SALLAH v. BGT CONSULTING LLC
ORDER AND OPINION granting in part and denying in part 17 Motion to Dismiss; denying 31 Motion for Hearing. Amended Complaint due by 7/14/2017. Signed by Judge Kenneth A. Marra on 6/30/2017. (ir)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
Case No. 16-81483-CIV-MARRA
JAMES D. SALLAH, not individually
but solely in his capacity as Corporate
Monitor for OM GLOBAL INVESTMENT
FUND LLC and OM GLOBAL LP,
BGT CONSULTING, LLC d/b/a
BGT FUND ADMINISTRATION,
ORDER AND OPINION ON MOTION TO DISMISS
THIS CAUSE is before the Court upon Defendants’ Motion to Dismiss Plaintiff’s
Complaint [DE 17], and Defendant BGT Consulting, LLC’s Request for Hearing on its
Motion to Dismiss [DE 31]. The Court has carefully considered all relevant filings and
is otherwise fully advised in the premises. The parties were granted leave to exceed
the page limitations for their motion and response. No reply was filed.
Background and Factual Allegations
Om Global Investment Fund LLC and OM Global LP1 (collectively, “OM Global”)
was a hedge fund founded, controlled and operated by Gignesh Movalia (“Movalia”) in
late 2009. Complaint (“Compl.”) ¶ 15. On September 27, 2013, the Securities and
Exchange Commission (“SEC”) sued Movalia in a case styled Securities & Exchange
OM Global LP was the continuation of OM Global Investment Fund LLC.
Compl. ¶ 9.
Comm’n v. OM Investment Mgmt. LLC, Gignesh Movalia and Edwin V. Gaw, Case No.
13-CV-23486-Martinez, in the Southern District of Florida. Compl. ¶ 56. The SEC
alleged that Movalia violated federal securities laws, including violations of the
Securities Act of 1933, Rule 10b-5 of the Securities Exchange Act of 1934, the
Investment Advisers Act of 1940, and the Investment Company Act of 1940. Compl. ¶
The Fraud Section of the Criminal Division of the U.S. Department of Justice
and the U.S. Attorney’s Office for the Middle District of Florida also filed criminal
charges against Movalia relating to OM Global. See United States of America v.
Gignesh Movalia, Case No. 8:15-CR-244-T-23 AEP. Compl. ¶ 59. Movalia pled guilty to
one count of adviser’s fraud in violation of 15 U.S.C. § 80b-6. Compl. ¶ 60. Movalia
was sentenced to 18 months in prison, three years of supervised release and he was
ordered to pay $5,394,419 in restitution. Compl. ¶ 61.
This action is brought pursuant to the Agreed Order Granting Plaintiff’s
Unopposed Motion for Appointment of Corporate Monitor dated May 29, 2013, and the
Agreed Order Granting the Corporate Monitor’s Emergency Motion to Expand
Corporate Monitorship over OM Global LP dated August 17, 2013 (collectively, the
“Appointment Orders”), issued by Judge Daryl E. Trawick in the Circuit Court of the
11th Judicial Circuit in and for Miami-Dade County, Florida, in Chirag Amin. v. Gignesh
Movalia and OM Global Investment Fund LLC, Case No. 13-18620 CA 13 (the “Investor
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Action”). The Appointment Orders appointed a Corporate Monitor,2 among other
things, to marshal OM Global’s assets for the benefit of its investors who are currently
owed a significant amount of money. Compl. ¶ 1.
As a “relatively recent law-enforcement innovation,” a corporate “monitor
is an independent third-party, not an employee or agent of the corporation or of the
Government.” Vikramaditya Khanna & Timothy L. Dickinson, The Corporate Monitor:
The New Corporate Czar?, 105 Mich. L. Rev. 1713, 1715 (June 2007); Louis M. Brown,
et al., Standards for Corporate Monitors under Deferred and Non-Prosecution
Agreements, The Legal Audit: Corporate Internal Investigations, § 2:25.60 (August
2016). “Corporate monitors are appointed as part of a negotiated settlement before
judgment between a firm and a governmental enforcement agency. These
settlements are termed Deferred Prosecution Agreements or Non-Prosecution
Agreements. . . The monitor’s range of influence in these agreements may be limited
to only compliance issues or may extend more broadly to many (or all) aspects of the
firm’s operations.” Vikramaditya Khanna & Timothy L. Dickinson, The Corporate
Monitor: The New Corporate Czar?, 105 Mich. L. Rev. 1713, 1714-1716 (June 2007)
(discussing the powers and fiduciary duties of corporate monitors); see, also, Alistaire
Bambach, The SEC in Bankruptcy: Past and Present, 18 Am. Bankr. Inst. L. Rev. 607,
611 (Winter 2010) (“A corporate monitor is an example of a court-appointed
fiduciary, with as much legitimacy as a receiver and bankruptcy trustee.”). “In
general, standards issued by the Department of Justice indicate that corporate
monitors should generally be used only where there is a special need for outside
corporate oversight. For example, the standards point out that ‘it may be
appropriate to use a monitor where a company does not have an effective internal
compliance program, or where it needs to establish necessary internal controls.’
Provisions for corporate monitors in corporate deferred and non-prosecution
agreements, include provisions defining the scope of duties of such monitors . . .”
Louis M. Brown, et al., Standards for Corporate Monitors under Deferred and
Non-Prosecution Agreements, The Legal Audit: Corporate Internal Investigations, §
2:25.60 (August 2016). A few recent cases which have involved the appointment and
use of corporate monitors include United States Commodity Futures Trading Com'n v.
Hunter Wise Commodities, LLC, 2013 WL 718503, at *3 (S.D. Fla. 2013); United States
Commodity Futures Trading Com’n v. International Monetary Metals, Inc., 2016 WL
8256852, at *1 (S.D. Fla. 2016); United States Commodity Futures Trading Com’n v.
Mintco LLC, 2016 WL 3944098, at *3 (S.D. Fla. 2016).
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In this case, the Corporate Monitor (“CM”) seeks to obtain a money judgment
against the hedge fund’s administrator, defendant BGT Consulting, LLC, d/b/a BGT
Fund Administration (“BGT”) for breaches of fiduciary duties, aiding and abetting
breaches of fiduciary duties, and negligence. Compl. ¶ 2. BGT moves to dismiss the
Complaint with prejudice pursuant to Rules of Civil Procedure 12(b)(1) and 12(b)(6).
BGT was the fund administrator for OM Global from 2009 to the CM’s
appointment in 2013, when the CM terminated the engagement. Compl. ¶ 17. OM
Global retained BGT in or around November 2009 to provide ordinary bookkeeping
services, which included the preparation of net asset value statements based upon
information provided by OM Global, including monthly reports, balance sheets,
income statements, and month-end capital reports. Compl. ¶ 18. BGT ceased
providing these types of services in or around the middle of 2011. Compl. ¶ 20. This
occurred when, in 2011, Movalia changed the focus of the fund to solicit investors by
representing he had access to pre-Initial Public Offering (“IPO”) shares of Facebook,
As such, the new services BGT’s began to provide in 2011 were the result of
the shift in OM Global’s investment purpose to secure and offer investors pre-IPO
shares of Facebook. BGT’s Facebook related services were not contemplated and
covered by the initial engagement from 2009, yet BGT agreed to provide the
Facebook went public in May 2012. Compl. ¶ 21.
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Facebook related services.4 Compl. ¶ 22. From 2011 through early 2013, the
Facebook related services that BGT provided to OM Global included:
repeated, independent investigation, inspection, analysis and/or
verification of Movalia’s securing certain pre-IPO shares of Facebook
from third parties;
repeated, independent investigation, inspection, analysis and/or
verification of countless investors’ investments in pre-IPO shares of
Facebook, including in which pre-IPO batches each investor belonged;
repeated, independent investigation into and conclusions of various
“discrepancies,” irregularities, differences and/or unaccounted-for
transactions with countless investors’ investments in pre-IPO shares of
repeated, independent investigation into and questions to Movalia of
various “discrepancies,” irregularities, differences and/or
unaccounted-for transactions with countless investors’ investments in
pre-IPO shares of Facebook;
repeated, independent investigation into and questions to Movalia
regarding investment strategy and decisions, fund reporting, fund
activities, bank and brokerage accounts, and timing of and payments for
repeatedly and independently seeking information from and
corresponding with third-party brokers and banks regarding fund
activities and the ability to access fund operations;
repeatedly and independently computing, adjusting, accounting for,
updating, reconciling, and/or correcting Facebook and investors’
The Engagement Letter expressly states that BGT could provide to OM Global
additional services not contemplated by the Engagement Letter. Compl. ¶ 19. The
Engagement Letter between Movalia and BGT was not attached to the Complaint but
was attached to the Motion to Dismiss. DE 17-1. It is referenced in and central to the
complaint, it is not in dispute, and the CM has no objection to the Court considering
it. DE 26 at 6.
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investment data provided by Movalia;
supervision of and advice on fund activities, such as structuring and
accomplishing the loan of $300,000 from the commingled trading
ConvergEx account to an investor whose investment was at the time
purportedly locked-up in pre-IPO Facebook shares;
repeatedly gaining the Fund’s trust based on BGT’s purported expertise
and skill, and expectation that the Fund would rely on its services;
repeatedly assuming responsibility for all of the above activities; and
corresponded with investors regarding due diligence inquiries or other
Compl. ¶ 23. The CM alleges that such services performed by BGT as to the Facebook
transactions were not mere robotic, administrative, bookkeeping, nondiscretionary
services and functions, but rather were discretionary services and functions in which
BGT owed duties, including fiduciary duties, to the fund. Compl. ¶ 24.
By 2012, Movalia had raised more than $14 million from investors for the sole
purpose of investing their money in pre-IPO Facebook shares which he represented to
investors he had secured. Compl. ¶ 28. Although Movalia accepted at least $14
million from investors for investing in pre-IPO shares of Facebook, he secured no more
than $4,218,396 of pre-IPO shares of Facebook to offer investors during the fund’s
life. Compl. ¶ 29. Therefore, Movalia kept accepting millions of dollars more from
investors, despite not having enough pre-IPO Facebook shares to offer investors.
Compl. ¶ 30. When Facebook began trading post-IPO, Movalia actively traded
Facebook stock and lost millions of dollars when no trading was to occur per Movalia’s
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promise to investors. Compl. ¶¶ 31-32. The Complaint continues to articulate
multiple improper and fraudulent acts performed by Movalia.
BGT asserts that the CM lacks standing to sue for losses allegedly suffered by
the investors and separately moves to dismiss all claims as a matter of law. BGT also
argues that the Complaint is barred by the doctrines of in pari delicto and the
economic loss rule.
STANDARD OF REVIEW
“Because standing is jurisdictional, a dismissal for lack of standing has the
same effect as a dismissal for lack of subject matter jurisdiction under [Rule]
12(b)(1).”• Stalley ex rel. United States v. Orlando Reg'l Healthcare Sys., Inc., 524
F.3d 1229, 1232 (11th Cir. 2008) (alteration added; internal quotation marks and
citation omitted). When a defendant challenges a court's subject matter jurisdiction
under Rule 12(b)(1), the challenge may be either facial or factual. See Lawrence v.
Dunbar, 929 F.2d 1525, 1528-29 (11th Cir. 1990). Like a Rule 12(b)(6) motion, “[a]
‘facial attack’ on the complaint requires the court merely to look and see if plaintiff
has sufficiently alleged a basis of subject matter jurisdiction, and the allegations in
[the] complaint are taken as true for the purposes of the motion.”• Menchaca v.
Chrysler Credit Corp., 613 F.2d 507, 511 (5th Cir. 1980) (alterations added) (citing
Mortensen v. First Fed. Sav. & Loan Assn., 549 F.2d 884, 891 (3d Cir. 1977)). Factual
attacks are different in that they “challenge[ ] the existence of subject matter
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jurisdiction in fact, irrespective of the pleadings, and matters outside of the
pleadings, such as testimony and affidavits, are considered.”• Id. (alteration added).
Defendant makes a facial attack with regard to standing.
Failure to State a Claim
Federal Rule of Civil Procedure 8(a)(2) requires that a complaint provide “a
short and plain statement of the claim showing that the pleader is entitled to
relief.”• Rule 8's pleading standard “does not require ‘detailed factual allegations,’
but it demands more than an unadorned, the-defendant-unlawfully-harmed-me
accusation.”• Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citing Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 555 (2007)). A complaint that provides “labels and
conclusions” or “a formulaic recitation of the elements of a cause of action”•is not
adequate to survive a Rule 12(b)(6) motion to dismiss. Twombly, 550 U.S. at 555.
Rather, “[t]o survive ... a complaint must contain sufficient factual matter, accepted
as true, to ‘state a claim to relief that is plausible on its face.’”• Iqbal, 556 U.S. at
678 (quoting Twombly, 550 U.S. at 570). A facially plausible claim must allege facts
that are more than merely possible. Iqbal, 556 U.S. at 678. Factual allegations that
are “‘merely consistent with’ a defendant's liability” fall short of being facially
plausible. Id. at 678 (quoting Twombly, 550 U.S. at 557). The plausibility standard
“calls for enough fact to raise a reasonable expectation that discovery will reveal
evidence” of the defendant's liability. Twombly, 550 U.S. at 556. But if allegations
are indeed more conclusory than factual, then the court does not have to assume
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their truth. See Mamani v. Berzain, 654 F.3d 1148, 1153-54 (11th Cir. 2011).
BGT argues Plaintiff lacks standing for two reasons. First, BGT asserts Plaintiff
lacks standing to bring suit as a CM because he was not appointed pursuant to an
action brought by the Securities & Exchange Commission, but instead was appointed
by a Florida State Court based on an unopposed motion and subsequent agreed order.
According to BGT, because Plaintiff is not a receiver appointed in a Florida
dissolution action under Fla. Stat. § 60.4492, or appointed in a federal dissolution
action under 15 U.S.C. § 78u(d)(5), the state court's extension of ancillary powers for
equitable relief is improper. BGT cites no authority for the proposition that there is a
legal prohibition barring a state court from appointing a corporate monitor.
By this argument, BGT is essentially requesting the Court review the validity of
the state court's order appointing the corporate monitor, which the Court will not do.
BGT fails to cite any legal authority for its position that the state court order is void
or otherwise not legitimate. The Complaint attaches the Order appointing the CM
and it specifically gives him the power “[t]o pursue, resist and defend all suits,
actions, claims and demands which may now be pending or which may be brought by
or asserted against OM Global.” DE 1-1, ¶ H. It furthermore gives him “all powers,
authorities, rights and privileges heretofore possessed by the managing members of
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OM Global . . .” DE 1-1, ¶ 10. Moreover, the SEC filed a 12 count complaint, styled
Securities & Exchange Comm’n v. OM Investment Mgmt. LLC, Gignesh Movalia and
Edwin V. Gaw, Case No. 13-CV-23486-Martinez, (the “SEC action”), where the CM is
mentioned as being appointed and where defendants are accused of illegal behavior
that was not disclosed to the CM. See, DE 26, Ex. A (SEC’s Complaint, ¶¶ 2-3). On a
facial attack to subject matter jurisdiction, these well-pled allegations must be
accepted as true. Absent controlling or persuasive authority, the Corporate Monitor
has standing to sue BGT on behalf of OM Global. See, supra note 1; see, also, Sallah
v. Fahrenheit Venture Fund LLC, 2014 WL 12629450, at *3 (S.D. Fla. 2014).
BGT’s second argument asserts that the CM lacks standing because the claims
are investor-owned, and he was not an investor and has not been assigned claims by
investors. DE 17 at 7-8. Plaintiff responds that the damages were to the OM Global
hedge fund, and the fact that one of the CM’s duties is to repay the victims for their
investment losses does not change the fact that the entity OM Global suffered
The CM acknowledges that he cannot pursue claims owned directly by the
creditors, but he correctly states that he may bring actions previously owned by the
party in the monitorship for the benefit of creditors. See Freeman v. Dean Witter
Reynolds, Inc., 865 So.2d 543, 550 (Fla. Dist. Ct. App. 2003); Obermaier v. Arnett,
2002 WL 31654535, at *3 (M.D. Fla. 2002) quoting Miller v. Harding, 248 F.3d 1127 (1st
Cir. 2000) (“An equity receiver, like a bankruptcy trustee, has standing for all claims
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that would belong to the entity in receivership, and which would thus benefit its
creditors and investors, but no standing to represent the creditors and investors in
their individual claims.”). Here, the CM’s claims are based on monetary damages
allegedly caused by BGT and incurred by the monitorship entity - OM Global. The
allegations, which must be accepted as true, are:
BGT was the Fund Administrator for OM Global Investment Fund LLC
(also the “Fund” herein), which caused damages to the Fund because it
failed to do its job as discussed below. (Compl. ¶ 10) (emphasis added).
Movalia was losing millions of dollars in the trading accounts, which
ultimately totaled approximately $9 million in net losses to the Fund.
(Compl. ¶ 42) (emphasis added).
BGT failed to do its job and, as a result, the Fund ultimately suffered
millions of dollars in damages. (Compl. ¶ 49) (emphasis added).
BGT had the access, the ability, and the duty to stop the massive losses
suffered by the Fund. Simply put, BGT could have prevented the OM
Global tragedy and the catastrophic damages to the Fund (and
ultimately to investors) had BGT done its job. (Compl. ¶ 63) (emphasis
BGT, as the Fund Administrator, is responsible for the millions of dollars
in losses suffered by the Fund. (Compl. ¶ 64) (emphasis added).
Other allegations in the Complaint also establish that the claims are brought on
behalf of and for the benefit of the entity. See Compl. ¶¶ 13, 73, 82, 86. Nowhere in
the Complaint is there a suggestion that the case is being brought “on behalf of the
investors.” Therefore, the Court rejects BGT’s assertions that the Complaint seeks to
recover damages solely for the benefit of OM Global’s investors, and not OM Global in
whose shoes the CM stands. Accordingly, the Court concludes that the CM has
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standing to pursue this case. Obermaier v. Arnett, 2002 WL 31654535, at *4 (M.D.
Fla. 2002). Having thus disposed of the preliminary matter of standing, the Court
turns to the merits.
Failure to State a Claim
Count I: Breach of Fiduciary Duty
A plaintiff bringing a breach of fiduciary duty5 cause of action must prove: the
existence of a fiduciary duty, a breach of that duty, and damages proximately caused
by the breach. Living Color Enterprises, Inc. v. New Era Aquaculture, Ltd., 2015 WL
1526177, at *6 (S.D. Fla. 2015) citing Silver v. Countrywide Home Loans, Inc., 760 F.
Supp. 2d 1330, 1338 (S.D. Fla. 2011), aff'd, 2012 WL 2052949 (11th Cir.2012);
Crusselle v. Mong, 59 So.3d 1178, 1181 (Fla. Dist. Ct. App. 2011). BGT asserts that
the Complaint fails to plead the existence of a fiduciary duty, as well as fails to
establish that BGT’s actions were the proximate cause of Plaintiff’s damages.
Effectively acknowledging that an express fiduciary relationship between BGT
and OM Global does not exist, Plaintiff asserts that he has sufficiently alleged an
implied fiduciary relationship based on the discretionary services BGT undertook that
A fiduciary owes to its beneficiary the duty to refrain from self-dealing, the
duty of loyalty, the overall duty to not take unfair advantage and to act in the best
interest of the other party, and the duty to disclose material facts.• Capital Bank v.
MVB, Inc., 644 So.2d 515, 520 (Fla. 3d DCA 1994). The fiduciary must act as a prudent
person with reasonable care, skill, and caution.• Fla. Stat. § 736.0804.
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were beyond the scope of the Engagement Letter. “BGT undertook Facebook services
and duties beyond those assumed under the Engagement Letter thereby alleging
‘special circumstances’” that transformed BGT’s role as a non-fiduciary arms-length
fund administrator into a fiduciary with a duty to disclose. See Compl. ¶¶ 18-22.
“An implied fiduciary relationship may be found based on special
circumstances surrounding the transaction and the relationship of the parties, and
may be found when confidence is reposed by one party and a trust accepted by the
other.” Bruhl v. Price WaterhouseCoopers Intern., 2008 WL 899250, at *2 (S.D. Fla.
2008) (Marra, J.)(citations omitted); Maxwell v. First United Bank, 782 So.2d 931,
933-34 (Fla. Dist. Ct. App. 2001); Lanz v. Resolution Trust Corp., 764 F.Supp. 176, 179
(S.D. Fla. 1991) (fiduciary relationship is recognized under Florida law when there is a
showing of dependency by one party and some undertaking by the other party to
advise, counsel and protect that party).
In Capital Bank v. MVB, Inc., 644 So.2d 515 (Fla. Dist. Ct. App. 1994), Anthony
Battaglia, one of his companies, and a subsidiary of his company, MVB, were
customers of Capital Bank. Tellason Products, Inc. was also a customer of the bank.
A loan officer at the bank induced Battaglia, on behalf of MVB, to purchase Tellason's
assets knowing that Tellason was on the verge of bankruptcy and that the equipment
was defective and malfunctioning. After the purchase, the equipment continuously
malfunctioned, resulting in MVB not being able to produce its products timely. MVB
sued Capital Bank for breach of fiduciary duty arguing that the loan officer induced
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Battaglia to purchase Tellason's assets so that the bank would not bear the loss of
Tellason's non-performing loans.
“Special circumstances” in Capital Bank v. MVB, Inc., 644 So.2d 515 (Fla. Dist.
Ct. App. 1994) were found to transform the bank's traditional status as a
non-fiduciary arms-length lender into a fiduciary with a duty to disclose. This
transformation occurred, and Capital Bank was found to have breached its fiduciary
duty, when Capital Bank facilitated a transaction between two of its customers, it
expressly invited a customer's reliance by urging the customer to trust that the bank's
plans would benefit his business, it possessed confidential information about each
customer, and it failed to disclose material information to the customer which failure
resulted in the customer suffering harm. Capital Bank, 644 So.2d at 521.
Similarly, in Barnett Bank of West Florida v. Hooper, 498 So.2d 923 (Fla. 1986),
Dr. Hooper and Mr. Hosner were customers at Barnett Bank. After learning that Mr.
Hosner was possibly involved in a check kiting scheme, a loan officer at the bank
encouraged Dr. Hooper to invest money with Mr. Hosner. As a result, Dr. Hooper
borrowed $90,000.00 from the bank and the proceeds of the loan were deposited into
Mr. Hosner's account. A few days later, Mr. Hosner's check kiting scheme was
confirmed, and as a result of Dr. Hooper's deposit, the bank was able to zero out Mr.
Hosner's account. Without Dr. Hooper's deposit, the bank would have lost $87,000.00.
Dr. Hooper sought cancellation of the $90,000.00 promissory note arguing that he had
established a fiduciary relationship with the bank, and that as a result, the bank had
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a duty to disclose knowledge of Mr. Hosner's fraudulent activity. The Florida Supreme
Court noted that the usual relationship between a bank and its depositor is one of
debtor to creditor, not ordinarily imposing a duty of disclosure upon the bank, . . .” •
Barnett Bank, 498 So.2d at 925 (citations and footnote omitted). However, the
Florida Supreme Court held
where a bank becomes involved in a transaction with a customer with
whom it has established a relationship of trust and confidence, and it is
a transaction from which the bank is likely to benefit at the customer's
expense, the bank may be found to have assumed a duty to disclose
facts material to the transaction, peculiarly within its knowledge, and
not otherwise available to the customer.
Barnett Bank, 498 So.2d at 925.
In a similar case involving a receiver’s claim for breach of fiduciary duty
against a fund administrator, this Court rejected the receiver's argument that he
sufficiently alleged “special circumstances”• to satisfy the stringent standard under
Capital Bank v. MVB, Inc., 644 So.2d 515 (Fla. Dist. Ct. App. 1994). See Court
Appointed Receiver of Lancer Offshore, Inc. v. Citco Group Ltd., 2011 WL 1233106, at
*7-8 (S.D. Fla. 2011) (“Lancer”). In Lancer, this Court rejected the receiver’s
argument that the fund administrator’s role was transformed from a ministerial one
to that of a fiduciary even though he alleged that the fund (i) volunteered to assist
the hedge fund manager in restructuring the funds' holdings; (ii) controlled the
employees who served as directors of the funds, and thus directly influenced the
funds' management, activities, and direction; and (iii) received direct payment tied
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to the inflated NAV of the funds. The Court concluded that special circumstances
were not adequately alleged because it was not alleged that the fund administrator
fostered the fund’s confidence beyond what would be expected pursuant to the
Agreements, or that the funds placed trust and reliance on the fund administrator
beyond the contractual agreements. Lancer at *8 citing Maxwell v. First United Bank,
782 So.2d 931, 933-34 (Fla. Dist. Ct. App. 2001).
Plaintiff urges the Court to find that BGT stepped out of its arms-length
contractual role when “BGT undertook the Facebook duties beyond the scope of the
Engagement Letter, see Compl. ¶¶ 18-22, . . . [and] OM Global placed its trust and
confidence in BGT for the Facebook transactions, and had superior knowledge and
access to all fund financial transactions and activities. See Compl. ¶¶ 23-24, 50, 6872.” DE 26 at 16. As far as alleging that confidence was reposed by BGT and OM
Global accepted and acted upon that trust, the Complaint is lacking specific facts.
The extent of the Complaint’s allegations in this respect are as follows: that BGT
“repeatedly gain[ed] the Fund’s trust based on BGT’s purported expertise and skill,
and expectation that the Fund would rely on its services (Compl. ¶ 23(i)), and that
“OM Global Investment Fund LLC reposed trust and confidence in BGT, and BGT had
domination and influence over OM Global Investment Fund LLC” (Compl. ¶ 69).
Simply stating that OM Global “placed its trust and confidence” in BGT is more
conclusory than factual, and merely reiterates a formulaic recitation of critical
elements that need to be described before the Court takes the extraordinary step of
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transforming a non-fiduciary arms-length relationship into a relationship with
fiduciary responsibilities. As stated in the standard of review, to survive a motion to
dismiss, “a complaint must contain sufficient factual matter, accepted as true, to
‘state a claim to relief that is plausible on its face.’”• Iqbal, 556 U.S. at 678 (quoting
Twombly, 550 U.S. at 570). Factual allegations that are “‘merely consistent with’ a
defendant's liability” fall short of being facially plausible. Id. at 678 (quoting
Twombly, 550 U.S. at 557). When allegations are more conclusory than factual, the
court does not have to assume their truth. See Mamani v. Berzain, 654 F.3d 1148,
1153-54 (11th Cir. 2011).
Here, the CM is seeking to transform a typical non-fiduciary arms-length
relationship into an implied relationship with fiduciary responsibilities. This may be
done,if there are sufficient factual allegations explaining how BGT fostered OM
Global’s confidence and how OM Global placed trust and reliance on BGT. The CM
argues at length that because BGT performed discretionary duties and assumed
responsibilities outside of the Engagement Letter, that the complaint satisfies the
“special circumstances” requirement. See, e.g., DE 26 at 13-16. “The emails from
2011 to 2013, which are summarized in the Complaint . . . will prove that BGT was
providing discretionary services.” DE 26 at 4, 5, 7. Merely providing discretionary
services is insufficient. The cases that have transformed a non-fiduciary relationship
into a fiduciary one are based on factual allegations that indicate, for instance, that
the relationship was created, induced, or encouraged by the defendant, the
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defendant involved itself in the transactions between the plaintiff and another, and
the defendant benefitted from those transactions at the expense of plaintiff. See
Barnett Bank, 498 So.2d at 925, Capital Bank, 644 So.2d at 518-19. There are no such
allegations in the instant complaint, despite the fact that CM states he has years of
emails exchanges between OM Global and BGT.
It is appropriate to dismiss a count in a complaint if no construction of the
factual allegations support the cause of action. Executive 100, Inc. v. Martin County,
922 F.2d 1536 (11th Cir. 1991). In this case, there are no factual allegations that
support the suggestion that OM Global’s and BGT’s newly fostered relationship in 2011
was created, induced, or encouraged by BGT, or that BGT involved itself in
transactions where BGT benefitted from those transactions at the expense of OM
Global. The CM will be given another opportunity to attempt to allege sufficient
facts to support his claim of a breach of an implied fiduciary duty. Accordingly, the
motion to dismiss Count I will be granted without prejudice.
BGT argues that Plaintiff does not allege proximate causation between BGT’s
alleged misconduct and damages to OM Global. BGT also argues that it did not know
about Mr. Movalia’s misconduct until well after-the-fact and could not have stopped
the misconduct, so BGT could not have proximately caused damages. Plaintiff
correctly responds that a clear reading of paragraphs 49, 52, and 73 show sufficient
allegations that BGT’s misconduct proximately damaged OM Global. Moreover when
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BGT learned of Movalia’s wrongful conduct goes beyond the four corners of the
complaint and cannot be considered on a motion to dismiss.
Count II: Aiding and Abetting Breach of Fiduciary Duty
A claim for aiding and abetting a breach of fiduciary duty requires: (1) a
fiduciary duty on the part of the primary wrongdoer (in this case, Mr. Movalia); (2) a
breach of this fiduciary duty; (3) knowledge of the breach by the alleged aider and
abettor; and (4) the aider and abettor's substantial assistance or encouragement of
the wrongdoing. Lancer at *9 citing In re Caribbean K Line, Ltd., 288 B.R. 908, 919
(S.D. Fla. 2002); AmeriFirst Bank v. Bomar, 757 F.Supp. 1365, 1380 (S.D. Fla. 1991).
To satisfy the substantial assistance element, a plaintiff must allege (1) recklessness
and a duty to disclose and/or (2) conscious intent. Lancer at *9 citing Woods v.
Barnett Bank of Ft. Lauderdale, 765 F.2d 1004, 1010 (11th Cir. 1985); Living Color
Enterprises, Inc. v. New Era Aquaculture, Ltd., 2015 WL 1526177, at *7 (S.D. Fla.
The first two elements - a fiduciary duty owed by the primary wrongdoer and a
breach of same - are not disputed. What is disputed are the third and fourth
elements of the claim, knowledge and substantial assistance by BGT.
Regarding the knowledge element, BGT argues that the Complaint contains no
individualized or specific allegations suggesting that BGT had actual knowledge of any
misrepresentations made by Movalia to investors. This is correct. The Complaint
merely alleges in conclusory fashion that “BGT knew of” Movalia’s breaches of
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fiduciary duties, without any further elaboration to support this allegation of BGT’s
knowledge. See Compl. ¶ 79.
The question of substantial assistance requires an analysis of the kind of
assistance BGT allegedly offered to Movalia. Underlying the “substantial assistance”
prong is a single scienter requirement that varies on a sliding scale from
“recklessness”• to “conscious intent.”• Court Appointed Receiver of Lancer Offshore,
Inc. v. Citco Group Ltd., 2008 WL 926513, at *6 (S.D. Fla. 2008) citing Abbott v.
Equity Group, Inc., 2 F.3d 613, 621 (5th Cir. 1993). When no duty of disclosure is
alleged, an alleged aider-abettor may be found liable only if scienter of the high
“conscious intent” variety can be shown. Id. citing Woodward v. Metro Bank of
Dallas, 522 F.2d 84, 97 (5th Cir. 1975). If it is alleged that a defendant has a duty to
disclose, liability could be imposed if he acts with a lesser degree of scienter. Woods
v. Barnett Bank of Ft. Lauderdale, 765 F.2d 1004, 1010 (11th Cir. 1985).
BGT argues that the CM’s allegation that it had a non-contractual duty to
disclose Movalia’s fraud to investors is a bare legal conclusion. The Court agrees,
especially given that the Court previously concluded that the allegations are
insufficient to establish a fiduciary relationship between OM Global and BGT.
Accordingly, the Court will evaluate this count solely on the basis of whether it
alleges “high conscious intent” and a “conscious and specific motivation”•to aid the
fraud. Court Appointed Receiver of Lancer Offshore, Inc. v. Citco Group Ltd., 2008
WL 926513, at *6 (S.D. Fla. 2008) citing Schatz v. Rosenberg, 943 F.2d 485, 496 (4th
Page 20 of 25
Cir.1991); Abell v. Potomac Ins. Co., 858 F.2d 1104, 1126-27 (5th Cir. 1988); In re
Enron Corp. Securities, Derivative & “ERISA” Litigation, MDL No. 1446, 2005 WL
5784354, *28 (S.D. Tex. Feb.16, 2005).
High Conscious Intent
The CM refers to paragraph 79 again as containing allegations sufficient to
establish that BGT acted with conscious intent. However, the Court just concluded
that this paragraph merely alleges in conclusory fashion that “BGT knew of” Movalia’s
breaches of fiduciary duties, without any further elaboration to support this
allegation. The Court finds that this allegation fails to allege the requisite degree of
scienter sufficiently. Moreover, red flags or aroused suspicions do not constitute
actual awareness of one's role in a fraudulent scheme. Bruhl, 2007 WL 983263, at
*10. Furthermore, when no duty to disclose exists, “allegations that a defendant
knew of the wrongdoing and did not act fail to state an aiding and abetting claim.”•
Schatz, 943 F.2d at 496. Therefore, for having failed to adequately allege the
elements of knowledge or substantial assistance on the part of BGT as required by the
aiding and abetting cause of action, the Court will grant the motion to dismiss Counts
II without prejudice.
Count III: Negligence
“To succeed on a negligence claim in Florida, Plaintiff must ‘show that the
defendant owed a duty of care to the plaintiff, that the defendant breached the
duty, that the breach caused plaintiff's injury, and that damages are owed.’”• Miles
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v. Naval Aviation Museum Foundation, Inc., 289 F.3d 715, 722 (11th Cir. 2002) citing
Ewing v. Sellinger, 758 So.2d 1196, 1197 (Fla. Dist. Ct. App. 2000). BGT argues that
the Complaint fails to allege a duty owed by BGT to OM Global, that it fails to allege
a breach of any duty allegedly owed by BGT, and that the Engagement Letter
precludes the negligence count. The Court disagrees and finds that the Complaint
sufficiently alleges that as the Fund Administrator, BGT had duties of care to
administer the Fund in accordance with the purpose of the Fund and investors’
investments (¶ 84), that BGT breached those duties when it knew or should have
known that Movalia was committing all sorts of fraud but failed to disclose anything
to anyone (¶ 85), and that as a direct and proximate result of such failure, OM Global
suffered damages. This is sufficient.
Moreover, the Engagement Letter does not preclude the negligence count,
because the Complaint clearly alleges that BGT’s misconduct was separate and apart
from, and thus not covered by or founded upon the Engagement letter. Compl. ¶¶
18-22. Therefore, the Engagement Letter is not a basis for dismissing the negligence
In Pari Delicto
Next, BGT argues that all claims fail because of the defense of in pari delicto.6
The Latin phrase “in pari delicto” means “of equal fault .” Perma Life
Mufflers, Inc. v. Int'l Parts Corp., 392 U.S. 134, 135 (1968). “This common law
defense “derives from the Latin, in pari delicto potior est conditio defendentis: ‘In a
case of equal or mutual fault ... the position of the [defending] party ... is the better
Page 22 of 25
Under this doctrine, a plaintiff who has participated in the wrongdoing may not
recover damages resulting from the wrongdoing. Official Comm. of Unsecured
Creditors of PSA, Inc. v. Edwards, 437 F.3d 1145, 1152 (11th Cir. 2006). BGT
contends that pursuant to the equitable doctrine of in pari delicto, Mr. Movalia’s
fraud cannot be separated from the acts of the Fund and must be imputed to OM
Global and the CM.
In pari delicto is an affirmative defense requiring proof of facts by the
defendant; therefore, it is typically not appropriate for Rule 12(b)(6) dismissal.
Pearlman v. Alexis, No. 09-20865, 2009 WL 3161830, at *3 (S.D. Fla. 2009); Banco
Industrial de Venezuela, C.A. v. Credit Suisse, 99 F.3d 1045, 1050 (11th Cir. 1996).
Moreover, just because “a receiver receives his or her claims from the entities in
receivership, a receiver does not always inherit the sins of his predecessors.”•
Freeman v. Dean Witter Reynolds, Inc., 865 So.2d 543, 550 (Fla. Dist. Ct. App. 2003).
A receiver may bring certain claims “that would be barred by the defense of in pari
delicto if pursued by the corporation that was placed in receivership.”• Id.
Specifically, a corporation which has been “cleansed” through receivership “may
bring claims directly against the principals or the recipients of fraudulent transfers of
corporate funds to recover assets rightfully belonging to the corporation and taken
one.’” Id. quoting Bateman Eichler, Hill Richards, Inc. v. Berner, 472 U.S. 299 (1985).
The doctrine of in pari delicto is based on the policy that “courts should not lend
their good offices to mediating disputes among wrongdoers” and “denying judicial
relief to an admitted wrongdoer is an effective means of deterring illegality.” Id.
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prior to the receivership.”• Id. at 551; Sallah ex rel. MRT LLC v. Worldwide Clearing
LLC, 860 F. Supp. 2d 1329, 1336 (S.D. Fla. 2011).The Court rejects this defense as a
basis for dismissal at this stage of the proceedings.
BGT’s final argument is that the Complaint must be dismissed because it is
barred by the economic loss rule. However the economic loss rule is dependent on a
breach of contract theory. Tiara Condo Ass’n Inc. v. Marsh & McClennan Companies,
Inc., 110 So.3d 399, 407 (Fla. 2013). Here, Plaintiff has alleged that BGT’s
misconduct was separate and apart, and thus not covered by or founded upon, the
Engagement Letter, but rather imposed by law. Accordingly, this argument is
Therefore, in accordance with the conclusions reached herein, it is hereby
ORDERED AND ADJUDGED that Defendants’ Motion to Dismiss Plaintiff’s
Complaint [DE 17] is granted in part and denied in part. Counts I and II are dismissed
without prejudice. Count III is not dismissed. It is further
ORDERED AND ADJUDGED that Defendant BGT Consulting, LLC’s Request for
Hearing on its Motion to Dismiss [DE 31] is denied.
Federal Rule of Civil Procedure 15(a) provides that leave to amend "shall be
freely granted when justice so requires." Therefore, in accordance with the usual
practice upon granting a motion to dismiss, if the CM believes, in good faith, that he
can make factual allegations that support Counts I or II as discussed herein, he may
file an Amended Complaint on or before July 14, 2017. Otherwise, this case should
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proceed on the single count of negligence.
DONE AND ORDERED in Chambers at West Palm Beach, Palm Beach County,
Florida, this 29th day of June, 2017.
KENNETH A. MARRA
United States District Judge
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