Jefferies LLC v. Mountain State Energy Holdings LLC

Opinion

Jefferies LLC v Mountain State Energy Holdings LLC

2026 NY Slip Op 05232

September 3, 2026

Appellate Division, First Department

Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.

This decision is uncorrected and subject to revision before publication in the Official Reports.

Jefferies LLC, Plaintiff-Respondent-Appellant,

v

Mountain State Energy Holdings LLC et al., Defendants-Appellants-Respondents.

Decided and Entered: September 03, 2026

Index No. 650599/25|Appeal No. 6930|Case No. 2025-06664|

Before: Kennedy, J.P., Friedman, Gesmer, Michael, Chan, JJ.

MoloLamken LLP, New York (Eugene A. Sokoloff of counsel), for appellants-respondents.

Herbert Smith Freehills Kramer New York (Scott S. Balber of counsel), for respondent-appellant.

[*1]

Order, Supreme Court, New York County (Anar Rathod Patel, J.), entered September 19, 2025, which, to the extent appealed from as limited by the briefs, denied the branch of defendants' motion to dismiss plaintiff's third cause of action for tortious interference with contract, and granted the branch of defendants' motion to dismiss plaintiff's second cause of action for fraudulent inducement, unanimously modified, on the law, to grant defendants' motion seeking to dismiss the tortious interference cause of action, and otherwise affirmed, without costs.

This action arises out of a proposed transaction in which plaintiff contemplated acquiring, on behalf of its client Hudson Bay Capital Management LP, an equity interest in defendant Mountain State Energy Holdings LLC. To facilitate this proposed transaction, plaintiff and Mountain State entered into a written confidentiality agreement, dated July 11, 2024. The confidentiality agreement contains three provisions that are relevant to this appeal.

First, under section 1 of the confidentiality agreement, Mountain State agreed to furnish plaintiff with nonpublic information regarding its "business, operations, condition (financial or otherwise), personnel, assets, liabilities, results of operations, cash flows or prospects" (the evaluation material) to allow plaintiff to evaluate a possible negotiated transaction involving the acquisition of equity interest in Mountain State. That provision further provided that the evaluation material would exclude information that was already in plaintiff's possession or that was "generally available to the public."

Second, under section 6(a) (the standstill provision), plaintiff agreed to abstain from buying Mountain State shares from any third parties for a one-year period. However, the parties amended this section in October 2024 by providing a limited carve-out to the standstill provision, under which plaintiff could purchase or sell Mountain State shares in an "Eligible Transaction," defined as "a single transaction or series of related transactions" (emphasis added).

Third, pursuant to section 18 (the nonrecourse provision), the parties agreed that nonparties to the confidentiality agreement — "including any past, present or future direct or indirect equity holder, affiliate or representative of" plaintiff or Mountain State — shall have no "liability or other obligation (whether in contract or in tort, in equity or at law, or granted by statute) for any cause of action or other proceeding arising under, out of, in connection with, or related in any manner to [the confidentiality agreement] or its negotiation, preparation, execution, delivery, performance or breach."

[*2]

According to the complaint, after executing the confidentiality agreement, Mountain State granted plaintiff access to a virtual data room containing the evaluation material. Plaintiff maintains that the evaluation material provided by Mountain State contained only information that was clearly in the public domain or already in plaintiff's possession. Nonetheless, on October 23, 2024, shortly after the carve-out went into effect, plaintiff entered into agreements to purchase shares in Mountain State from two third-party sellers who were members of Mountain State: Seix Investment Advisors and DoubleLine Capital LP.

After entering into their agreements with plaintiff, Seix and DoubleLine each delivered, pursuant to Mountain State's LLC agreement, written right-of-first-offer notices to certain other Mountain State members, including defendant Trilogy Capital Management LLC. As relevant here, several days later, during a meeting with Mountain State's chairman, plaintiff took the position that the proposed purchases from Seix and DoubleLine were "related transactions," and therefore permissible under the carve-out, because plaintiff was purchasing these entities' shares for the express purpose of reselling them to Hudson Bay. Mountain State initially concurred but changed its position a few hours later, explaining that after reviewing the confidentiality agreement, it determined that the proposed transaction, which involved two different purchases, did not constitute "a series of related transactions" under the confidentiality agreement's carve-out. Mountain State therefore requested that plaintiff unwind one of the transactions to comply with the confidentiality agreement. Mountain State has since purportedly refused to honor the DoubleLine transaction.

Plaintiff claims that, although Trilogy is not a party to the confidentiality agreement, it caused Mountain State to refuse to recognize or authorize plaintiff's proposed transaction with DoubleLine. Plaintiff alleges, in particular, that Trilogy's executive was copied on all relevant communication between plaintiff and Mountain State, and that during a November 18 call, Trilogy's executive stated that he did not want to "let Hudson Bay or anyone into our [] party" because he had spent a great deal of time working on Mountain State. Since then, plaintiff maintains that Mountain State and Trilogy are demanding a 15% fee to permit the DoubleLine transaction to go forward.

Based on these allegations, plaintiff asserts claims against Mountain State for breach of contract (a claim not at issue on this appeal) and fraudulent inducement, as well as claims against both Mountain State and Trilogy for tortious interference with plaintiff's contract with DoubleLine. Supreme Court, as relevant to this appeal, granted defendants' motion to dismiss the fraudulent inducement claim but denied the motion with respect to the tortious interference claim.

[*3]

Initially, as against Mountain State, Supreme Court should have granted the motion to dismiss the tortious interference cause of action because it is duplicative of plaintiff's breach of contract cause of action. Although plaintiff alleged that Mountain State tortiously interfered with plaintiff's contracts, Mountain State is alleged to have done so solely by intentionally breaching its own contract with plaintiff (see Fora Fin., Advance, LLC v 4 Pillar Consulting, LLC, 236 AD3d 491, 492 [1st Dept 2025]).

The court should have also granted the motion to dismiss the tortious interference cause of action as against Trilogy. The crux of the tortious interference claim against Trilogy is that Trilogy purportedly influenced Mountain State to reject plaintiff's proposed purchase from DoubleLine absent a fee, which, plaintiff contends, amounted to a breach of the confidentiality agreement by Mountain State. Based on these allegations, and contrary to the view of Supreme Court, Trilogy, as a nonparty to the confidentiality agreement, is explicitly protected from liability by the confidentiality agreement's nonrecourse provision because, as pleaded, the tortious interference claim "aris[es] under," "in connection with," and is "related" in some manner to, the agreement and its alleged breach. As a result, given the broad scope of the nonrecourse provision, plaintiff's tortious interference claim against Trilogy must be dismissed (see Iberdrola Energy Projects v Oaktree Capital Mgt. L.P., 231 AD3d 33, 40-41 [1st Dept 2024]).

In opposition, plaintiff argues for the first time on appeal that the nonrecourse provision of the agreement is unenforceable with respect to the tortious interference claim against Trilogy because the complaint alleges that Trilogy "intentionally" interfered with plaintiff's contract with DoubleLine. This argument is unavailing.

[*4]

As a general rule, New York courts "routinely enforce [] liability-limitation provisions, especially when negotiated by sophisticated parties" (Electron Trading, LLC v Morgan Stanley & Co. LLC, 157 AD3d 579, 580 [1st Dept 2018]). Although we have recognized an exception to this general rule in cases where a party's alleged misconduct "smacks of intentional wrongdoing . . . [that is] fraudulent, malicious or prompted by the sinister intention of one acting in bad faith" (id. at 581 [internal quotation marks omitted], quoting Kalisch-Jarcho, Inc. v City of New York, 58 NY2d 377, 384-385 [1983]), "The type of intentional wrongdoing that could render a limitation in [a contract] unenforceable is that which is unrelated to any legitimate economic self-interest" (Devash LLC v German Am. Capital Corp., 104 AD3d 71, 77 [1st Dept 2013], lv denied 21 NY3d 863 [2013] [internal quotation marks omitted]; see also Meridan Capital Partners, Inc. v Fifth Ave. 58/59 Acquisition Co. LP, 60 AD3d 434, 434 [1st Dept 2009]). Thus, where the conduct in question was undertaken "to advance a legitimate economic self-interest," a party is entitled to "rely on the contractual limitation provision," notwithstanding the intentional nature of its actions (see Electron Trading, 157 AD3d at 581 [internal quotation marks omitted]).

In this case, plaintiff has alleged that Trilogy caused Mountain State to refuse to permit the consummation of plaintiff's proposed purchase from DoubleLine absent a fee. It supports this contention by asserting that Trilogy directly communicated to plaintiff its ardent reluctance to permit new entities (such as plaintiff's client) to join Mountain State's membership. But even accepting these allegations as true and drawing all inferences in plaintiff's favor, plaintiff alleges no facts suggesting the kind of bad faith conduct, devoid of any legitimate economic purpose, that would render the nonrecourse provision unenforceable (see Meridan Capital Partners, 60 AD3d at 434). To the contrary, it is plain from the complaint that Trilogy was acting to advance its legitimate economic self-interest, to wit, maintaining control of Mountain State (see Electron Trading, 157 AD3d at 582 [contractual limitation of remedies clause was enforceable where a lender's refusal to approve proposed leases "was intended to maximize the lender's available options and the value of the property and the loan" and therefore "advanced a legitimate economic self-interest"]).

[*5]

Plaintiff's reliance on Banc of Am. Sec. LLC v Solow Bldg. Co. II, L.L.C. (47 AD3d 239 [1st Dept 2007]) does not compel a different result. Indeed, in Solow, we found that the defendant's refusal to do something that it was already obligated to do under the lease unless paid an additional $6 million could be determined by a trier of fact to have been motivated by "an intention to inflict monetary harm" (id. at 250). Here, by contrast, the alleged 15% fee demanded by defendants to obtain their consent for the DoubleLine transaction came in the context of a bona fide dispute over the propriety of the transaction under the confidentiality agreement's carve out. Accordingly, based on the facts alleged, plaintiff failed to sufficiently plead that its tortious interference claim against Trilogy is not barred by the nonrecourse provision.

Finally, the court properly dismissed plaintiff's claim that Mountain State fraudulently induced plaintiff into entering the confidentiality agreement, as that cause of action did not satisfy the pleading requirements (see Chongqing Huansong Indus. [Group] Co. Ltd. v Kinderhook Indus. LLC, 227 AD3d 586, 587 [1st Dept 2024]). Moreover, plaintiff alleges that it was injured because it was "deprived of the opportunities to purchase" Mountain State shares it would have had absent the agreement. However, these damages amounted to lost opportunity, which are unavailable as damages for fraud (see Lama Holding Co. v Smith Barney, 88 NY2d 413, 421 [1996]).

THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.

ENTERED: September 3, 2026