First Hill Partners, LLC v. BlueCrest Capital Management Limited et al
Filing
33
OPINION AND ORDER re: 22 MOTION to Dismiss Complaint. filed by BlueCrest Capital Management (New York) L.P., BlueCrest Capital International Master Fund Limited, BlueCrest Capital Management Limited. For the reasons herein, IT IS H EREBY ORDERED THAT Defendants' motion to dismiss is GRANTED with respect to First Hill's fraud/fraudulent inducement and conversion claims and DENIED with respect to First Hill's unjust enrichment and tortious interference claims. In o rder to set a discovery schedule, the parties shall jointly submit a proposed case management plan no later than October 8, 2014. The Clerk of the Court is respectfully directed to terminate the motions pending at docket entries 22. (Signed by Judge Richard J. Sullivan on 9/30/2014) (kgo)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
_____________________
No. 13-cv-7570 (RJS)
_____________________
FIRST HILL PARTNERS, LLC,
Plaintiff,
VERSUS
BLUECREST CAPITAL MANAGEMENT LIMITED, et al.,
Defendants.
_____________________
OPINION AND ORDER
September 30, 2014
_____________________
RICHARD J. SULLIVAN, District Judge:
Plaintiff First Hill Partners, LLC (“First
Hill”) brings this diversity action against
BlueCrest Capital Management Limited,
BlueCrest Capital International Master Fund
Limited, and BlueCrest Capital Management
(New York) L.P. (collectively, “BlueCrest”
or “Defendants”), asserting fraud, fraudulent
inducement, conversion, unjust enrichment,
and tortious interference with contract in
connection with an asset sale between third
parties Skinit, Inc. (“Skinit”) and Proveho
Capital, LLC (“Proveho”). Now before the
Court is Defendants’ motion to dismiss this
action in its entirety pursuant to Rule
12(b)(6) of the Federal Rules of Civil
Procedure. For the reasons set forth below,
the motion is granted in part and denied in
part.
I. BACKGROUND
A. Facts
Skinit
is
a
California-based
customization company that developed a
tool to help consumers personalize – or
“skin” – their mobile devices with images,
text, and symbols. (Compl. ¶¶ 2, 28.)1 In
1
The facts are drawn from the Complaint (Doc. No. 1
(“Compl.”)), and are assumed to be true for the
purpose of this motion. In deciding the instant
motion, the Court has also considered BlueCrest’s
memorandum of law (Doc. No. 23 (“Mem.), First
Hill’s opposition (Doc. No. 25 (“Opp.”)), and Blue
Crest’s Reply (Doc. No. 27), as well as the
declarations and exhibits submitted in support of the
parties’ memoranda (Doc Nos. 24, 26).
Agreement, one of Skinit’s investors
discontinued funding the corporation. (See
id. ¶ 44.) This adversely affected Skinit’s
financial position and transformed the
potential asset sale into a “fire sale” in
which “the timeline for the sale became
highly accelerated, the list of potential
counterparties shifted and, with diminished
sell-side leverage . . . negotiations with
potential counterparties became far more
difficult.” (Id.) Rather than seeking out a
distressed sale specialist, “Skinit and
BlueCrest ultimately decided to continue
working only with First Hill . . . .” (Id.
¶ 46.) After several months of research,
meetings, advising sessions, and due
diligence, First Hill identified Proveho as a
potential acquirer, and then facilitated
information exchanges and negotiations
between Proveho and Skinit, making sure
that BlueCrest was fully informed of the
deal’s progress and actively involved in the
negotiations. (See id. ¶¶ 52–58.)
April 2011, Skinit entered into a Loan and
Security Agreement (the “LSA”) with
BlueCrest, a London-based hedge fund.
(See id. ¶ 29.) BlueCrest lent Skinit $10
million – to be repaid in 48 monthly
installments – in exchange for a senior
security interest in Skinit’s assets and two
observer seats on Skinit’s Board of
Directors. (See id.)
First Hill alleges that in early 2013,
Skinit defaulted on its obligations to
BlueCrest by failing to pay back the loan.
(See id. ¶ 7.) On February 27, 2013, Skinit
and BlueCrest amended the LSA to
restructure Skinit’s payment obligations.
(See id. ¶ 31.) As a secured lender,
BlueCrest retained its right to foreclose on
collateral from the loan (i.e., Skinit’s assets)
and conduct a foreclosure sale. (See id. ¶ 7.)
First Hill further alleges that in February
2013, Skinit began to explore the possibility
of selling its assets. (See id. ¶ 32.) On
March 14, 2013, Skinit executed an
agreement (the “Skinit Engagement
Agreement”) engaging First Hill as
exclusive advisor to Skinit regarding the sale
of its assets. (See id. ¶ 37.) Pursuant to the
Skinit Engagement Agreement, First Hill
would, among other things, locate parties
interested in acquiring Skinit’s assets, assist
Skinit in evaluating potential acquirers, and
represent Skinit during negotiations with the
objective of “maximiz[ing] the value of
Skinit’s asset sale.” (Id. ¶ 40.) In return,
First Hill would receive a $5,000 monthly
cash retainer, a cash success fee upon the
successful completion of a sale, and
reimbursement
of
all
out-of-pocket
expenses. (See id. ¶ 41.) Although First
Hill alleges that BlueCrest “knew of and
consented to” the Skinit Engagement
Agreement, BlueCrest was not a party to the
contract. (Id. ¶ 37.)
First Hill alleges that on or around June
22, 2013, during a meeting devoted to
reviewing the status of the offers from
potential buyers, Skinit and BlueCrest
concluded that Proveho’s bid was the
“optimal choice.” (Id. ¶ 72.) Thereafter,
Proveho submitted a final proposal of
acquisition via a “Letter of Intent,” which
Skinit signed, with BlueCrest’s approval, on
June 28, 2013.
(See id. ¶¶ 76–78.)
However, on or around July 22, 2013,
Proveho became unresponsive to First Hill’s
communications (see id. ¶ 84), and on
August 1, 2013, Proveho told First Hill that
it would negotiate directly with BlueCrest,
cutting First Hill out of the negotiations
entirely (see id. ¶ 87).
On August 5, 2013, BlueCrest, as senior
secured creditor, foreclosed on Skinit’s
assets. BlueCrest then sold the collateral in
a private foreclosure sale to Proveho under
Article 9-610(a) of the UCC. (See id. ¶ 90.)
First Hill alleges that in April 2013,
about one month into the Skinit Engagement
2
The terms of the foreclosure sale were
“virtually identical” to the terms of the deal
orchestrated by First Hill. (See id. ¶ 91.) As
a result of the foreclosure sale, First Hill did
not receive the cash success fee it would
have received had Skinit sold its assets
directly to Proveho. (See id. ¶ 92.)
facts to state a claim to relief that is
plausible on its face.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007). “A
claim has facial plausibility when the
plaintiff pleads factual content that allows
the court to draw the reasonable inference
that the defendant is liable for the
misconduct alleged.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009). In reviewing a Rule
12(b)(6) motion to dismiss, a court must
accept as true all factual allegations in the
complaint and draw all reasonable
inferences in favor of the plaintiff. ATSI
Commc’ns, 493 F.3d at 98. However, that
tenet “is inapplicable to legal conclusions.”
Iqbal, 556 U.S. at 678. Thus, a pleading that
offers only “labels and conclusions” or “a
formulaic recitation of the elements of a
cause of action will not do.” Twombly, 550
U.S. at 555.
B. Procedural History
On October 25, 2013, First Hill filed the
Complaint in this action bringing claims for
fraud, fraudulent inducement, unjust
enrichment, tortious interference with
contract, and conversion.2 First Hill seeks to
recover the fair market value of the services
it provided to BlueCrest during the period of
negotiations with Proveho, as well as the
cash success fee, the retainer fee, expenses,
attorneys’ fees, and punitive damages. (See
Compl. ¶¶ 113, 121–22, 136.) On January
8, 2014, the Court held a pre-motion
conference
to
discuss
BlueCrest’s
contemplated motion to dismiss.
On
February 21, 2014, BlueCrest moved to
dismiss the Complaint in its entirety for
failure to state claims on its various causes
of action. (Doc. No. 22.) The motion was
fully briefed on April 4, 2014.
III. DISCUSSION
A. Choice of Law
Before addressing the merits of First
Hill’s claims, the Court must first resolve
what law is applicable to each claim. The
parties exclusively referenced New York
law in their pre-motion letters (see Doc.
Nos. 12, 15) and during the discussion at the
pre-motion conference (see generally
Transcript of Jan. 8, 2014 Pre-Motion Conf.,
Doc. No. 31 (“Pre-Motion Conf. Tr.”)).
While BlueCrest still argues that the Court
should apply New York law (see Mem. at
20), First Hill now contends that California
law should govern (see Opp. at 6–9).3
II. LEGAL STANDARD
To survive a motion to dismiss pursuant
to Rule 12(b)(6) of the Federal Rules of
Civil Procedure, a complaint must “provide
the grounds upon which [the] claim rests.”
ATSI Commc’ns, Inc. v. Shaar Fund, Ltd.,
493 F.3d 87, 98 (2d Cir. 2007); see also Fed.
R. Civ. P. 8(a)(2) (“A pleading that states a
claim for relief must contain . . . a short and
plain statement of the claim showing that the
pleader is entitled to relief . . . .”). To meet
this standard, a plaintiff must allege “enough
First Hill argues – somewhat half-heartedly – that if
California law does not apply, then Colorado law
should. (See Opp. at 7–8 (“Here, California is the
state with the greatest interest in this litigation. . . . If
any state other than California has a substantial
interest in this action it is Colorado . . . .”).) As will
be discussed below, the Court ultimately agrees with
3
The Court notes that First Hill’s first cause of action
is labeled “Fraud/Fraudulent Inducement.” (Compl.
at 31.)
2
3
respect to its “fraud/fraudulent inducement”
claim. First Hill’s brief analyzes this claim
under California law. However, as best the
Court can tell, First Hill also implies that it
would prevail under either the law of New
York or California. (See id. at 17 n.6
(asserting that the existence of a fiduciary
relationship is a question of fact under both
California and New York law).)
A federal court sitting in diversity
applies the choice-of-law principles of the
state in which it sits. See Banker v.
Nighswander, Martin & Mitchell, 37 F.3d
866, 871 (2d Cir. 1994). In New York, “the
first question to resolve in determining
whether to undertake a choice of law
analysis is whether there is an actual conflict
of laws.” Curley v. AMR Corp., 153 F.3d 5,
12 (2d Cir. 1998). An “actual conflict”
exists where “the applicable law from each
jurisdiction provides different substantive
rules” and those differences are “relevant to
the issue at hand[] and . . . have a significant
possible effect on the outcome of the trial.”
Fin. One Pub. Co. Ltd. v. Lehman Bros.
Special Fin., Inc., 414 F.3d 325, 331–32 (2d
Cir. 2005) (emphasis in original) (citations
and internal quotation marks omitted).
Where there is no actual conflict, a choiceof-law analysis is unnecessary and New
York law will apply. See Curley, 153 F.3d
at 12.
In any event, the Court finds that there is
no actual conflict of law with respect to First
Hill’s first cause of action. Both New York
and California require similar elements for a
common law fraud claim. Compare Wynn v.
AC Rochester, 273 F.3d 153, 156 (2d Cir.
2001) (“Under New York law, to state a
claim for fraud a plaintiff must demonstrate:
(1) a misrepresentation or omission of
material fact; (2) which the defendant knew
to be false; (3) which the defendant made
with the intention of inducing reliance; (4)
upon which the plaintiff reasonably relied;
and (5) which caused injury to the
plaintiff.”), with Avedisian v. MercedesBenz USA, LLC, No. 12-cv-00936 (DMG),
2013 WL 2285237, *8 (C.D. Cal. May 22,
2013) (“The elements of fraud in California
are: (1) a misrepresentation (false
representation,
concealment,
or
nondisclosure); (2) knowledge of falsity (or
scienter); (3) intent to defraud, i.e., to induce
reliance; (4) justifiable reliance; and (5)
resulting damage.” (citation and internal
quotation marks omitted)).
The Court
reaches the same conclusion with respect to
fraudulent
inducement.
Compare
Computerized Radiological Servs. v. Syntex
Corp., 786 F.2d 72, 76 (2d Cir. 1986) (“In
order to prove fraudulent inducement under
New York law, a plaintiff must prove (1)
that the defendant made a representation, (2)
as to a material fact, (3) which was false, (4)
and known to be false by the defendant, (5)
that the representation was made for the
purpose of inducing the other party to rely
upon it, (6) that the other party rightfully did
However, if the court finds an actual
conflict in the applicable law of each
jurisdiction, the court embarks on a choiceof-law analysis. New York maintains two
choice-of-law tests – one for contract claims
and one for tort claims. See GlobalNet
Finanical.Com, Inc. v. Frank Crystal & Co.,
449 F.3d 377, 384 (2d Cir. 2006). The
claims alleged here sound both in contract
(unjust enrichment) and tort (fraud, tortious
interference with contract, conversion).
1. Fraud/Fraudulent Inducement Claim
First Hill’s opposition brief asserts that
“material differences exist between the
substantive laws of California, Colorado,
and New York” (Opp. at 7), but First Hill
fails to explain these differences with
First Hill’s primary argument, and thus does not
address the alternative one.
4
exclusion of the plaintiff’s rights.” (citation
and internal quotation marks omitted)), with
In re Emery, 317 F.3d 1064, 1069 (9th Cir.
2003) (“[Under California law,] [t]he
elements of conversion are (1) the plaintiff’s
ownership or right to possession of the
property; (2) the defendant’s conversion by
wrongful act inconsistent with the property
rights of the plaintiff; and (3) damages.”).
Thus, New York law will apply. See
Curley, 153 F.3d at 12.
so rely, (7) in ignorance of its falsity (8) to
his injury.” (footnote, citation, and internal
quotation marks omitted)), and Wall v. CSX
Transp., Inc., 471 F.3d 410, 416 (2d Cir.
2006) (“[A] misrepresentation of material
fact, which is collateral to the contract and
serves as an inducement for the contract, is
sufficient to sustain a cause of action
alleging fraud [under New York law].”
(citation and internal quotation marks
omitted)), with ADP Commercial Leasing,
Inc. v. M.G. Santos, Inc., No. 13-cv-0587
(LJO), 2013 WL 5424955, *7 (E.D. Cal.
Sept. 27, 2013) (“Fraud in the inducement is
a subset of the tort of fraud. It occurs when
the promisor knows what he is signing but
his consent is induced by fraud, mutual
assent is present and a contract is formed,
which, by reason of the fraud, is voidable.”
(citation and internal quotation marks
omitted)). Thus, because there is no actual
conflict between New York and California
law, New York law will apply. See Curley,
153 F.3d at 12.
3. Unjust Enrichment
The Court next turns to First Hill’s
unjust enrichment claim. Here, again, there
is no actual conflict between the law
governing unjust enrichment claims in New
York and in California. Compare Golden
Pac. Bancorp v. F.D.I.C., 273 F.3d 509, 519
(2d Cir. 2001) (“Under New York law, for a
plaintiff to prevail on a claim of unjust
enrichment, he must establish (1) that the
defendant was enriched; (2) that the
enrichment was at the plaintiff’s expense;
and (3) that the circumstances are such that
in equity and good conscience the defendant
should return the money or property to the
plaintiff.”), with CSI Elec. Contractors v.
Zimmer America Corp., No. 12-cv-10876
(CAS), 2013 WL 1249021 , at *5 (C.D. Cal.
Mar. 25, 2013) (“[T]o obtain restitution
based on this theory, a plaintiff must allege
that (1) the defendant was enriched by a
benefit, and (2) it was unjust for the
defendant to retain the benefit.”).4 Under
2. Conversion
As with its fraud/fraudulent inducement
claim, First Hill seemingly asserts that it
would prevail under both New York and
California law with respect to its conversion
claim. (See Opp. at 22 n. 11 (“New York
law, too, permits a cause of action for
conversion of identifiable funds to which
First Hill had a superior right of possession
to that of BlueCrest.”).) To the extent that
First Hill is arguing that the law in both
jurisdictions is the same, the Court agrees.
Compare Martinez v. Capital One, N.A., 863
F. Supp. 2d 256, 266 (S.D.N.Y. 2012)
(“Under New York law, to establish a cause
of action to recover damages for conversion,
a plaintiff must show legal ownership or an
immediate superior right of possession to a
specific identifiable thing and must show
that the defendant exercised an unauthorized
dominion over the thing in question to the
4
The Court notes that there is disagreement among
California and federal courts regarding whether
unjust enrichment may be pleaded as a stand-alone
cause of action under California law rather than as a
theory permitting recovery under another cause of
action. Compare Johns v. Bayer Corp., No. 09-cv1935 (JMA), 2010 WL 476688, at *6 (S.D. Cal. Feb.
9, 2010) (dismissing unjust enrichment claim because
“it is not an independent cause of action”), with
Durell v. Sharp Healthcare, 183 Cal. App. 4th 1350
(Cal. Ct. App. 2010) (treating unjust enrichment
claim as a claim for restitution and determining if
5
both New York and California law, an
unjust enrichment claim is precluded if a
valid contract covers the subject matter of
the dispute. Compare Clark–Fitzpatrick,
Inc. v. Long Island R.R. Co., 521 N.Y.S.2d
653 (N.Y. 1987) (“The existence of a valid
and enforceable written contract governing a
particular subject matter ordinarily precludes
recovery in quasi contract for events arising
out of the same subject matter.”), with
Durell v. Sharp Healthcare, 183 Cal. App.
4th 1350, 1370 (Cal. Ct. App. 2010) (“As a
matter of law, an unjust enrichment claim
does not lie where the parties have an
enforceable express contract.”).
Thus,
because there is no actual conflict between
New York and California law, New York
law will apply. See Curley, 153 F.3d at 12.
With regard to this claim, there is an actual
conflict between New York law and
California law. In California, but not New
York, a plaintiff can state this cause of
action in the absence of an actual breach of
contract. Compare Kirch v. Liberty Media
Corp., 449 F.3d 388, 401–02 (2d Cir. 2006)
(“Under New York law, the elements of
tortious interference with contract are (1) the
existence of a valid contract between the
plaintiff and a third party; (2) the
defendant’s knowledge of the contract; (3)
the defendant’s intentional procurement of
the third-party’s breach of the contract
without justification; (4) actual breach of the
contract; and (5) “damages resulting
therefrom.” (citation and internal quotation
marks omitted)), with Pac. Gas & Elec. Co.
v. Bear Stearns & Co., 50 Cal. 3d 1118,
1126 (1990) (“[Under California law, t]he
elements which a plaintiff must plead to
state the cause of action for intentional
interference with contractual relations are
(1) a valid contract between plaintiff and a
third party; (2) defendant’s knowledge of
this contract; (3) defendant’s intentional acts
designed to induce a breach or disruption of
the contractual relationship; (4) actual
breach or disruption of the contractual
relationship; and (5) resulting damage.”
(emphasis added)). Accordingly, the Court
4. Tortious Interference with Contract
Finally, the Court turns to First Hill’s
tortious interference with contract claim.5
plaintiff pled the elements of restitution). The Court
is persuaded that the disagreement is “largely
semantic” and that a claim for unjust enrichment is
cognizable as a claim for restitution. McNearyCalloway v. JP Morgan Chase Bank N.A., 863 F.
Supp. 2d 928, 963–64 (N.D. Cal. 2012).
Accordingly, the Court compares the elements of a
claim for restitution under California law and the
elements for a claim of unjust enrichment under New
York law.
2010) (“To state a claim for intentional interference
with prospective economic advantage, one must
plead facts showing: (1) an economic relationship
between the plaintiff and some third party, with the
probability of future economic benefit to the plaintiff;
(2) the defendant’s knowledge of the relationship; (3)
intentional acts on the part of the defendant designed
to disrupt the relationship; (4) actual disruption of the
relationship; and (5) economic harm to the plaintiff
proximately caused by the acts of the defendant.”
(citation and internal quotation marks omitted).
Because First Hill labels this cause of action
“Tortious Interference with Existing Contracts”
(Compl. at 35), the Court must assume that First Hill
is bringing a tortious interference with contract claim,
as opposed to a tortious interference with business
relations or prospective economic advantage claim.
“[A claim] for tortious interference with business
relations . . . is a different cause of action consisting
of different elements than [a] tortious interference
with contract [claim].” Roche Diagnostics GmbH v.
Enzo Biochem, Inc., 992 F. Supp. 2d 213, 220
(S.D.N.Y. 2013); see also Catskill Dev., L.L.C. v.
Park Place Entm’t Corp., 547 F.3d 115, 132 (2d Cir.
2008)
(“The
[additional]
wrongful
means
requirement [for tortious interference with business
relations] makes alleging and proving a tortious
interference claim with business relations more
demanding than proving a tortious interference with
contract claim.” (citation and internal quotation
marks omitted)).
California recognizes a similar
tort. See Buxton v. Eagle Test Sys., Inc., 08-cv-04404
(RMW), 2010 WL 1240749, *1 (N.D. Cal. Mar. 26,
5
6
now turns to the applicable choice of law
test to determine which jurisdiction’s law
should apply.
Here, the Court concludes that California
has a greater interest in regulating this
conduct than New York. First, Skinit was
headquartered in California.
(See
Declaration of Jeffrey H. Sussman, dated
March 21, 2014, Doc. No. 26 (“Sussman
Decl.”) ¶ 3.) Likewise, Skinit’s assets were
located in California when BlueCrest
foreclosed upon and sold them to Proveho.
(Id.) During the relevant time period, most
of the meetings regarding negotiations and
due diligence site visits took place at
Skinit’s headquarters in California. (Id.) In
addition, the contract that was allegedly
interfered with – the Skinit Engagement
Agreement – was governed by California
law. Although BlueCrest argues that New
York law should apply, New York is only
connected to the case because BlueCrest
maintains an office there. (Compl. ¶ 20.)
Having considered the interest analysis test,
the Court is persuaded that California has
the greatest interest in regulating the conduct
in question, tortious interference with a
contract that was governed by California law
and substantially performed in California.
Accordingly, the Court will apply California
law to this cause of action.
Where a claim sounds in tort, like the
tortious interference with contract claim
here, New York courts apply the “interest
analysis” test. GlobalNet, 449 F.3d at 384.
Pursuant to the interest analysis test, “the
law of the jurisdiction having the greatest
interest in the litigation will be applied.” Id.
(citation and internal quotation marks
omitted). “[T]he only facts or contacts
which obtain significance in defining State
interests are those which relate to the
purpose of the particular law in conflict.”
GlobalNet, 449 F.3d at 384 (alterations,
citation, and internal quotation marks
omitted omitted). For the interest-analysis
test, “torts are divided into two types, those
involving the appropriate standards of
conduct . . . and those that relate to
allocating losses that result from admittedly
tortious conduct . . . .” Id. (citation and
internal quotation marks omitted).
“If
conflicting conduct-regulating laws are at
issue, the law of the jurisdiction where the
tort occurred will generally apply because
that jurisdiction has the greatest interest in
regulating behavior within its borders.” In
re Thelen LLP, 736 F.3d 213, 220 (2d Cir.
2013) (citation and internal quotation marks
omitted). Conversely, “[i]f the conflict
involves loss-allocation rules, the site of the
tort is less important, and the parties’
domiciles are more important.” Id. (citation
and internal quotation marks omitted).
B. Merits Analysis6
1. Fraud/Fraudulent Inducement
First Hill’s fraud claims are premised on
BlueCrest’s $10 million loan to Skinit, and
BlueCrest’s undisputed right to foreclose on
that loan in the event of Skinit’s default.
Notwithstanding the fact that BlueCrest
Because tortious interference with
contract is a conduct-regulating cause of
action, see White Plains Coat & Apron Co.
v. Cintas Corp., 460 F.3d 281, 284–85 (2d
Cir. 2006), “the law of the jurisdiction
where the tort occurred will generally apply
because that jurisdiction has the greatest
interest in regulating behavior within its
borders,” In re Thelen LLP, 736 F.3d at 220.
6
First Hill has withdrawn Count Five of its
Complaint, which alleged misappropriation of its
trade secrets. (Opp. at 25 n.14) (“[First Hill]
nevertheless agrees that [its] trade secrets claim is
properly dismissed because the identity of
prospective purchasers and the terms upon which
they might acquire Skinit’s assets are not a ‘trade
secret.’”). Accordingly, the Court only considers
First Hill’s first four causes of action.
7
never signed a forbearance agreement, First
Hill argues that BlueCrest’s foreclosure –
the exercise of its undisputed right – was
somehow fraudulent.
[1] the parties are in a fiduciary
relationship; [2] under the special
facts doctrine, where one party
possesses superior knowledge,
not readily available to the other,
and knows that the other is acting
on the basis of mistaken
knowledge; or [3] where a party
has made a partial or ambiguous
statement, whose full meaning
will only be made clear after
complete disclosure.
Although the rules of federal pleading
usually require only “a short and plain
statement” of the plaintiff’s claim for relief,
see Fed. R. Civ. P. 8, averments of fraud
must be “state[d] with particularity,” Fed. R.
Civ. P. 9(b). See ATSI Commc’ns, 493 F.3d
at 99 (“[F]raud claims are subject to
heightened pleading requirements that the
plaintiff must meet to survive a motion to
dismiss.”). In order to satisfy Rule 9(b), the
plaintiff must: “(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.” Rombach v. Chang, 355 F.3d
164, 170 (2d Cir. 2004) (internal citation
omitted). “Allegations that are conclusory
or unsupported by factual assertions are
insufficient.” ATSI Commc’ns, 493 F.3d at
99.
Aetna Cas. & Sur. Co. v. Aniero Concrete
Co., 404 F.3d 566, 582 (2d Cir. 2005)
(citations and internal quotation marks
omitted); see also Miele v. Am. Tobacco
Co., 770 N.Y.S.2d 386 (App. Div. 2003)
(“New York recognizes a cause of action to
recover damages for fraud based on
concealment, where the party to be charged
has superior knowledge or means of
knowledge, such that the transaction without
disclosure is rendered inherently unfair.”).
To the extent First Hill is proceeding
under a material misrepresentation theory,
First Hill’s pleadings are wholly conclusory
and do not pass muster under Rule 9(b).
Although First Hill maintains that BlueCrest
“made
affirmative
misrepresentations”
indicating that they would “fully cooperate”
with and “support” Plaintiff’s pursuit of a
buyer for Skinit (Compl. ¶ 95), First Hill
does not actually cite to any statements
made by Defendants. Instead, First Hill
relies on a series of “specific actions” that
BlueCrest allegedly took to “convey[] to
First Hill its assent in pursuing a nonforeclosure asset sale, while simultaneously
steering First Hill towards structuring a deal
that BlueCrest secretly intended to take over
just before the finish line.” (Opp. at 10.)
For example, First Hill alleges that
“BlueCrest actively encouraged First Hill’s
efforts to secure a purchaser that would
maximize Skinit’s value for all interested
a. Fraud
“Under New York law, to state a claim
for fraud a plaintiff must demonstrate: (1) a
misrepresentation or omission of material
fact; (2) which the defendant knew to be
false; (3) which the defendant made with the
intention of inducing reliance; (4) upon
which the plaintiff reasonably relied; and (5)
which caused injury to the plaintiff.” Wynn
v. AC Rochester, 273 F.3d 153, 156 (2d Cir.
2001). If a plaintiff is proceeding under a
material omission theory, it must further
allege that the “defendant had a duty to
disclose material information.” Nealy v.
U.S. Surgical Corp., 587 F. Supp. 2d 579,
585 (S.D.N.Y. 2008) (citations omitted). A
duty to disclose arises in the following
scenarios
8
arm’s length business transactions.” Id.
First Hill urges the Court not to dismiss its
fraud claim at this juncture because
determination of a fiduciary duty is a factspecific inquiry. (See Opp. at 17 n.6.) To
this end, First Hill asserts that BlueCrest
“had its own preexisting relationship of
trust” with First Hill, by nature of the fact
that (1) First Hill, over a period of two
months,
“interacted
regularly”
with
BlueCrest’s observers on Skinit’s Board; (2)
the companies “worked together directly in
the past,” in which First Hill “proposed
potential transactions . . . and, in at least two
transactions,
First
Hill
represented
BlueCrest portfolio companies;” and (3)
“[o]ver the years, First Hill’s principals
developed longstanding relationships of trust
and confidence with multiple partners at
BlueCrest, including the specific individuals
representing BlueCrest as relevant to these
claims.” (Compl. ¶ 34.) These barebones
and conclusory allegations are clearly
insufficient to establish a fiduciary duty with
respect to this separate and distinct
interaction.
parties by, among other ways, participating
in the potential buyer selection process,
offering
feedback
and
suggestions
concerning negotiating strategies with
specific potential counterparties, and
referring other potential purchasers to First
Hill . . . .” (Id. ¶ 54.) First Hill treats these
“actions” as tantamount to misstatements.
They are not. If mere “actions” were
sufficient to satisfy the “material
misstatement” element, there would be no
such thing as an “omission.” Accordingly,
First Hill has failed to adequately plead a
claim for fraud by misstatement.
First Hill’s fraud by omission theory
hinges on whether BlueCrest had a duty to
disclose material information to First Hill.7
As noted above, the law recognizes three
instances in which a duty to disclose arises,
and First Hill has established none of them.
See Aetna Cas. & Sur. Co., 404 F.3d at 582.
First, First Hill fails to sufficiently allege
that First Hill and BlueCrest were in a
fiduciary relationship. See Aetna Cas. &
Sur. Co., 404 F.3d at 582. “A fiduciary
relationship exists between two persons
when one of them is under a duty to act for
or to give advice for the benefit of another
upon matters within the scope of the
relation.” EBC I, Inc. v. Goldman, Sachs &
Co., 5 N.Y.3d 11, 19 (2005) (citation and
internal quotation marks omitted).
A
fiduciary relationship “is grounded in a
higher level of trust than normally present in
the marketplace between those involved in
Second, First Hill fails to sufficiently
allege that BlueCrest’s duty to disclose
arises “under the special facts doctrine,
where one party possesses superior
knowledge, not readily available to the
other, and knows that the other is acting on
the basis of mistaken knowledge.” See
Aetna Cas. & Sur. Co., 404 F.3d at 582.
Pursuant to the special facts doctrine, “a
party may have a duty to disclose
information
particularly
within
its
knowledge, [if (1) the] material fact was
information peculiarly within the knowledge
of the defendant, and (2) . . . the information
was not such that could have been
discovered by plaintiff through the exercise
of ordinary intelligence.”
Kriegel v.
Donelli, No. 11-cv-9160 (ER), 2014 WL
2936000, *13 n.14 (S.D.N.Y. June 30,
2014). First Hill does not allege that
7
At the pre-motion conference, Plaintiff
acknowledged that it was proceeding under an
omission theory of fraud. (See Pre-Motion Conf. Tr.
at 4:25–5:4 (“As your Honor pointed out, this is not a
fraud by affirmative representation, although possibly
something within discovery will reveal an affirmative
misrepresentation.
But it was really more by
omission, and by actions the active encouragement,
the direction . . . .”).)
9
BlueCrest possessed any such special facts,
other than to suggest that BlueCrest knew of
its intention to foreclose on Skinit and deal
directly with Proveho. But knowledge of
intention is not knowledge of facts, and
certainly not the kind of facts required under
the special facts doctrine. Cf. SSA Holdings
LLC v. Kaplan, -- N.Y.S.2d --, 2014 WL
4693760, *1 (App. Div. Sept. 23, 2014)
(holding that a duty to disclose did not arise
under the special facts doctrine where
“[w]hile there may have been concealment
of opinions, there was no concealment of the
facts upon which those opinions were based
and defendants were not bound to volunteer
their opinions” (citation and internal
quotation marks omitted)).
4580 (CM), 2012 WL 4336167, *4
(S.D.N.Y. Sept. 20, 2012). To state a claim
for fraudulent inducement that is distinct
from the already discussed theories of fraud,
First Hill must allege that BlueCrest
fraudulently induced First Hill into entering
the Skinit Engagement Agreement in the
first place. See Wall, 471 F.3d at 416 (“[A]
misrepresentation of material fact, which is
collateral to the contract and serves as an
inducement for the contract, is sufficient to
sustain a cause of action alleging fraud
[under New York law].” (citation and
internal quotation marks omitted)).
To this end, the Complaint states, in a
conclusory manner, that “[o]n or before [the
time First Hill entered the Skinit
Engagement Agreement], BlueCrest did not
manifest to First Hill any intention to
enforce its rights as a secured creditor
against Skinit for any existing defaults,
including the right to foreclose. Instead,
BlueCrest
actively
encouraged
and
supported First Hill’s retention and its
subsequent efforts to secure a purchaser that
would maximize Skinit’s value for all
interested parties.” (Compl. ¶ 39.) Once
again, First Hill fails to allege any
misstatements by BlueCrest or any reason
why BlueCrest would have a duty to
disclose its foreclosure plans to First Hill.
Accordingly,
First
Hill’s
fraudulent
inducement claim, like its fraud claim, fails
to meet the particularity requirements of
Rule 9(b) and must be dismissed.
Finally, First Hill fails to sufficiently
allege that BlueCrest “made a partial or
ambiguous statement, whose full meaning
[would] only be made clear after complete
disclosure.” Aetna Cas. & Sur. Co., 404
F.3d at 582. As discussed above, First Hill
does not sufficiently allege that BlueCrest
made any statements, much less partial or
ambiguous ones. Consequently, this avenue
is also foreclosed.
Having failed to plead the existence of a
duty to disclose on the part of BlueCrest,
First Hill’s fraud by omission claim must
likewise be dismissed.
b. Fraudulent Inducement
The Court next turns to First Hill’s
fraudulent inducement theory.
As
referenced earlier, “[p]roving fraudulent
inducement under New York law requires a
showing that (1) the defendant made a
material false representation, (2) the
defendant intended to defraud the plaintiff
thereby, (3) the plaintiff reasonably relied
upon the representation, and (4) the plaintiff
suffered damage as a result of such
reliance.” Netto v. Rastegar, No. 12-cv-
2. Conversion
To state a claim for conversion, a
plaintiff must show that (1) it has “legal
ownership or an immediate superior right of
possession to a specific identifiable thing,”
and (2) the defendant “exercised an
unauthorized dominion over the thing in
question to the exclusion of the plaintiff’s
rights.” Martinez, 863 F. Supp. 2d at 266.
10
First Hill alleges that it has “possessory
rights” in the success fees, the retainer fees,
and the expense reimbursements that First
Hill “was to earn under the Skinit
Engagement Agreement.” (Compl. ¶¶ 126–
27.) However, the law is clear that “[a]n
action for conversion of money is
insufficient as a matter of law unless it is
alleged that the money converted was in
specific tangible funds of which claimant
was the owner and entitled to immediate
possession. An action of conversion does
not lie to enforce a mere obligation to pay
money.” Erhlich v. Howe, 848 F. Supp.
482, 492 (S.D.N.Y. 1994). First Hill has
failed to allege the existence of tangible
funds of which it was the owner because
First Hill’s finder’s fee was never triggered,
as Skinit was ultimately sold pursuant to a
foreclosure sale. Accordingly, First Hill
cannot state a conversion claim.
there is no “relationship between the parties
that could have caused reliance or
inducement,” Wildenstein, 16 N.Y.3d at 182.
In Bradkin v. Leverton, the Court of
Appeals determined that, while there had
been no direct dealings between the parties,
their relationship was sufficiently close to
allege an unjust enrichment claim where the
defendant had been an officer of the
corporation with which the plaintiff had
contracted. See 26 N.Y.2d 192 (1970). The
facts of Bradkin are instructive here. There,
the plaintiff had entered into a written
contract with his employer whereby the
plaintiff would receive a finder’s fee in
exchange for “finding” a “corporation[]
which needed financing,” as well as ten
percent of net profits from subsequent
financings.
Id. at 194.
The plaintiff
successfully secured such a corporation, and
received the first component of the finder’s
fee. See id. at 194–95. However, on the eve
of a subsequent financing, the employer
withdrew from the transaction and, instead,
one of its officers privately financed the
corporation, thus depriving the plaintiff of
his ten percent fee. See id. In recognizing
the plaintiff’s unjust enrichment claim
against the officer, the Court of Appeals
reaffirmed the Statute of Frauds’s
requirement that “[a] contract to pay a
finder’s fee . . . be in writing.” Id at 198.
However, the Court further held that
“although there was no agreement between
them, express or implied, the defendant
received a benefit from the plaintiff’s
services under circumstances which, in
justice, preclude him from denying an
obligation to pay for them.” Id. at 197.
3. Unjust Enrichment
The New York Court of Appeals
recently reiterated that “the theory of unjust
enrichment . . . contemplates an obligation
imposed by equity to prevent injustice, in
the absence of an actual agreement between
the parties.” Georgia Malone & Co. v.
Rieder, 19 N.Y.3d 511, 516 (2012) (citations
and internal quotation marks omitted). To
state a claim for unjust enrichment, Plaintiff
must show that (1) “[BlueCrest] was
enriched at [First Hill’s] expense,” and that
(2) “equity and good conscience require”
recovery. Giordano v. Thomson, 564 F.3d
163, 170 (2d Cir. 2009). While there is no
privity requirement to state an unjust
enrichment claim, “a claim will not be
supported if the connection between the
parties is too attenuated.”
Mandarin
Trading Ltd. v. Wildenstein, 16 N.Y.3d 173,
182 (2011). The connection between the
parties is “too attenuated” where the parties
“simply had no dealings with each other,”
Georgia Malone, 19 N.Y.3d at 517–18, or if
Here, the Complaint alleges that
BlueCrest was aware of First Hill’s
agreement with Skinit, that First Hill
introduced Proveho to BlueCrest, and that
the ultimate transaction between BlueCrest
and Proveho tracked the structure and terms
11
negotiated by First Hill – minus the success
fee and costs owed to First Hill under the
Skinit Engagement Agreement. With these
facts, First Hill has sufficiently stated a
claim for unjust enrichment under New
York law.
4. Tortious Interference with Contract
First Hill next alleges that BlueCrest
tortiously interfered with the Skinit
Engagement Agreement. (See Compl. ¶¶
114–24.) Specifically, First Hill asserts that
BlueCrest, by “usurp[ing] the transaction
with Proveho,” “intentionally interfered with
Skinit’s and First Hill’s ability to perform
under the Skinit Engagement Agreement,
rendering [its] performance impossible.”
(Id. ¶ 118.)
BlueCrest argues that First Hill cannot
proceed with an unjust enrichment claim
because “[w]here the plaintiff is a party to a
valid contract, an unjust enrichment claim
arising out of that contract must be
dismissed, particularly where the claim is
brought against a party that is not subject to
the contract.” (Mem. at 16.) BlueCrest
relies on a series of cases in which this
Court dismissed claims for unjust
enrichment where a valid and enforceable
written contract governed the subject matter
of the dispute. (See id. (citing Ellington
Credit Fund, Ltd. v. Select Portfolio
Servicing, Inc., 837 F. Supp. 2d 162, 202–03
(S.D.N.Y. 2011); Network Enters., Inc. v.
Reality Racing, Inc., No. 09-cv-4664 (RJS),
2010 WL 3529237, at *7 (S.D.N.Y. Aug.
24, 2010); Law Debenture v. Maverick Tube
Corp., No. 06-cv-14320 (RJS), 2008 WL
4615896, at *12–13 (S.D.N.Y. Oct. 15,
2008).) However, those cases are readily
distinguishable from this one, since no valid
contract governs the subject matter at issue
here. Pursuant to the Skinit Engagement
Agreement, First Hill’s potential success fee
was triggered by an asset sale involving
Skinit and a purchaser, not a foreclosure sale
of the type that ultimately occurred. Instead,
as noted above, the more analogous case is
Bradkin, in which the New York Court of
Appeals recognized the viability of an unjust
enrichment claim on similar facts.
To state a claim of tortious interference
with contractual relations, a plaintiff must
allege “(1) a valid contract between plaintiff
and a third party; (2) defendant’s knowledge
of this contract; (3) defendant’s intentional
acts designed to induce a breach or
disruption of the contractual relationship; (4)
actual breach or disruption of the contractual
relationship; and (5) resulting damage.”
Pac. Gas & Electric Co, 50 Cal. 3d at 1126.
Such a claim lies “when there is a lack
of sufficient justification or privilege for
such interference.” Sade Shoe Co. v. Oschin
& Snyder, 162 Cal. App. 3d 1174, 1179
(Cal. Ct. App. 1984). California courts have
recognized a financial interest privilege, as
set forth in the Restatement (First) of Torts
§ 769, as follows:
One who has a financial interest in
the business of another is privileged
purposely to cause him not to enter
into or continue a relation with a
third person in that business if the
actor
(a) does not employ improper means,
and
Accordingly, although BlueCrest may
have numerous defenses to the claims and
may ultimately assert and prove contrary
facts, its motion to dismiss First Hill’s
unjust enrichment claim must be denied.
(b) acts to protect his interest from
being prejudiced by the relation.
12
Rest. (1st) of Torts; see also Sade Shoe Co.,
162 Cal. App. 3d at 1181.
First Hill’s tortious interference claim is
denied.
“Because privilege is an affirmative
defense which defendants have the burden
of proving, and the issue of whether a
defendant employed wrongful means or
acted to harm the plaintiff often turns on the
defendant’s state of mind, the existence of
the privilege cannot
normally be
satisfactorily determined on the basis of
pleadings alone.” Valvoline Instant Oil
Change Franchising, Inc. v. RFG Oil, Inc.,
No. 12-cv-2079 (GPC), 2013 WL 4027858,
*7 (S.D. Cal. Aug. 5, 2013) (citation and
internal quotation marks omitted); see also
Woods v. Fox Broad. Sub., Inc., 129 Cal.
App. 4th 344, 351 n.7, (Cal. Ct. App. 2005)
(“It is a qualified privilege that turns on the
defendant’s state of mind, the circumstances
of the case, and the defendant’s immediate
purpose when inducing a breach of
contract.” (citations and internal quotation
marks omitted)). “The resolution of the
[privilege] issue turns on the defendants’
predominant purpose in inducing the breach
of the contract.” Culcal Stylco, Inc. v.
Vornado, Inc., 26 Cal. App. 3d 879, 883
(Cal. Ct. App. 1972). Dismissal on the
pleadings is only appropriate where the
complaint shows justification or privilege as
a matter of law that is “privileged under all
conceivable circumstances.” Id. at 881–83;
see also Sade Shoe Co., 162 Cal. App. 3d at
1180 (“[J]ustification may not be considered
as supporting the trial court’s action in
sustaining a demurrer unless it appears on
the face of the complaint.”).
5. Leave to Amend
On the last page of its opposition brief,
First Hill requests leave to amend the
Complaint should the Court dismiss any its
claims. (See Opp. at 25.)
Rule 15 of the Federal Rules of Civil
Procedure provides that courts should
“freely give leave [to amend] when justice
so requires.” Fed. R. Civ. P. 15(a)(2).
Nonetheless, “it is within the sound
discretion of the district court to grant or
deny leave to amend.” McCarthy v. Dun &
Bradstreet Corp., 482 F.3d 184, 200 (2d Cir.
2007). Thus, “[l]eave to amend, though
liberally granted, may properly be denied
for: undue delay, bad faith or dilatory
motive on the part of the movant, repeated
failure to cure deficiencies by amendments
previously allowed, undue prejudice to the
opposing party by virtue of allowance of the
amendment, futility of amendment, etc.”
Ruotolo v. City of N.Y., 514 F.3d 184, 191
(2d Cir. 2008) (citation and internal
quotation marks omitted). The futility of an
amendment is assessed under the standard
for a Rule 12(b)(6) motion to dismiss. See
Dougherty v. Town of N. Hempstead Bd. of
Zoning Appeals, 282 F.3d 83, 88 (2d Cir.
2002) (“An amendment to a pleading will be
futile if a proposed claim could not
withstand a motion to dismiss pursuant to
Rule 12(b) (6).”). A plaintiff must therefore
provide some indication of the substance of
the contemplated amendment before a court
could entertain the request. See In re
WorldCom, Inc. Sec. Litig., 303 F. Supp. 2d
385, 391 (S.D.N.Y. 2004) (“In the absence
of any identification of how a further
amendment would improve upon the
[c]omplaint, leave to amend must be denied
as futile.”).
To be sure, BlueCrest, as a secured
creditor, had a clear financial interest in the
business of Skinit.
However, whether
BlueCrest employed wrongful means or
acted to harm First Hill is not clear on the
face of the Complaint, and thus, cannot be
resolved on this stage of the proceedings.
Accordingly, BlueCrest’s motion to dismiss
13
The Clerk of the Court is respectfully
directed to terminate the motions pending at
docket entries 22.
Here, First Hill does not explain what its
desired amendment to the Complaint would
say or how the change would overcome a
subsequent motion to dismiss. Moreover,
First Hill was given a preview of
BlueCrest's motion and arguments in its premotion letter and at the pre-motion
conference, and yet made no request to
amend its pleading at that time. "While
pleading is not a game of skill in which one
misstep may be decisive to the outcome,
neither is it an interactive game in which
plaintiffs file a complaint, and then bat it
back and forth with the Court over a
rhetorical net until a viable complaint
emerges." In re Refco Capital Markets, Ltd
Brokerage Customer Sec. Litig., No. 06-cv643 (GEL), 2008 WL 4962985, *2
(S.D.N.Y. Nov. 20, 2008) (citations and
internal
quotation
marks
omitted).
Accordingly, as First Hill has offered no
explanation or justification for its
contemplated amendment, its request to
amend the Complaint is denied.
SO ORDERED.
~]Zq"
ICHARDiSlfLLIVAN
United States District Judge
Dated: September 30, 2014
New York, New York
*
*
*
Plaintiff is represented by Evan K.
Farber, Reed Smith LLP, 599 Lexington
Avenue, New York, New York 10022.
Defendants are represented by George R.
Hinckley, Jr. and Christoph C. Heisenberg,
880 Third Avenue, 13th Floor, New York,
New York 10022.
IV. CONCLUSION
For the reasons set forth above, IT IS
HEREBY ORDERED THAT Defendants'
motion to dismiss is GRANTED with
respect to First Hill's fraud/fraudulent
inducement and conversion claims and
DENIED with respect to First Hill's unjust
enrichment and tortious interference claims.
In order to set a discovery schedule, the
parties shall jointly submit a proposed case
management plan no later than October 8,
2014.
14
J
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