Marino et al v. Grupo Mundial Tenedora, S.A. et al

Filing 48

OPINION: Based upon the conclusions set forth above, Defendants' motion is granted and the SAC is dismissed as to Belnovo and GM. The Plaintiffs are granted leave to replead within 20 days. (Signed by Judge Robert W. Sweet on 8/25/2011) (jfe)

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

-----x
LUIS MARINO and GUSTAVO SERPA/
Plaintif

10 Civ. 4126

-against-

OPINION

GRUPO MUNDIAL TENEDORA/ S.A.!
BELNOVO/ S.A.! GLOBAL PLUS+
INVESTMENT MANAGEMENT LLC/ and
GPIM HOLDINGS/ INC./
Defendants.

- -x
A P PEA RAN C E S:

YESKOO/ HOGAN & TAMLYN LLP
909 Third Avenue! 28th Floor
New York/ NY 10022
By: Stephen Hogan! Esq.
Attorneys for Defendants
CURTIS/ MALLET PREVOST/ COLT and MOSLE LLP
101 Park Avenue
New York/ NY 10178
By: Theresa Ann Foudy/ Esq.
Brian M. White/ Esq.

Sweet, D.J.

Defendants Belnovo, B.A.
Tenedora, B.A.

("GM")

("Belnovo") and Grupo Mundial

(collectively, the "Defendants") have

moved pursuant to Federal Rules of Civil Procedure 9(b} and
12(b) (6) to dismiss the Second Amended Complaint ("SAC")l of
plaintiffs Luis Marino ("Marino") and Gustavo Serpa ("Serpa")
(collectively, the "Plaintiffs") for failure to plead fraud with
particularity and failure to state a claim.

Upon the

conclusions set forth below, Defendants' motion to dismiss the
SAC as to GM and Belnovo is granted, and the Plaintiffs are
granted leave to replead within twenty days.

Prior Proceedings

This action was commenced by the Plaintiffs on May 19,
2010.

The Amended Complaint ("AC") was filed on June 2, 2010,

and the SAC was filed on April 5, 2011.

On September 7, 2010, Defendants GPIM Holdings,

Inc.

("GPIM Holdings") and Global Plus+ Investment Management LLC

1
The SAC, filed as set forth, does not differ from the Amended Complaint
as to these Defendants and the motion is deemed to be directed to the SAC,
the latter filed pleading.

1

("GPIM") moved to dismiss the AC, a motion which was denied in
part and granted in party by the opinion of March 17, 2011 (the
"March 17 Opinion").

Plaintiffs filed a motion to file a Second

Amended Complaint on October 1, 2010, which was granted in the
March 17 Opinion.

The allegations of the SAC as described in the March
17 Opinion are repeated in part as relevant to the issue
presented by the instant motion.

According to the Second Amended Complaint, Plaintiffs
were employees of Pali Capital

("Pali"), who decided together

with Pali to form GPIM in order to manage Pali's investment
funds.

(SAC

~

13.)

The parties entered into a Limited

Liability Company Agreement (the "LLC Agreement") in January of
2008 for that purpose.

Id.

~

16.)

By the LLC Agreement,

Belnovo, Pali Holdings Asset Management LLC (a wholly-owned
subsidiary of Pali Capital, also denoted "Pali"), and the
Plaintiffs became members in GPIM.

The voting interests in GPIM

were split two ways: 72.5% for Pali and 27.5% for Belnovo.
LLC Agreement

§

4.1., Schedule A)

divided four ways:

Id.;

The economic interests were

Belnovo maintained the same 27.5% interest

that it had for votingi but Pali's 72.5% interest was split
2

among Pali (21.75%), Marino (25.375%), and Serpa (25.375%).
(SAC

~

16; LLC Agreement

§

4.1, Schedule A.)

GPIM was to be managed by a seven-member "Board of
Managers," consisting of four managers appointed by Pali, two by
Bel novo , and one by the "Senior Managing Director," who was
Marino.

(LLC Agreement

§§

3.2(a), 3.6(b).)

Serpa was named a

"Managing Director" and the Senior Managing Director's nominee
to the Board of Managers.

Id.

§§

3.2(a), 3.6(c).)

In terms of

capital contributions, Belnovo contributed $1.5 million; Pali
contributed certain costs, goodwill, and services; and Marino
and Serpa contributed nothing.

See id.

§

5.2.)

The LLC Agreement specified that the Managing
Directors (namely, Plaintiffs)

"shall owe to the Members duties

of loyalty and due care of the type owed by the officers of a
corporation to such corporation and its stockholders under the
laws

Id.

the State of Delaware."

§§

3.5, 3.6(c).)

In

contrast, with respect to Members, the LLC Agreement stated:

No Member, including any Manager or Managing Director
in its capacity as such, shall have any liability
under this Agreement or under the [Delaware Limited
Liability Company] Act except as provided herein or as
required by the Act.
. i provided, however, that
the liability of a Member shall not be
iminated or
3

limited if a judgment or other final adjudication
adverse to such Member establishes (i) that its acts
were committed in bad faith or were the result of
active or deliberate dishonesty or (ii) that such
Member personally gained in fact a financial profit or
other advantage to which such Member was not entitled.

(Id.

§

4.3.)

The LLC Agreement contained specific provisions
regarding the transfer of membership interests.

In particular,

it stated that each of Pali and Belnovo could transfer its own
respective interest at any time to an "Affiliate."

Id.

§

7.1.)

If either Pali or Belnovo wished to transfer its interest other
than to its own affiliate, it had to first give the other a
right of first of

( "ROFO") .

Id.

§

7.2.)

Under Section

7.3(a), if Belnovo failed to exercise its ROFO after receiving
notice that Pali desired to sell its interest, Pali was given
the authority to approve a sale of 100% of the membership
interests and force the other Members (namely, Belnovo and
Plaintiffs) to sell their interests on the same terms (a
"Required Sale") .

(Id.

§

7.3(a).)

The LLC Agreement contained certa

conditions

regarding a "Required Sale" and specified that "each Member
hereby waives all dissenters' rights, apprai
4

rights, approval

rights or other similar rights in connection with a Required
Sale to the maximum extent permitted by law."

(rd.

7.3(a).)

§

The SAC alleges that, during 2008, GM had invested $20
million in Pali, but then "threatened to sue" Pali because Pali
had failed to disclose material information before the
investment was made.

(SAC , , 24 - 2 6 . )

"Upon information and

lief," GM "desired to acquire total control of GPIM" and Pali
"agreed to cede its membership interests
Id. , 28.)

GPIM" to appease GM.

Thus, "upon information and belief,"

Belnovo agreed to trans

i and

GPIM to a GM-owned subsidiary at less

than fair value in an act of "

f-dealing."

Id. , 29.)

According to the SAC, in order to avoid any methods of
fair valuation, Pali and Belnovo "designed a scheme whereby
Plaintiffs would be induced to make a below market offer at
terms established by Defendants, which Defendants could then use
as the 'valuation' of the company for their own self dealing
acquisition."

(Id. , 31.)

In particular, at a meeting of the

GPIM Board on January 7, 2009, the "GM representatives"

(Rodrigo

Diaz, Executive Vice President of GM, and Juan Carlos Barrera)
legedly informed Plaintiffs that GM had decided not to invest
any more money in GPIM and suggested that Plaintiffs acquire
5

Pali's interest themselves.

Id. ~ 32.)

meeting on January 16, 2009, the "Board"
Schenk, CEO

At a subsequent
(Diaz, Barrera, Joseph

Pali, John Mullin, CFO of Pali, Tricia Pessola,

Pali Compliance Officer, and Derrell Janey, Pali Executive Vice
President), informed Plaintiffs that Pali and GM had "decided to
exit the business and divest themselves of ownership of GPIM."
~~

32-33.)

The "Board" asked Plaintif

to prepare an

offer to acquire GPIM and told them that it need not contain a
significant cash component and that, if Plaintiffs did not
acquire GPIM, GPIM would be dissolved.

Id.

The SAC alleges,

"on information and belief," that these statements were "utter
falsehoods" designed to "engineer a low offer from Plaintiffs so
that

[GM] could buy the interests of [Pali] and plaintiffs at

that price" and that in fact "[n]

ther Pali .

. nor Belnovo

had any intention of selling their membership interests in GPIM
to plaintiffs at any price because they had already agreed to
transfer their interest to [GM's] subsidiary established to
accomplish their scheme."

Id. ~ 34.)

By a letter dated January 26, 2009, an attorney
representing Plaintiffs forwarded to GPIM's Board Plaintiffs'
offer to purchase GPIM.

letter and attached proposal stated

that it was intended to address the requirements outlined during
6

the January 16, 2009 Board meeting by Joseph A. Schenk, whom the
SAC identifies as a Pali Board representative (Id.

~

32).

proposal states that Plaintiffs would purchase for $1

The

and the

assumption of GPIM's operating liabilities accruing on and
the closing

er

all the assets of GPIM plus certain additional

assets of Pali and Mundial Asset Management.

The SAC alleges that after Plaintiffs refused to
resign, they were fired.

~~

Id.

rejected Plaintiff's offer.

(Id.

35-36.)
~

The GPIM Board

36.)

Pali and Belnovo then sold their interests to GPIM
Holdings, a wholly-owned subsidiary of GM, for $1,000 plus
assumption of all liabil

ies.

Id.

~

37.)

By letters dated

February 11, 2009, Pali issued notices to all three

Belnovo,

Marino, and Serpa, informing them that Pali, following the offer
by GPIM Holdings to purchase GPIM and Belnovo's

lure to

exercise its ROFO, was exercising its right to force Belnovo and
Plaintiffs to sell their membership interests to GPIM Holdings
in a "Required
Agreement.

e" pursuant to Section 7.3 of the LLC

Plaintif

assert that Defendants made no "effort to

secure a fair price for GPIM" nor to "appraise the
value of the business."

(Id.

~

38.)
7

r market

The SAC asserts the following three claims for relief
against

novo and GM.

First, Plaintiffs allege that

novo

breached a fiduciary duty not to sell GPIM at less than fair
market value.

(Id.

~~

SO-53.)

Second,

aintiffs allege that

Belnovo and GM conspired "to transfer GPIM to GPIM Holdings at
an unfair price."

Id.

~~

54-57.)

Third,

aintiffs allege

that GM aided and abetted Belnovo's breach of fiduciary duty by
establishing GPIM Holdings to purchase GPIM and by "exercising
its financial power" over Pali to "execute a scheme to sell GPIM
. at an unfairly low price."

Id.

~~

58-63.)

The SAC concludes that the Plaintiffs were thus each
harmed "by not less than $2,000,000."

instant motion was marked

(Id.

~~

53, 57, 63.)

ly submitted on April

27, 2011.

The Appropriate Standards

Federal Rule of Civil Procedure 9(b) requires that,
"in alleging fraud or mistake, a party must state with
particularity the circumstances constituting fraud or mistake."
8

Fed. R. Civ. P. 9(b).

The concerns animating Rule 9(b) are (1)

to provide a defendant with fair notice of the claims against
it;

(2) to protect a defendant from harm to its reputation or

goodwill by unfounded allegations of fraud; and (3) to reduce
the number of strike suits. See DiVittorio v. Equidyne
Extractive Indus., Inc., 822 F.2d 1242, 1247 (2d Cir. 1987).

To avoid speculative and conclusory claims and thereby
comply with Rule 9(b), the Second Circuit has held that Rule
9(b) requires that a party "(1) specify the statements that the
Plaintiff contends were fraudulent,

(2) identify the speaker,

(3) state where and when the statements were made, and (4)
explain why the statements were fraudulent."
355 F.3d 164, 170 (2d Cir. 2004)

Rombach v. Chang,

(quoting Mills v. Polar

Molecular, 12 f.3d 1170, 1175 (2d Cir. 1994)).

"'The requisite

'strong inference' of fraud may be established either by:

(a)

alleging facts to show that defendants had both motive and
opportunity to commit fraud, or (b) alleging facts that
constitute strong circumstantial evidence of conscious
misbehavior or recklessness.'11 Lerner v. Fleet Bank, N.A., 459
F.3d 273, 290-91 (2d Cir. 2006)

(quoting Shields v. City Trust

Bancorp, Inc., 25 F.3d 1124, 1128 (2d Cir. 1994)).

9

This rule applies to all claims that sound in fraud,
as determined by the wording and imputations of the complaint,
regardless of the label used in the pleading.

See Rombach, 355

F.3d at 172 (applying Rule 9(b) where "the wording and
imputations of the complaint [were] classically associated with
fraud")

i

Apace Commc'ns Ltd. v. Burke, 522 F. Supp. 2d 509, 514

(W.D.N.Y. 2007)

(applying Rule 9(b}'s pleading requirements

where claims were based on allegations of fraud, although not
"denominated as fraud claims") .

The SAC

leges that GM and Pali "engineer [ed] a plan

to transfer GPIM to GM's subsidiary GPIM Holdings at an unfair
price"

(SAC

~

29)

i

"Defendants agreed to avoid all methods of

valuation that would have resulted in a fair value for the
transaction" and then "designed a scheme whereby Plaintiffs
would be induced to make a below market offer, which Defendants
could then use as the 'valuation' of the company for their own
self-dealing acquisition"

id. ~ 31)

i

the Plaintiffs were

induced to make a low offer by "utter falsehoods" stated by Pali
and/or GM (id.

~~

33-34)

i

Belnovo "acted in bad

deliberate dishonesty and with willful misconduct"
and GM aided and abetted the actions

10

th, with
(id. ~ 52)

Belnovo by "knowingly

i

participat[ing] in the scheme to defraud plaintiffs by acquiring
GPIM's assets [at] less than fair value"

id. ~ 62).

These allegations sound in fraud and the pleading
requirements of Rule 9(b) are applicable.

See DeBlasio v.

_M_e_r_r_i_l_l ~_____& Co_.~_I_n_c . , No. 07 Civ. 318, 2009 U.S. Dist.
__
___ _
__
LEXIS 64848, at *34

(S.D.N.Y. July 27, 2009)

(claims for breach

of fiduciary duty and aiding and abetting breach of fiduciary
duty that sound in fraud must meet Rule 9(b)) i Pacific Elec.
----------------------------~-------------

, No. 03 Civ. 9623, 2005

U.S. Dist. LEXIS 3811, at *44-*45 (S.D.N.Y. 2005)

(finding

" [b]oth counts [for breach of fiduciary duties and aiding and
abetting breach of fiduciary duties]
breached

ir fiduciary duties to

misrepresentations to

aintiffs.

state that Defendants
aintiffs by making material

These claims sound in fraud

and must meet the heightened pleading standard of

e 9 (b) .")

(internal quotation marks and citation omitted) .

The Rule 12(b) standard set forth in the March 17
Opinion, slip op. at 7-8, is applicable

The Amended Complaint Fails To State a Claim
For Breach Of Fiduciary Duty Against Belnovo

11

As this case

ses under the diversity jurisdiction

of a federal court sitting in New York, New York's conflict of
law rules apply to PI

iffs' claims.

See Klaxon Co. v.

Stentor Elec. Mfg. Co., 313 U.S. 487, 496 (1941).
applies the internal

New York

rs doctrine to claims for breach of

fiduciary duty and, thus, applies the law of the state of
incorporation to such claims.

See Walton v. Morgan Stanley &

Co., Inc., 623 F.2d 796, 798 n.3

(2d Cir. 1980)

choice-of-law rules of New York dictate
state of incorporation governs an

May 8, 2008)

the law of the

legation of breach of

fiduciary duty owed to a corporation")
No. 07 Civ. 1001, 2008 U.S.

~that

(noting that the

i

Steinberg v. Sherman,

st. LEXIS 37367, at *10 (S.D.N.Y.

("For breach of fiduciary duty

aims, New York

applies the law of the state of incorporation.")
623 F.2d at 798 n.3)

i

(citing Walton,

In re Hydrogen, LLC, No. 08-14139, Adv.

Pro. No. 09-01142, 2010 Bankr. LEXIS 1106, at *12
S.D.N.Y. Apr. 20, 2010)

(Bankr.

(collecting cases and applying rule to

limited liability company).

GPIM is a Delaware limited

liability company and, therefore, Delaware law governs the
fiduciary duty claim asserted here.

Under Delaware law, the elements of a claim for breach
fiduciary duty include (i) the existence of a fiduciary duty
12

and (ii) a breach of that duty.

See York Linings v. Roach, No.

16622-NC, 1999 WL 608850, at *2 (Del. Ch. July 28, 1999); Heller
v. Kiernan, No. Civ. A. 1484-K, 2002 WL 385545, at *3
Feb. 27, 2002), aff'd, 806 A.2d 164

(Del. 2002).

(Del. Ch.

Here,

Plaintiffs claim Belnovo breached a fiduciary duty "not to sell
GPIM at less than fair market value."

(SAC

~

51.)

However,

Delaware Law would recognize no such fiduciary duty by Belnovo
on these facts, especially in light of the LLC Agreement's
specific provisions in this regard.

The Delaware Limited Liability Company Act allows an
LLC agreement to alter common law fiduciary duty rules by
restricting, expanding, or eliminating LLC members' or managers'
fiduciary duties.
(2009).

See Del. Code Ann. tit. 6,

The relevant provision states:

§

18-1101(c)

"To the extent that, at

law or in equity, a member or manager or other person has duties
(including fiduciary duties) to a limited liability company or
to another member or manager or to another person that is a
party to or is otherwise bound by a limited liability company
agreement, the member's or manager's or other person's duties
may be expanded or restricted or eliminated by provisions in the
limited liability company agreement; provided, that the limited

13

liability company agreement may not eliminate the implied
contractual covenant of good faith and fair dealing."

Id.

policy of the Delaware Act is "to give maximum
to

principle of freedom of contract and to the

enforceability
18-1101(b)

i

limited liability company agreements."
f Atochem N. Am.

291 (Del. 1999)

Id.

§

Inc. v. Jaffari, 727 A.2d 286,

("The basic approach of the Delaware Act is to

provide members with broad discretion in drafting the
Agreement"); see also In re S. Canaan Cellular Invs., LLC, 427
B.R. 85, 100 01 (Bankr. E.D. Pa. 2010)

("[Delaware] law permits

the LLC's operating agreement to define the duties (including
fiduciary duties) owed to
or other parties to the

entity by its members, managers,
."), aff'd in part and rev'd in

part by 2010 WL 3306907 (E.D. Pa. Aug. 16, 2010); Douzinas v.
Am. Bureau of Shipping, Inc., 888 A.2d 1146, 1149, 1152 (Del.
Ch. 2006)

(finding that in the context

frequently impossible to decide fiduci
close examination and interpretation of

an LLC, "it is
duty claims without
governing instrument

of the entity" and noting that "this court's duty is to respect
the contract freely entered into by all members") .

14

Here, the LLC Agreement contained a provision allowing
either Pali or Belnovo to force Plaintiffs to sell their
membership
Sale."

sts under certain circumstances in a ftRequired

Although the SAC alleges that Pali and Belnovo allegedly

designed a scheme to avoid appraising the fair value of the
business, there is no requirement
Sale" under the Agreement.

value for a ftRequired

In addition, the LLC Agreement

specifies that fteach Member hereby waives all dissenters'
rights, appraisal rights, approval rights or other similar
rights

connection with a Required Sale to the maximum extent

permitted by law.

If

(LLC Agreement

§

7.3 (a) .)

In addition, minority members of an LLC do not owe
fiduciary duties to other members.

See In re S. Canaan, 427

B.R. at 102-03 (ft[D]elaware common law does not impose fiduciary
and other related duties to members of LLCs who are neither
managers nor controlling members. If) ; Kuroda v. SPJS Holdings,
L.L.C., No. 4030-CC, 2010 WL 925853, at *7 n.28
16, 2010)

(Del. Ch. Mar.

(ftTellingly, defendants have not provided a single

tation or reference to a Delaware statute or case that imposes
fiduciary duties on non-managing or non-cont
an LLC.

If

)

i

ling members of

Kelly v. Blum, No. 4516-VCP, 2010 Del. Ch. LEXIS 31,

at *3 (Del. Ch. Feb 24, 2010)

(ft [E]ven though contracting
15

parties to an LLC agreement have the freedom to expand,
restrict, or eliminate fiduciary duties owed by managers to the
LLC and its members and by members to each other, in the absence
of a provision explicitly altering such duties, an LLC's
managers and controlling members in a manager-managed LLC owe
the traditional fiduciary duties that directors and controlling
shareholders in a corporation would. H) .

Belnovo owned 27.3% of GPIM, possessed 27.5% voting
interests, and was not a manager or a controlling member.

See

SAC ~ 16.)

The Plaintiffs concede that, even in the absence of
contractual provisions eliminating fiduciary duties, controlling
members of an LLC owe fiduciary duties to other members and that
Belnovo owned only 27.5% of the LLC.

See PIs. Mem. 11 12.)

Plaintiffs claim that Belnovo can nonetheless be viewed as
"controlling,H because it allegedly acted in concert with Pali.
Plaintiffs allege that "Pali Holdings AM and Belnovo, acting in
concert, were the controlling members of GPIM, accounting for
100% of the voting interest in GPIM.

As such they owed

plaintiffs, the other members of GPIM, fiduciary duties
(SAC

~

29.)

However, Plaintiffs' sole support for that
16

H

assertion, Kelly v. Blum, 2010 Del. Ch. LEXIS 31,

(see PIs. Mem.

at 11-12), does not support their position.

In Kelly, one member who owned 24% of the LLC was
found to jointly be "controlling" with a member that owned over
50%, when both voted in favor of a merger to which a minority
member objected.

However, the two members at issue - namely,

MBC Investment and MBC Lender - were, as their names imply,
affiliated entities.

Both were wholly-owned subsidiaries of ELB

Capital Management, LLC.
*5, *55.

See Kel

, 2010 Del. Ch. LEXIS 31, at

The two members were jointly represented and moved to

dismiss together.

The member who owned only 24% did not make

the argument, which Belnovo makes here, that it was not
controlling -presumably because of its affiliate relationship
with the majority member.

Here, there is no allegation that Pali and Belnovo
were related entities.
inapplicable.

The reasoning of Kelly is therefore

under Plaintiffs' argument, any time multiple

members who combine to over 50% of the voting interests agree to
a transaction, the aggrieved member could argue that the
multiple members acting together were "controlling."
cite no authority for such a rule, which would,
17

Plaintiffs

effect,

impose fiduciary duties upon minority members or shareholders as
"controlling" for purposes of a specific transaction because
they voted with the majority in regards to that transaction.

Moreover, even if Belnovo owed a duty, Plaintiffs'
allegations do not establish that Belnovo breached that duty.
Pali, not Belnovo, triggered the "Required Sale" under Section
7.3 of the LLC Agreement that forced Belnovo to sell its GPIM
interests for the same share of $1,000 that Plaintiffs received.
Although the SAC alleges "upon information and belief" that Pali
triggered the "Required Sale" to appease GM in unrelated
business dealings (SAC

~

28), that does not change the

allegation that it was Pali, not Belnovo, that triggered the
Required Sale.

Belnovo's involvement was that:

(i) it was a

minority member of the LLC owned by GM, a non-member which
created another subsidiary to buyout Pali; and (ii) it was
subjected by Pali to the same Required Sale as Plaintiffs.

All

that Belnovo did in connection with the sale was to decline to
exercise a ROFO.

Had Belnovo exercised the ROFO, the result to

Plaintiffs would have been no better:

a Required Sale to

Belnovo instead of a Required Sale to GPIM Holdings.
Agreement

§

7.3.)

18

(LLC

The SAC maintains that an alleged subsidiary of GM,
GPIM Holdings, was the purchaser, it alleges a claim for breach
of fiduciary duty against Belnovo.

(SAC ~~ 50-53.)

However,

with respect to Belnovo, Plaintiffs have alleged no affirmative
action at all.

The Plaintiffs' opposition brief asserts that

Belnovo is a "shell" of GM, whose separate corporate existence
should be disregarded.

(PIs. Mem. 7-9.)

The SAC does not

assert a claim for veil piercing nor do Plaintiffs anywhere
address whether a corporate veil can be pierced under Panamanian
law and, if so, under what circumstances.
are Panamanian corporations (SAC

~~

Both Belnovo and GM

3-4), and whether the

corporate veil can be pierced is analyzed under the law of the
place of incorporation.

See, e.g.,

s v. Mel Harris &

Assocs., LLC, 09 Civ. 8486, 2010 WL 5395712, at *11 (S.D.N.Y.
Dec. 29, 2010)

("Generally, the veil-piercing analysis is

governed by the law of the place of incorporation.")

(citing

United States v. Funds Held in the Name or for the Benefit of
Wetterer, 210 F.3d 96, 106 (2d Cir. 2000».

Under Delaware Law,

being a "shell" corporation does not alone suffice to pierce a
corporate veil.

See Laifail, Inc. v. Learning 2000, Inc., Nos.

C.A.01 599 GMS, C.A.01 678 GMS, 2002 WL 31667861, at *12
Del. Nov. 25, 2002).

19

(D.

Even if the corporate veil between the two entities
should be pierced under Panamanian law, it would still not
demonstrate that Belnovo breached any fiduciary duty to
Plaintiffs in the first instancej instead, it would show only
that GM could be found liable to the extent Belnovo was liable.
However, here, the allegation that Belnovo is liable for breach
of fiduciary duty is insufficient as Belnovo was neither a
manager nor a controlling member of the LLC.

The Amended Complaint Fails To State A Claim For Civil
Conspiracy Against Defendants

Parties to this suit reside in a variety of locations,
including Panama, Delaware, New York, and Connecticut.

However,

only Delaware and New York have a substantial connection to all
parties and occurrences at issue.

Delaware is the place of

incorporation of GPIM and GPIM Holdings, and the LLC Agreement
contains a Delaware choice of law provision.

New York is the

forum state, the place of residence of the two Plaintiffs, the
location of the majority of the occurrences alleged in the AC,
(SAC

~~

9 10), and the principal place of business of GPIM

during the events in question.

20

In the event of an actual conflict between New York
and Delaware law, since it appears that New York was the place
in which the allegedly tortious events took place, New York law
would normally apply to tort claims, such as one for conspiracy,
arising from those events.

See Steinberg, 2008 U.S. Dist. LEXIS

37367, at *10 (holding with respect to a civil conspiracy claim
"the location of the tort generally determines the applicable
law"

(citing AroChem Intern. Inc. v. Buirkle, 968 F.2d 266, 270

(2d Cir. 1992)).

However, because the application of New York

or Delaware law leads to the same result here, the Court need
not choose which state's law to apply.

See In re WorldCom,

Inc., 368 B.R. 308, 328 n.2 (Bankr. S.D.N.Y. 2007)

(where civil

conspiracy laws are "similar," a court may proceed with its
analysis without making a determination of the applicable law)

under the law of either Delaware or New York,
conspiracy is not an independent tort, but a theory under which
a party can establish the vicarious liability of co conspirators
for each other's offenses.

See Green v. Beer, No.6 Civ. 4156,

2009 U.S. Dist. LEXIS 27503, at *3 n.1 (S.D.N.Y. Mar. 30, 2009)
("[Ulnder New York law, there is no independent action for civil
conspiracy.

Instead, civil conspiracy is a theory of vicarious

liability pursuant to which defendants can be held liable for
21

the fraudulent actions of their co-conspirators. ")
Crigger v. Fahnestock & Co., 443 F.3d 230, 237

{citing

(2d Cir. 2006);

Beck v. Prupis, 529 U.S. 494, 503, 120 S. Ct. 1608, 146 L. Ed.
2d 561 (2000) i Canada, Inc. v. Aspen Technology,
Supp. 2d 199, 231 32

(S.D.N.Y. 2008))

i

Inc., 544 F.

Hamilton Partners, L.P.

v. Englard, 11 A.3d 1180,1211 (Del. Ch. 2010)

{"Like Delaware,

New York does not recognize civil conspiracy to commit a tort as
an independent cause of action .

. . just as in Delaware, the

claim stands or falls with the underlying tort.1I

{citing Pappas

v. Passias, 271 A.D.2d 420, 707 N.Y.S.2d 178, 180 (N.Y. App.
Div. 2000) i Salvatore v. Kumar, 45 A.D.3d 560, 845 N.Y.S.2d 384,
388 (N.Y. App. Div. 2007); Empire Fin. Servs., Inc. v. Bank of
New York

----------~--~

, 900 A.2d 92, 98-99 (Del. 2006)).

Thus,

in

order to adequately plead a claim for civil conspiracy, a
plaintiff must establish first the underlying tort that the
parties have conspired to commit.

Once the underlying tort is established and deemed
sufficiently supported by factual allegations, a plaintiff must
establish:

"(I) an agreement between two or more parties;

an overt act in furtherance of the agreement;

(3) the parties'

intentional participation in the furtherance of a plan or
purpose; and (4) resulting damage or injury.1I
22

(2)

Meisel v.

Grunberg, 651 F. Supp. 2d 98, 119 (S.D.N.Y. 2009)

(citing World

Wrestling Fed'n Entm't, Inc. v. Bozell, 142 F.Supp.2d 514, 532­
33

(S.D.N.Y. 2001)) i see also Allied Capital Corp. v. GC-Sun

Holdings, L.P., 910 A.2d 1020, 1036 (Del. Ch. 2006)
Delaware,

(in

"a plaintiff must plead facts supporting (1) the

existence of a confederation or combination of two or more
persons;

(2) that an unlawful act was done in furtherance of the

conspiracy; and (3) that the conspirators caused actual damage
to the plaintiff"

(citing Nicolet, Inc. v. Nutt, 525 A.2d 146,

149-50 (Del. 1987))).

Claims of civil conspiracy which do not allege, or
which insufficiently allege, an underlying tort must be
dismissed for failure to state a claim under Rule 12(b) (6).

See

Meisel, 651 F. Supp. 2d at 119 ("Under New York law, a claim for
civil conspiracy may stand only if it is connected to a separate
underlying tort."

(citations omitted)) i

v. eHome Credit

Corp., No. 10 Civ. 26, 2010 U.S. Dist. LEXIS 27287, at *8 n.5
(E.D.N.Y. Mar. 22, 2010)

("A claim for civil conspiracy is only

actionable if the complaint states a claim for the underlying
tort."

(citations ommitted)); accord Kuroda,

(same) .

23

971 A.2d at 892

The SAC does not specify the tort underlying
Plaintiffs' civil conspiracy claim, but alleges a ftconspiracy
whereby [defendants] agreed to transfer GPIM to GPIM Holdings at
an unfair price."

(SAC' 55.)

If it assumed that Belnovo's

alleged breach of fiduciary duty is meant to be the underlying
tort, for the reasons stated above, the breach of fiduciary duty
claim is dismissed.

Because these claims must stand or fall

together, the civil conspiracy claim is likewise dismissed.
Filler v. Hanvit Bank, 156 Fed. Appx. 413, 418

See

(2d Cir. 2005)

(ftA claim of conspiracy cannot stand alone and must be dismissed
if the underlying independent tort has not been adequately
pleaded."); Ho

Moolsan Co.

Ltd. v. Manitou Mineral Water

----~--=-------------~----------------------------------~

Inc., 665 F. Supp. 2d 239, 256 (S.D.N.Y. 2009)

(claim for

ftConspiracy to Violate the Law" was properly dismissed for
failure to state an underlying claim)

i

Berwick v. New World

Network Int'l, Ltd., No. 06 Civ. 2641, 2007 U.S. Dist. LEXIS
22995, at *19 (S.D.N.Y. Mar. 27, 2007)

("New York.

does not

recognize civil conspiracy as an independent tort; such a claim
stands or falls with the underlying tort."

(citations and

internal quotation marks ommitted)); Kuroda, 971 A.2d at 892
("Plaintiff has thus failed to state a claim for civil
conspiracy because he has not properly alleged an underlying
wrong on which a claim of conspiracy could be based.") .
24

In addition,

n, [i]n order to sustain an allegation of

civil conspiracy that involves a conspiracy to breach a
fiduciary duty, all members of the alleged conspiracy must
independently owe a fiduciary duty to the plaintiff. '"
Briarpatch Ltd. L.P. v. Geisler Roberdeau, Inc., No. 99 Civ.
9623, 2007 U.S. Dist. LEXIS 27001, at *78 (S.D.N.Y. April 4,
2007)

(quoting Pope v. Rice, No. 04 Civ. 4171, 2005 U.S. Dist.

LEXIS 4011, at *13 (S.D.N.Y. March 14, 2005)).

The SAC does not

allege that GM owed Plaintiffs any fiduciary duty.

Plaintiffs do not adequately allege overt acts and
intentional participation in furtherance of the alleged plan.
With respect to Belnovo, it declined to exercise a ROFO and thus
become subject to the same Required Sale to which Plaintiffs
were subject.

With respect to GM, purportedly as part of a

scheme to nengineer a low offer from Plaintiffs,1I employees of
GM allegedly said that GM had decided to invest no more money in
GPIM and suggested the Plaintiffs acquire GPIM themselves.
~~

32-34.)

(SAC

However, given that the LLC Agreement contains no

requirement for bidding, appraisal, or fair market value in
connection with a Required Sale, such a scheme is entirely

25

irrelevant to the wrong alleged of forcing plaintiffs to sell in
a Required Sale at an unfair price.

In sum, the Plaintiffs' civil conspiracy claim against
Belnovo and GM is dismissed for failure to allege an underlying
tort.

GM is not alleged to have owed any fiduciary duty to the

Plaintiffs, and the SAC is devoid of allegations of actions
taken by either Belnovo or GM that could be considered an overt
act or intentional participation in the alleged conspiracy.

Plaintiffs do not deny that they contractually waived
any right to complain of the sale price (LLC Agreement

§

7.3)

and gave Pali the ability to force a sale of their interests in
a "Required Sale" without any requirement of an appraisal or a
fair market value determination.

Id.

In the face of Delaware

law that gives maximum effect to the principle of freedom of
contract up to and including the ability to waive fiduciary
duties, Del. Code Ann. tit. 6,

§

18-1101(b)

(2009), Plaintiffs'

claim must be dismissed as contrary to the contract entered
into.

In response, the Plaintiffs have cited

re Atlas

Energy Res., LLC, Unitholders Litig., No. 4589-VCN, 2010 Del.
26

Ch. LEXIS 216 (Del. Ch. Oct. 28, 2010).

(PIs. Mem. 12-16).

Plaintiffs argue that in Atlas, "there was a specific section of
the LLC Agreement addressing conflicts of interest that arise in
a self-dealing transaction, but the Court found that the
specific waiver of liability for breach of fiduciary duties in
such a conflict did not exculpate the defendant. u

Id. at 13).

However, the contractual provisions on which the Atlas
defendants relied applied to parties other than the plaintiffs,
and it was because the contract did not address the conduct
complained of that the Atlas court found that common law
fiduciary duties of controlling members adhered and denied the
motion to dismiss.

More fundamentally, as noted above, Belnovo

was not a controlling member in any event.

However, the court

was also clear that, had the plaintiffs contracted away the
common-law rights, that waiver would have been enforced and the
case dismissed:

Just as a merger between a parent and its corporate
subsidiary
inherently
threatens
the
interests
of
minori ty shareholders, a merger between a parent and
its publicly held limited liability company subsidiary
inherently
threatens
the
rights
of
minority
unitholders.
The difference is that, in the context
of a limited liability company,
the parties can
specify by contract the protections, or lack thereof,
that they want the minority to have against such
threats.
If they do so, a court will respect the
parties' freedom of contract and will not apply the
default standard.
27

Atlas, 2010 Del. Ch. LEXIS 216, at *34 *35.

Here, the contract

specifies the lack of protections in the waiver language, which
will be respected.

The Plaintiffs contend that the LLC Agreement
provisions in this regard do not specify that they apply to
"self dealing" transactions involving a "conflict of interest."
However, once again, it was not Belnovo that made the decision
to sell GPIM to another subsidiary of its parent company, it was
Pali.

Because Pali is unrelated to any of Belnovo, GM or GPIM

Holdings, Pali's decision to sell GPIM to GPIM Holdings did not
represent a "conflict of interest" nor was it "self-dealing."

The Allegations of Aiding and Abetting A Breach Of Fiduciary
Duty Against GM Are Insufficient

The fourth count of the SAC alleges that GM aided and
abetted Belnovo's alleged breach of fiduciary duty.
63.)

Plaintiffs'

(SAC ~~ 58­

legations do not satisfy the elements of a

claim for aiding and abetting a breach of fiduciary duty under
either New York or Delaware law.

28

New York courts have taken three approaches to
deciding which state[s law applies to an aiding and abetting
breach of fiduciary duty claim: an internal affairs approach [ a
torts based "greatest interest" approach[ and a hybrid approach.
Compare Buckley v. Deloitte & Touche USA LLP[ No. 06 Civ. 3291
(SHS) [ 2007 U.S. Dist. LEXIS 37107
2007)

1

at *37

(S.D.N.Y. May 21,

(holding that aiding and abetting breach of fiduciary duty

claim "relate[dl to the internal affairs of a corporation[
was therefore] governed by the law
incorporation"

the state of

(citations omitted)) with Solow v. Stone

Supp. 173, 177 (S.D.N.Y. 1998)

[it

l

994 F.

(applying New York law to aiding

and abetting claim under tort analysis[ in which law of
jurisdiction with greatest interest in regulating behavior
applies) with Pension Comm. of the Univ. of Montreal Pension
an v. Bane of Am. Sec.[ LLC
(S.D.N.Y. 2006)

I

446 F. Supp. 2d 163

1

191-92

(confirming that New York follows the internal

affairs doctrine, but does not require its application in every
case, particularly if some other state has an overriding
interest in dispute).

Plaintiffs fail to allege facts

sufficient to maintain a claim under either statels law.

Under New York law, a claim of aiding and abetting
breach of fiduciary duty has three elements:
29

(1) existence of a

breach of fiduciary obligations, of which the aider and abettor
had actual knowledge;

(2) the defendant knowingly induced or

participated in the breachi and (3) the plaintiff suffered
damages as a result of the breach.

See

403 F.3d 43, 49-50 (2d Cir. 2005).

Under Delaware law, a claim

for aiding and abetting a breach of fiduciary duty has four
elements:

(1) a fiduciary relationship;

relationship;

(2) a breach of that

(3) knowing participation by the alleged aider and

abettor in the fiduciary's breach of dutYi and (4) damages
proximately caused by the breach.
A.2d 1265, 1275 76 (Del. 2007).

See Gatz v. Ponsoldt, 925
Moreover, as noted, because the

Plaintiffs' allegations sound in fraud, these allegations must
be pled with particularity under Rule 9(b).

See DeBlasio, 2009

U.S. Dist. LEXIS 64848, at *14.

aintiffs have failed to allege an underlying breach
of fiduciary duty by Belnovoi GM's knowing participation in
Belnovo's alleged breach of fiduciary dutYi or the level of
particularity required by Rule 9(b).

Under either New York or Delaware law, a claim for
aiding and abetting breach of fiduciary duty is dependent upon
the underlying breach of fiduciary duty.
30

See, e.g., Kolbeck v.

LIT Am., Inc., 939 F. Supp. 240, 245

(S.D.N.Y. 1996)

(existence

of underlying breach is critical to claims of aiding and
abetting, because analysis of secondary liability is necessarily
based on the contours of the primary violation)

i

Binks v.

DSL.net, No. 2823-VCN, 2010 Del. Ch. LEXIS 98, at *38
Apr. 29, 2010)

(Del. Ch.

(where court does not perceive underlying breach,

there is no basis from which to derive liability for aiding and
abetting breach of fiduciary duty).

As set forth above, the SAC

has failed to state a claim against Belnovo for breach of
fiduciary duty.

Consequently, any claim that GM aided and

abetted that alleged breach fails as well.

Moreover, both New York and Delaware require a
plaintiff to allege facts suff
alleged

ient to establish that the

der and abettor knowingly participated in the alleged

breach of fiduciary duty.

See Kolbeck, 939 F. Supp. at 247 (New

York law requires "actual knowledge" of and "substantial
assistance" in the breach)
participation in a

i

Gatz, 925 A.2d at 1276 (\\'Knowing

fiduciary breach requires that the

third party act with the knowledge that the conduct advocated or
assisted constitutes such a breach.'"

(quoting Malpiede v.

Townson, 780 A.2d 1075, 1097 (Del. 2001)) i see also In re Sharp
Int'l Corp., 403 F.3d at 50 (under New York law,
31

"[s]ubstantial

assistance may only be found where the

leged aider and abettor

affirmatively assists, helps conceal or fails to act when
required to do so, thereby enabling the breach to occur"
(internal quotations and citations omitted)) i In re OODC, LLC,
321 B.R. 128, 144 (Bankr. D. Del. 2005)

(requiring '''that the

defendant's conduct gave substantial assistance or encouragement
to the fiduciary's wrongful conduct'"

(quoting Crowthers McCall

Pattern, Inc. v. Lewis, 129 B.R. 992, 999

(S.D.N.Y. 1991)).

Although Delaware courts have found that knowing
participation need not be pled with particularity and may be
inferred, inter alia, where the terms of the transaction are
\\egregious, "

re Telecomms.

Inc. S'holders Lit

., No. 16470­

NC, 2003 Del. Ch. LEXIS 78, at *9 (Del. Ch. July 7, 2003), the
SAC contains no specific evidence that indicate that the terms
of the sale of GPIM were unfavorable, much less egregious, to
Plaintiffs.

As such, the Court cannot draw an inference of GM's

knowing participation on this basis.

Specifically, the GM

employees allegedly said that GM did not wish to invest more
money in GPIM and suggested that \\plaintiffs acquire [Pali's]
interest themselves."

(SAC

~

32.)

Plaintiffs also allege that

during a second meeting unnamed members of the Board told Marino
and Serpa that GM had decided to exit the business and \\the only
32

way GPIM could be saved would be if Plaintiffs took over GPIM."
Id. , 33.)

"The Board asked Plaintiffs to prepare an offer to

acquire GPIM, and told the Plaintiffs that the offer need not
contain any significant cash component."

(rd. )

According to the SAC, GM took essentially three
actions that purportedly aided and abetted Belnovo/s alleged
breach of fiduciary duty.

First

l

GM set up a subsidiarYI GPIM

Holdings, as a vehicle for the purchase of GPIM.

Second, two GM

employees were on the GPIM Board, which made statements
purportedly designed to get Plaintiffs to submit an artificially
low bid for GPIM to set up a low valuation for the subsequent
sale to GPIM Holdings.

(SAC' 31.)

Third, GM purportedly

"exercised financial power over Pali."

(Id. , 60.)

These allegations are insufficient because they fail
to allege that these actions enabled Belnovo's alleged breach to
occur.

The Plaintiffs state that "Belnovo owed Plaintiffs a

fiduciary duty to not sell GPIM at less than market value"

Id.

, 51), and that the triggering of a Required Sale of GPIM under
the LLC Agreement was a breach of this fiduciary duty.

However,

the Plaintiffs do not allege that the Required Sale required a
bid in order to set a value and therefore do not explain why the
33

parties' alleged inducement of Plaintiffs to make a $1 offer for
GPIM would lead to or assist Belnovo's alleged breach of
fiduciary duty.

Similarly, GM's incorporation of GPIM Holdings,

and exercise of purported financial leverage over Pali, did not
provide substantial assistance to Belnovo's purported failure to
either stop the sale or secure a higher price.

Cf. -----~
In re

Int'l Corp., 281 B.R. 506, 517 (Bankr. E.D.N.Y. 2002);
Greenfield v. Tele Comms., Inc., civ. No. 9814, 1989 Del. Ch.
LEXIS 49, at *6 *7

(Del. Ch. May 10, 1989).

The Plaintiffs have also failed to plead the
allegations underlying the claim that GM aided and abetted a
breach of fiduciary duty with the specificity required to meet
the particularity requirements of Rule 9(b).

First, Plaintiffs'

general and conclusory statements in the SAC that GM:
and abetted a breach of fiduciary duty;
was a violation of fiduciary duties";

(2)

(3)

(1) aided

"knew the transfer

"knowingly

participated in the scheme to defraud Plaintiffs"; and (4)
"provided substantial assistance to Belnovo in connection with
the scheme" do not meet the heightened pleading requirements.
See Glidepath Holding V.V. v. Spherion Corp., 590 F. Supp. 2d
435, 451 (S.D.N.Y. 2007).

34

The factual allegations regarding fraudulent
statements do not identify the speakers.

While the SAC states

that GM employees Juan Carlos Barrera and Rodrigo Diaz
"suggested that Plaintiffs acquire Pali Holdings themselves"
(SAC

~

32), it does not specify which of them made this

suggestion and the remaining allegedly fraudulent statements are
attributed generally to the "Board," which consisted of seven
people (including Serpa), only two of whom are alleged to be
connected to GM.

Id.

~

32 33.)

In addition, some factual allegation supporting actual
intent is required.

Glidepath, 590 F. Supp. 2d at 455.

In the

current litigation, Plaintiffs allege that GM invested in Pali,
and then discovered that Pali failed to disclose material
information.

Plaintiffs claim that GM threatened to sue Pali

and, thus, speculate "upon information and belief," that GM used
this purported leverage to get Pali to sell it GPIM at a below
market price.

However, the SAC sets forth no facts that would

give rise the required strong inference that GM committed fraud
to address these concerns rather than pursue the aforementioned
litigation and withholding of committed funds.

35

In ruling upon the motion to dismiss filed by GPIM
Holdings, the March 17 Opinion held that the allegations against
GPIM Holdings were sufficient to withstand a motion to dismiss.
See March 17 Opinion, slip op. at 11-15.

However, GM and

Belnovo had not appeared at that time, and had not argued the
lack of a breach of fiduciary duty by Belnovo.

Neither GPIM nor

GPIM Holdings argued that there was a failure to state a claim
for breach of fiduciary duty by Belnovo.

Moreover, in

dismissing Plaintiffs' unjust enrichment claim, the Court noted:

Plaintiffs have not alleged that GPIM Holdings was
unjustly enriched, nor have they articulated any facts
to support a value for GPIM beyond the $1,000 that
Pali Capital accepted in exchange for GPIM's
liabilities.
Plaintiffs have not alleged any profit
or benefit that GPIM Holdings received as a result of
the sale of GPIM in January 2009.
Indeed, Plaintiffs
themselves bid only $1.00 for GPIM.
(SAC ~ 52.)
Stated simply, there can be no unjust enrichment where
there is no enrichment at all.

Id. at 15 16.

This statement is dispositive of not just the unjust
enrichment claim, but of the civil conspiracy and aiding and
abetting breach of fiduciary duty claims as well.

Damages are

an essential element of both claims, and Plaintiffs have failed
to plead them.

See Gatz, 925 A.2d at 1275 ("To state a claim
36

for aiding and abetting a breach of fiduciary duty, a
must allege .

aintiff

. damages proximately caused by the breach.");

Allied Capital, 910 A.2d at 1036 ("[T]o state a claim for civil
conspiracy, a plaintiff must plead facts supporting .

that

the conspirators caused actual damage to the plaintiff.").
Moreover, Plaintiffs' $1 bid to purchase GPIM, and the fact that
it was Pali, a separate entity from any of Belnovo, GM or GPIM
Holdings, that triggered the sale belie the alleged "self
dealing."

The Claims Against Belnovo Are Barred By The LLC Agreement

Section 4.3 of the LLC Agreement exculpates Members
for any liability "except as provided herein or as required by
the [Delaware Limited Liability Company] Act" except to the
extent "a judgment or other final adjudication adverse to such
Member establishes (i) that its acts were committed in bad faith
or were the result of active or deliberate dishonesty or (ii)
that such Member personally gained in fact a financial profit or
other advantage to which such Member was not entitled."
clauses will be enforced under Delaware law.
====----~~-

7, 2008)

Such

See Fisk Ventures,

, No. 3017-CC, 2008 WL 1961156, at *9 (Del. Ch. May

(enforcing provisions of LLC agreement which expressly
37

limited or waived liability) i Douzinas, 888 A.2d at 1152
(holding that defendants had a right to rely on exculpatory
provisions limiting liability in LLC agreement when defending
fiduciary duty claims brought against them) .

The SAC does not allege that Belnovo took any action
contrary to the terms of the LLC Agreement or the Delaware
Limited Liability Company Act.

Nor does the SAC plead with

sufficient particularity that Belnovo's actions were committed
in bad faith or that Belnovo gained a financial profit.
Wood v. Baum, 953 A.2d 136, 141 (Del. 2008)

See

(holding that an

exculpatory clause in an LLC insulated directors from liability
from certain conduct, and therefore plaintiff must plead
particularized facts alleging a non-exculpated claim against
directors).

Under the Plaintif

'allegations, Belnovo suffered

the same economic harm that Plaintiffs did.

Belnovo declined to

exercise the ROFO and, thereby, ended up being subjected by Pali
to the same Required Sale.

In sum, the claims against Belnovo are barred by the
LLC Agreement's provision exculpating members from liability
except in specified circumstances not alleged in the AC.

38

Conclusion

Based upon the conclusions set forth above,
Defendants' motion is granted and the SAC is dismissed as to
Belnovo and GM.

The Plaintiffs are granted leave to replead

within 20 days.

It is so ordered.

New York, NY
August hJ-:· 2011

ROBERT W. SWEET
U.S.D.J.

39