15-920-cv; 15-1659-cv

New Earthshell Corp. v. Jobookit Holdings Ltd.

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED

ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE

PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A

DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN

ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST

SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

1 At a stated term of the United States Court of Appeals

2 for the Second Circuit, held at the Thurgood Marshall United

3 States Courthouse, 40 Foley Square, in the City of New York,

on the 30th 4 day of December, two thousand fifteen.

5

6 PRESENT: DENNIS JACOBS,

7 PIERRE N. LEVAL,

8 GUIDO CALABRESI,

9 Circuit Judges.

10

11 - - - - - - - - - - - - - - - - - - - -X

12 NEW EARTHSHELL CORP., 

13 Plaintiff-Appellant,

14

15 -v.- 15-920-cv; 15-1659-cv

16

17 JOBOOKIT HOLDINGS LTD, VIUMBE LLC,

18 RAFI SHKOLNIK, 

19 Defendants-Appellees.

20 - - - - - - - - - - - - - - - - - - - -X

21

22 FOR APPELLANT: NIKOLAS S. KOMYATI (Lawrence D.

23 Ross, on the brief), Bressler,

24 Amery & Ross, P.C., New York,

25 NY. 

26

27 FOR APPELLEE: A. Jeff Ifrah, Ifrah PLLC,

28 Washington, DC. 

1
1

2 Appeal from a judgment of the United States District

3 Court for the Southern District of New York (Furman, J.).

4

5 UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED

6 AND DECREED that the judgment of the district court be, and

7 is hereby, VACATED, and the case REMANDED for further

8 proceedings. 

9

10 New Earthshell Corp. appeals from the judgment of the

11 United States District Court for the Southern District of

12 New York (Furman, J.) dismissing its complaint against

13 Jobookit Holdings Ltd. (“Jobookit”), Rafi Shkolnik

14 (Jobookit’s CEO), and Viumbe, LLC, for breach of contract,

15 fraud, and breach of the implied covenant of good faith and

16 fair dealing. We assume the parties’ familiarity with the

17 underlying facts, the procedural history, and the issues

18 presented for review.

19

20 This appeal arises from a series of corporate

21 transactions concerning Viumbe, a digital media company that

22 earns revenue by selling advertising on its websites. New

23 Earthshell was in negotiations to sell Viumbe to Jobookit

24 for $2.5 million, of which $1 million would be paid up front

25 and the remaining $1.5 million would be a loan, the terms of

26 which were set forth in a Loan Agreement. This loan would

27 be secured by “Collateral,” defined as “[a]ll of the present

28 and future property and assets of [Viumbe],” including

29 Viumbe’s “[d]eposit accounts and accounts receivable” and

30 “all other contract rights or rights to the payment of

31 money.” 

32

33 As negotiations continued, Digital Group Ybrant

34 (“Ybrant”) agreed to buy a $1 million equity stake in

35 Jobookit on the condition that Jobookit hire Ybrant to

36 manage Viumbe’s websites. Jobookit told New Earthshell that

37 Ybrant’s compensation for managing Viumbe’s websites would

38 be 35% of Viumbe’s revenues, which, according to New

39 Earthshell, would be in line with industry norms. In fact,

40 according to the allegations of the complaint, Jobookit’s

41 representation was false. Jobookit agreed that Ybrant would

42 be paid 70% of Viumbe’s revenues until Ybrant had received

43 $1 million, at which point it would receive 50% until two

44 years from the date of the agreement, and 35% thereafter.

45 New Earthshell alleges that it relied on the

46 misrepresentation when it entered into the agreement. 

47

2
1 New Earthshell brought suit against Jobookit,

2 Jobookit’s CEO, and Viumbe for breach of contract, fraud,

3 and breach of the implied covenant of good faith and fair

4 dealing based on Jobookit’s agreement with Ybrant and

5 Jobookit’s statements about it. The district court dismissed

6 all three claims. The court reasoned that New Earthshell

7 (i)had not plausibly pled reasonable reliance on Jobookit’s

8 fraudulent misrepresentation because New Earthshell failed

9 to demand to see the actual documents Jobookit was

10 negotiating with Ybrant, (ii) had not plausibly alleged

11 breach of contract because Viumbe’s revenues are not

12 “Collateral,” and (iii)could not maintain a claim for breach

13 of the implied covenant because New Earthshell’s pleading

14 failed to allege a breach that Jobookit was not complying

15 with the terms of its contract. The district court also

16 awarded Jobookit its attorney’s fees because the agreement

17 provided that the losing party would pay the prevailing

18 party’s attorney’s fees in any litigation related to the

19 Viumbe sale.

20

21 We review the grant of a motion to dismiss de novo,

22 accept as true all factual allegations, and draw all

23 reasonable inferences in favor of the plaintiff. Fink v.

24 Time Warner Cable, 714 F.3d 739, 740-41 (2d Cir. 2013). We

25 typically review a district court’s award of attorney’s fees

26 for abuse of discretion, but when the fee award turns on the

27 proper interpretation of a contract, we review it de novo.

28 Carco Grp., Inc. v. Maconachy, 718 F.3d 72, 79-80 (2d Cir.

29 2013). We conclude that the District Court erred in

30 dismissing the claims.

31

32 1. The District Court dismissed the contract claim

33 because, according to its interpretation of terms of

34 Jobookit’s contract with Ybrant, the payments Viumbe was to

35 make to Ybrant of 70% of Viumbe’s revenues did not impair

36 New Earthshell’s collateral because “revenues” were not

37 within the definition of “Collateral” in the Loan Agreement

38 between New Earthshell and Jobookit. This conclusion was

39 based on a misinterpretation of what Jobookit contracted to

40 have Viumbe pay to Ybrant. In exchange for Ybrant’s

41 services, Viumbe was to pay it a percentage of the

42 advertising revenues it “actually received in connection

43 with operation of [its] Websites.” The revenues Viumbe

44 “actually received” would, upon receipt, become its money.

45 Jobookit contracted that Viumbe would pay a (large) portion

46 of that money to Ybrant, potentially permitting Ybrant to

3
1 recover its $1 million investment before New Earthshell was

2 repaid for its loan.

3

4 The definition of “Collateral” in the Loan Agreement

5 between New Earthshell and Jobookit included, among other

6 things, “present and future property and assets,” “[d]eposit

7 accounts and accounts receivable,” and “all proceeds of . .

8 . any and all of the above” (i.e., proceeds from Viumbe’s

9 other assets). Each of these terms encompassed Viumbe’s

10 money. Though the term “revenues” does not appear in the

11 definition of “Collateral,” it is clear that all of Viumbe’s

12 money, including money it derived from its advertising

13 revenues, fall within the scope of the definition of

14 “Collateral.” The payments Viumbe would make to Ybrant were

15 of money, which was part of the “Collateral,”

16 notwithstanding that the amount of money was to be set by

17 reference to the amount of its revenues. 

18

19 The rest of the Agreement does not render this

20 provision ambiguous. The district court mistakenly concluded

21 that, if Viumbe’s revenues were Collateral, Jobookit’s

22 obligation to preserve that Collateral would prevent Viumbe

23 from paying ordinary business expenditures. But the Loan

24 Agreement explicitly allows Viumbe’s assets to be used in

25 the ordinary course of its business. Joint App’x at 93-94,

26 ¶¶ 7.1, 7.5, 8.1.

27

28 2. The district court dismissed New Earthshell’s fraud

29 claim because it concluded New Earthshell failed to plead

30 reasonable reliance on Jobookit’s alleged

31 misrepresentations. It reasoned that, as a sophisticated

32 party, New Earthshell should have insisted on documentation

33 of the terms of Jobookit’s deal with Ybrant, and that its

34 failure to do so would preclude a jury from finding

35 reasonable reliance. 

36

37 New York courts have sometimes precluded sophisticated

38 parties that failed to exercise reasonable diligence in

39 verifying material representations that were within their

40 power to verify from claiming reasonable reliance on those

41 representations. See HSH Nordbank AG v. UBS AG, 941 N.Y.S.2d

42 59, 66 (App. Div. 1st Dep’t 2012); Global Minerals & Metals

43 Corp. v. Holme, 824 N.Y.S.2d 210, 215 (App. Div. 1st Dep’t

44 2006); see also Lazard Freres & Co. V. Protective Life Ins.

45 Co., 108 F.3d 1531 (2d Cir. 1997). The district court over46 read these cases; they do not stand for the proposition that

47 business corporations may never rely on the representations

4
1 of a counter-party as to facts the plaintiff has no reason

2 to doubt or suspect, so long as more certain means of

3 verification are available.

4

5 Furthermore, New Earthshell discharged any duty to

6 protect itself by inserting appropriate contract language.

7 The Loan Agreement authorized Viumbe to contract for

8 management services like Ybrant’s “in the ordinary course of

9 [its] business.” Joint App’x at 93 ¶ 7.1. It also required

10 Viumbe and Jobookit to “use commercially reasonable efforts

11 to preserve the condition of the Collateral,” Joint App’x at

12 94 ¶ 8.1, and forbade them from “wast[ing] or destroy[ing]

13 the Collateral or any part thereof.” Id. at 93 ¶ 7.4. These

14 provisions prohibit Viumbe from licensing its websites in

15 transactions that depart from the ordinary course of

16 business. In its complaint, New Earthshell alleges that the

17 35/65 revenue split represented by Ybrant was consistent

18 with its historical business practices, but that the 70%

19 deal actually struck was not.

20

21 3. In light of our vacatur of the dismissal of New

22 Earthshell’s claims, we also vacate the dismissal of New

23 Earthshell’s breach of the implied covenant claim and the

24 award of attorney’s fees.

25

26 We therefore VACATE the judgment of the district court

27 and REMAND for further proceedings.

28

29 FOR THE COURT:

30 CATHERINE O’HAGAN WOLFE, CLERK

31

5