Defendants did not disclose this financing opportunity to AmBase and instead took it for themselves. 98. On January 9, 2015, Sponsor delivered to Investment a letter 4 stating that Sponsor was electing to treat the December 2014 Shortfall Contribution as dilutive capital. 4 Although this letter reflects a date of January 2, 2015, it was sent from Sponsor s address in New York, New York to Investment s address in Greenwich, Connecticut by DirectRush service from Dutch Express LLC on January 9, 2015, at least nine days after the December Shortfall Contribution was funded of 48

19 99. Because Sponsor did not send written notice of its election until nine days after funding the December 2014 Shortfall Contribution, it failed to comply with the fiveday notice requirement set forth in section 3.2 and thus was not entitled to treat the Shortfall Contribution as a dilution By letter dated January 12, 2015, Investment informed Sponsor that, pursuant to the express terms of the Joint Venture Agreement, the parties were required to treat the December 2014 Shortfall Contribution as a Member Loan rather than dilutive capital By letter dated January 16, 2015, Sponsor contested Investment s position, maintained that the December 2014 Shortfall Contribution constituted dilutive capital, and asserted that Investment s Percentage Interest had been decreased from 59% to approximately 48% Thereafter, Sponsor contended that, as a result of both the December 2014 Shortfall Contribution and the February 2015 Shortfall Contribution, Investment s Interest Percentage in the Joint Venture decreased from its original 59% to 44%. The April 2015 Capital Call 103. On April 13, 2015, Sponsor made a sixth call to members of the Company for an Additional Capital Contribution of $13,256, (the April 2015 Capital Call ), purportedly to cover hard and soft costs of construction. Approximately $2.8 million of these purported costs related to insurance Concerned that Defendants would attempt to further dilute Investment s interest in the Joint Venture, Investment along with Manager Funding paid their full shares of the April 2015 Capital Call of 48

20 105. Sponsor represented that it had paid its entire share of the April 2015 Capital Call, which, pursuant to section 2.8 of the Joint Venture Agreement, could not include any contribution from third parties Upon information and belief, the Defendants relied on financing from third parties to fund their portion of the April 2015 Capital Call Defendants did not disclose this financing opportunity to AmBase and instead took it for themselves Atlantic failed to pay its full share of the April 2015 Capital Call In this instance, Sponsor did not elect to make a Shortfall Contribution to fund the balance due and did not dilute the equity of Atlantic. Defendants Transfer of Interests Among Themselves 110. The Joint Venture Agreement generally prohibits any Transfer, encumbrance or lien upon the direct or indirect shares of stock, membership interest, partnership interest or other equity interest in the members... without... obtaining the prior written approval of the Members Similarly, under the Manager LLC Agreement between Control and Manager Funding, Control is generally prohibited from making any Transfer... upon the direct or indirect shares of stock, membership interest, partnership interest or other equity interest in Control without Manager Funding s approval By letter dated October 7, 2015, Stern, JDS, Maloney, and PMG acknowledged that one of the principals of PMG (separately identified as Maloney) did not contribute his full portion of Sponsor s February 2015 Shortfall Contribution. Instead, JDS elected to cover that principal s shortfall of 48

21 113. Stern, JDS, Maloney, and PMG conceded that this shortfall contribution chang[ed] the ownership percentage of PMG and JDS in Control Notwithstanding this transfer of direct and/or indirect interest in Control and Sponsor, Sponsor and Control neither sought nor obtained Investment or Manager Funding s prior written approval as required under sections 9.1 of the Joint Venture Agreement and the Manager LLC Agreement Moreover, even though, Manager Funding is a Member of Sponsor, it was neither notified of PMG/KM Equity s shortfall, nor given any opportunity to increase its own Percentage Interest by making additional contributions. JDS and/or Stern took that opportunity for themselves Upon information and belief, PMG/KM Equity also failed to fully fund its share of the April 2015 Capital Call. Instead, PMG/KM Equity s shortfall of approximately $980,000 was funded by JDS and/or Stern Though Manager Funding is a Member of Sponsor, it was neither notified of PMG/KM Equity s shortfall, nor given any opportunity to increase its own Percentage Interest by making additional contributions. JDS and/or Stern took that opportunity for themselves Sponsor did not obtain Investment s prior written approval of this transfer as it was required to do under the Joint Venture Agreement Control did not obtain Manager Funding s prior written approval of this transfer as they were required to do under the Manager LLC Agreement of 48

22 120. Such funding by JDS and/or Stern effected a transfer of direct and/or indirect interest in Control and Sponsor in violation of sections 9.1 of the Joint Venture Agreement and the Manager LLC Agreement. The Apollo/AIG Loan and July Distribution 121. At the same time Sponsor was raising more capital from members, it was also negotiating $750 million in financing from AIG Asset Management (US), LLC and Apollo Commercial Real Estate Finance, Inc. (the AIG/Apollo Loan ) Pursuant to Section 2.11(c) of the Joint Venture Agreement, Sponsor agreed that Stern and Maloney would individually comply with any financial net worth and liquidity covenants specifically applicable... under any loan that would be taken out for purposes of developing the Property Upon information and belief, Defendant Maloney did not comply with the financial net worth and liquidity covenants applicable to the AIG/Apollo Loan as was required by section 2.11(c) of the Joint Venture Agreement The AIG/Apollo Loan was obtained on or around June 30, In July 2015 almost immediately after obtaining hundreds of millions of dollars from the AIG/Apollo Loan and tens of millions in additional Capital Contributions the Company, at Sponsor s direction, distributed $24.7 million to of 48

23 members (the July Distribution ). The July Distribution was purportedly made possible due to the overfunding of the AIG/Apollo loan This purported $24.7 million surplus indicates that the numerous Capital Contributions were not necessary Though such a significant distribution constituted a Major Decision under the Joint Venture Agreement, Sponsor did not obtain Investment s prior written consent In connection with that distribution, AmBase received approximately $11.9 million, which payment was based on Sponsor s calculation that Investment s Interest Percentage had been diluted from 59% to 44% Had the payment been based on AmBase s aggregate 60.3% Interest Percentage, it would have included an additional distribution of approximately $4 million. Instead, those additional amounts were improperly distributed to the other members of the Joint Venture and their members, including Defendants Sponsor, Control, JDS, PMG, Stern, Maloney, White, and Joseph. Defendants Acknowledge Third-Party Financing and Refuse to Provide Information 130. During a meeting with Maloney, Stern, and the principal of non-party Atlantic in or about September 2015, AmBase learned that the funds used to pay Sponsor s Additional Capital Contributions, the December 2014 Shortfall Contribution, and/or the February 2015 Shortfall Contribution were obtained from undisclosed third parties By letter dated September 25, 2015, Investment requested, pursuant to sections 2.8(a) and 9.1(b)(i) of the Joint Venture Agreement, that Sponsor provide information concerning, among other things, reports that funding of Sponsor s and/or its of 48

24 beneficial owners capital calls was provided by foreign sources, including the identity of such sources and copies of all relevant documentation concerning any such funding. A copy of the September 25, 2015 letter is annexed hereto as Exhibit B Investment also requested that Sponsor provide information about the change in Control s ownership percentages as between Stern and Maloney In an October 2015 letter, Stern and Maloney conceded that one of its indirect members, Control, had contributed its share of the December 2014 and February 2015 Shortfall Contributions with the use of funds from third parties. Defendants refused to disclose the identity of those parties or to provide additional information about the change of Control s ownership percentages. Stern and Maloney falsely contended that Investment was not entitled to such information Sponsor s refusal to disclose such information breached the Joint Venture Agreement, which provides, Sponsor shall disclose to [Investment] any changes to the direct and indirect investors in its holdings. (emphasis added) Control s failure to notify Manager Funding of the change of its members ownership percentages and failure to obtain Manager Funding s approval for such a transfer of interest similarly constitutes a breach of the Manager LLC Agreement Upon information and belief, the Additional Capital Contributions and Shortfall Contributions made by Sponsor and Control, including those that Sponsor sought to characterize as dilutive capital, were comprised of funds from undisclosed third parties of 48

25 137. Such third-party contributions violated the express terms of section 2.8 of the Joint Venture Agreement and rendered Sponsor ineligible to increase its Percentage Interest (or decrease Investment s) on the basis of any Shortfall Contributions Because of Sponsor s improper and unwarranted dilution of Investment s Percentage Interest, Sponsor received approximately $4 million from the July Distribution, which should have instead been allocated to Plaintiffs Moreover, Defendants concealed from Plaintiffs, including Manager Funding, the opportunity to finance contributions through favorable arrangements with undisclosed third parties and thereby misappropriated such opportunities for themselves. Defendants Continued Misrepresentations and Omissions 140. From in or about January 2014 through in or about January 2016, AmBase made repeated inquiries to Defendants including in s, phone calls, and meetings with Phillips, Stern, Maloney, and White seeking detailed information about the nature and bases for capital calls, the nature and bases for loans to the Company, and how Sponsor was calculating members Percentage Interests, distributions, and profits In numerous s and phone calls responding to such inquiries, Phillips, Stern, Maloney, and White made representations about Investment and Manager Funding s expected profits and Percentage Interests. In each of these communications, Phillips, Stern, Maloney and White failed to disclose that Sponsor and Control had obtained funding from undisclosed third parties, that PMG/KM Equity had failed to pay their full portions of Additional Capital Contributions, or that Sponsor and Control had transferred direct and indirect equity interests in contravention of the Joint Venture Agreement and the Manager LLC Agreement. By failing to make such disclosures, of 48

26 Defendants misrepresented Plaintiffs Percentage Interests and the amount of distribution and profits to which Plaintiffs were entitled For example, in an dated July 2, 2015, Matt Phillips represented that Investment and Manager Funding had received a combined distribution of $11,895, as a result of the overfunding of a loan taken out by the Company and based on their respective Percentage Interests in the Joint Venture. But in answering AmBase s questions about the distribution, Phillips omitted the material fact that Sponsor had received improper third-party funding to fund its Additional Capital Contributions and Shortfall Contributions, which rendered any dilution of Investment s Percentage Interest, and any distribution based on such dilution, improper Similarly, in a July 9, , AmBase asked Phillips to explain the reason for the April 2015 Capital Call, the change in Percentage Interests that resulted from that call, and how Atlantic s shortfall contribution was made up and by whom. AmBase also asked for Maloney s current interest in Sponsor. Phillips failed to fully disclose the material information requested. The Books and Records Requests 144. As set forth above, the Joint Venture Agreement requires Sponsor, in its capacity as Manager of the Company, to keep accurate books and records and to provide certain reports and information relating to the development, construction, and finances of the Property to other members upon request On July 16, 2015, Investment sent Sponsor a written demand seeking certain books and records relating to the development, construction, and finances of the Property of 48

27 146. Sponsor did not provide Investment with any books or records in response to Investment s request Since its initial demand, Investment sent Sponsor several similar demands, the most recent of which is dated November 9, 2015 and annexed hereto as Exhibit C. Among the records sought are documents concerning loans closed by the Company in June 2015, an explanation for why Sponsor called for over $42 million in Additional Capital Contributions months before distributing approximately $25 million to members, information concerning the source of funding for Sponsor s Capital Contributions, and details of construction fees claimed by Sponsor, including amounts paid to JDS and PMG Investment has not received any books or records in response to its requests of July 16, September 25, November 9, 2015 or any similar demands Upon information and belief, Sponsor is withholding such books and records, in part, to conceal the participation of undisclosed third parties in Sponsor s past Capital Contributions and Shortfall Contributions participation that would render the resulting dilutions in Investment s Percentage Interest invalid and to conceal other financial irregularities which have resulted in benefits to Defendants at the expense of Plaintiffs. Asset Manager Expenses 150. Section 7.5 of the Joint Venture Agreement provides, among other things, that Investment shall have the right to engage, appoint and/or replace an asset manager to advise Investor and consult with the Manager and Principals, with respect to pre-development and post-development related issues[.] Section 7.5 further provides of 48

28 that, assuming it does not exceed the market rate, the cost of such asset manager shall be paid by the Company Sponsor is obligated under the Joint Venture Agreement to cause the Company to make such payments Pursuant to section 7.5, Investment engaged Maiden Lane Associates, Ltd. to provide asset management services. On or about December 16, 2015, Investment requested that Sponsor, as Manager of the Company, reimburse Investment for asset management services rendered between January 2014 and December 2015 and submitted associated invoices totaling $480,000 (the Maiden Lane Associates Invoices ) Sponsor has not alleged that the Maiden Lane Associates Invoices exceed market rate. Nor has Sponsor identified any other contractual basis for refusing payment. Nonetheless, Sponsor has refused to pay the Maiden Lane Associates Invoices. Legal Fees 154. Section 12.1 of the Joint Venture Agreement provides that the Company must reimburse Investment for all out-of pocket costs and expenses incurred for due diligence performed, and legal expenses paid, in connection with the acquisition of the Property and investment in the Company Sponsor has the responsibility and the obligation under the Joint Venture Agreement to cause such payment to be made by the Company Investment retained Steven Klein, Esq. initially of the law firm Willkie, Farr & Gallagher LLP and later of the law firm Gibson Dunn & Crutcher to provide legal services in connection with Investment s investment in the Company of 48

29 157. Pursuant to Section 12.1, Investment asked Sponsor to reimburse fees arising from legal services rendered from July 1, 2015 to December 31, Investment submitted invoices for these services (the Willkie Farr/Gibson Dunn Invoices ) in the amount of $286, Sponsor has refused to reimburse Investment for the Willkie Farr/Gibson Dunn Invoices in violation of its contractual obligations. FIRST CLAIM FOR RELIEF DECLARATORY JUDGMENT (Investment and AmBase Corporation Against Sponsor) 159. Plaintiffs repeat and re-allege each of the foregoing paragraphs as if fully set forth herein The Joint Venture Agreement expressly provides that, the funding of Manager Overruns shall not constitute Additional Capital Contributions and shall not adjust Percentage Interests Under section 2.8 of the Joint Venture Agreement, Sponsor represented and warranted that all Capital Contributions made by Sponsor to the Company have not, and will not, include any capital contribution to Sponsor from third parties or managed funds and that Sponsor shall disclose to [Investment] any changes to the direct or indirect investors in its holdings Section 2.12 of the Joint Venture Agreement further provides that [i]n the event of a breach of Section , any amounts paid to cure such breach by the breaching party shall not constitute Capital Contributions or loans to [the Company], any subsidiary, or any Member and shall not increase the Capital Account of such Member of 48

30 163. A ripe and justiciable controversy exists between Plaintiffs and Defendants concerning the parties respective rights under the Joint Venture Agreement Plaintiffs do not have an adequate remedy at law Plaintiffs are entitled to declarations pursuant to 10 Del. C and CPLR 3001 necessary to preserve their rights in the Joint Venture, including declarations that: (i) Sponsor was not entitled to treat any of its Shortfall Contributions as dilutive capital because it failed to comply with the requirements of section 2.8 of the Joint Venture Agreement; (ii) Sponsor was not entitled to treat the December 2014 Shortfall Contribution as dilutive capital for the additional reason that it failed to comply with the notice requirements of section 3.2(c) of the Joint Venture Agreement; and (iii) Investment holds a 59% Percentage Interest in the Joint Venture. SECOND CLAIM FOR RELIEF BREACH OF CONTRACT (Investment and AmBase Corporation Against Sponsor and Company) 166. Plaintiffs Investment and AmBase Corporation repeat and re-allege each of the foregoing paragraphs as if fully set forth herein The Joint Venture Agreement between Plaintiff Investment and Defendant Sponsor is a valid, legally enforceable written agreement The Joint Venture Agreement was intended for the immediate, nonincidental benefit of AmBase Corporation Plaintiffs Investment and AmBase Corporation substantially performed their obligations under the Joint Venture Agreement by, among other things, making an Initial Capital Contribution, and using their best efforts to further and facilitate the development of the Property of 48

31 170. Sponsor breached its obligations under the Joint Venture Agreement by: a. paying Sponsor s Additional Capital Contributions and Shortfall Contributions with funds provided by undisclosed third parties and treating their Shortfall Contributions as dilutive capital notwithstanding the inclusion of improper third-party funds in violation of section 2.8; b. treating the December 2014 Shortfall Contribution as dilutive capital notwithstanding their failure, pursuant to section 3.2(c), to provide Investment with written notice of Sponsor s intent to treat the December 2014 Shortfall Contribution as dilutive capital within 5 days of tendering the December 2014 Shortfall Contribution; c. increasing Sponsor s own Percentage Interest and decreasing Plaintiff Investment s Percentage Interest in violation of sections 2.8 and 2.12; d. depriving Investment of distributions to which it was entitled under section 6.1(a) according to its actual Percentage Interest; e. accepting distributions to which it was not entitled according to its actual Percentage Interest in violation of section 6.4; f. failing to disclose and obtain Investment s approval for transfers of direct and indirect interests in Sponsor in violation of section 9.1; g. making Major Decisions under the Joint Venture Agreement without obtaining Investment s prior written approval in violation of section 7.2; h. failing to provide Plaintiff Investment with access to books and records to which it is entitled under sections 4.1 and 4.2 of the Joint Venture Agreement; i. failing to cause the Company to pay the market-rate fees of the asset manager engaged by Plaintiff Investment in violation of sections 7.5, 8.1 and 12.1; j. refusing to cooperate and share information with AmBase s construction consultant, Sterling in violation of section 7.5; k. failing to cause the Company to pay legal fees incurred by Investment for services rendered in connection with its investment in the Company in violation of 12.1; of 48

32 l. failing to carry out Sponsor s duties as Manager of the Company in good faith and, upon information and belief, concealing the fact that its calls for Additional Capital Contributions were due to Manager Overruns, which rendered improper any attempt by Sponsor to dilute Investment s shares; and m. engaging in arbitrary and unreasonable conduct that prevented Investment from receiving the fruits of its bargain, in breach of the implied covenant of good faith and fair dealing As a direct and proximate result of Sponsor s breaches, Plaintiffs have suffered damages, including consequential damages, in an amount to be determined at trial but in no event less than $104,766,481. THIRD CLAIM FOR RELIEF BREACH OF CONTRACT (Manager Funding Against Control) 172. Plaintiff Manager Funding repeats and re-allege each of the foregoing paragraphs as if fully set forth herein The Manager LLC Agreement between Manager Funding and Control is a valid, legally enforceable written agreement Under the Manager LLC Agreement, Control is generally prohibited from making any Transfer... upon the direct or indirect shares of stock, membership interest, partnership interest or other equity interest without obtaining the prior written approval of Manager Funding The Manager LLC Agreement further provides that [n]o Member shall be entitled to receive any distribution that represents a direct or indirect violation of this Agreement of 48