Erie Group LLC et al v. Guyaba Capital, LLC et al
OPINION AND ORDER re: 18 MOTION to Dismiss . filed by Guayaba GP, LLC, Keith Espinosa, Guyaba Capital, LLC. For the foregoing reasons, defendants' motion is GRANTED, the securities fraud claims are dismissed with prejudice, an d the common law claims are dismissed because I decline to exercise jurisdiction over them. The Clerk of the Court is directed to close this motion (Docket No. 18) and this case. SO ORDERED. (Signed by Judge Shira A. Scheindlin on 6/8/2015) (ajs)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
ERIE GROUP LLC, Individually and on behalf
ofGUAYABA CAPITAL TOTAL RETURN
OPINION AND ORDER
-againstGUAYABA CAPITAL, LLC,
GUAYABA GP, LLC, KEITH ESPINOSA,
SS&C TECHNOLOGIES INC., and
SHIRA A. SCHEINDLIN, U.S.D.J.:
Erie Group LLC ("Erie"), an investor in the hedge fund Guayaba
Capital Total Return Fund L.P. (the "Fund"), asserts violations of section 1O(b) of
the Securities Exchange Act of 1934 ("Exchange Act") and Rule 1Ob-5
promulgated thereunder against Guayaba Capital, LLC ("GCL"), the Fund's
investment manager, Guayaba GP, LLC ("GGL"), the Fund's general partner, and
Keith Espinosa, GCL's sole member. Erie also asserts a violation of section 20(a)
of the Exchange Act against Espinosa, and common law claims for fraud, negligent
misrepresentation, breach of fiduciary duty, and aiding and abetting breach of
fiduciary duty against all defendants.1 Defendants now move to dismiss the
Complaint for failure to state a claim under Rule 12(b)(6) of the Federal Rules of
Civil Procedure. For the following reasons, defendants’ motion is GRANTED and
the Complaint is dismissed.
Espinosa was the managing member of GCL and GGL.3 Prior to
2012, Espinosa met with non-party Eugene Belozersky to discuss Belozersky’s
high-frequency trading algorithm (“Mouse Trap”).4 Espinosa expressed interest in
The Verified Complaint (“Complaint”) indicates that Erie brings this
action individually and on behalf of the Fund. For example, Erie asserts derivative
claims on behalf of the Fund for fraud, negligent misrepresentation, breach of
fiduciary duty, and aiding and abetting breach of fiduciary duty against defendants
SS&C Technologies, Inc. (“SS&C”), the Fund’s outside administrator, and Gus
Sacoulas, an employee of SS&C. It appears, however, that the securities fraud
claims are brought by Erie solely in its individual capacity, as the purchaser of a
limited partnership in the now-dissolved Fund. See Plaintiffs’ Memorandum of
Law in Opposition to Defendants’ Motion to Dismiss (“Pl. Opp.”), at 22 (“The
Complaint establishes that plaintiffs [sic] have standing to bring this suit as
purchasers of a security interest within the Fund. Plaintiff was a limited partner in
the Fund.”). As this Opinion and Order primarily addresses the securities fraud
claims, I will refer to Erie as the “plaintiff.”
The facts below are taken from the Complaint.
See Compl. ¶ 22.
See id. ¶¶ 32, 35.
creating an investment vehicle to harness the trading potential of Mouse Trap, and
formed GGL for that purpose.5 The first potential investor in Mouse Trap was the
Lombardo Group (“Lombardo”). Lombardo negotiated an investment with
defendants’ counsel, but did not make an investment.6 GCL paid over $51,000 in
legal fees in connection with the proposed Lombardo deal.7
In October 2012, Belozersky, in his capacity as a trader for GGL,
approached Erie regarding a potential investment in the prospective Fund.8 “After
a series of emails and meetings, Erie agreed to invest one million dollars in the
Fund.”9 Espinosa switched counsel and new counsel charged $32,000 to draft the
deal documents associated with the formation of the Fund.10 Espinosa
communicated regularly with the principals of Erie for the five months prior to the
launch of the Fund.11
The Omissions and the Deal Documents
See id. ¶ 36-37.
See id. ¶¶ 43-46.
See id. ¶¶ 47-48.
See id. ¶ 49.
Id. ¶ 51.
See id. ¶ 55.
See id. ¶ 56.
Each misstatement identified in the Complaint is alleged as a failure to
disclose. The Complaint alleges that defendants did not disclose: (1) the failed
Lombardo investment; (2) the material liability incurred as a result of negotiating
with Lombardo; (3) the intent to pass that liability on to the Fund as a start-up
expense; (4) the intent to hold the Fund liable for the costs of operating GCL and
GGL, including the legal fees associated with negotiating and drafting the
operating and employment agreements for Espinosa’s LLCs; (5) the plan to shift
all material liabilities of GCL and GGL to the Fund in the event the Fund was not
successful; and (6) that Erie held 92.6 percent of the limited partnership interest in
the Fund.12 On March 4, 2013, Erie reviewed a Private Offering Memorandum,
and as a result of the omissions identified above, executed a Limited Partnership
Agreement on March 25, 2013.13
The Fund and Its Failure
The Fund began trading with Mouse Trap in April 2013.14 However,
Mouse Trap failed to perform according to the projections and the back-testing that
See id. ¶¶ 57-62.
See id. ¶¶ 17, 18, 67.
See id. ¶ 73.
had been advertised.15 Due to the Fund’s poor performance — even after Espinosa
changed the trading strategy — Erie sought to withdraw from the Fund in
November 2013.16 Espinosa permitted Erie to withdraw from the Fund without
invoking the lock-up penalty. Because Espinosa represented that the Fund had lost
6.5 percent of its value through trading losses, Erie estimated its loss to be roughly
$65,000, based on its initial one million dollar investment.17
Following Erie’s withdrawal, Espinosa dissolved the Fund.18 The
dissolution resulted in the Fund being charged an early termination fee of $12,000
by the administrator.19 In November 2013, Espinosa informed Erie that it would be
charged the expenses associated with the dissolution and termination of the Fund.20
Espinosa presented a final accounting statement and caused Erie’s capital account
in the limited partnership to be reduced by over $108,676 as “fees and expenses”
associated with Erie’s investment.21 In May 2014, Espinosa provided Erie with a
See id. ¶ 74.
See id. ¶¶ 75-76, 78.
See id. ¶¶ 79-81.
See id. ¶ 82.
See id. ¶ 83.
See id. ¶ 84.
See id. ¶ 85.
“K-1” statement of partnership interest for calendar year 2013. According to the
K-1, Erie’s trading losses were only $38,597 or 3.8 percent, not 6.5 percent as had
been represented. At the same time, the expenses charged to Erie increased to
$124,569. Accordingly, Erie alleges a total loss of $163,066.22
STANDARD OF REVIEW
Motion to Dismiss Under Rule 12(b)(6)
In deciding a motion to dismiss pursuant to Rule 12(b)(6), the court
must “accept all factual allegations in the complaint as true and draw all
reasonable inferences in the plaintiff’s favor.”23 The court evaluates the
sufficiency of the complaint under the “two-pronged approach” set forth by the
Supreme Court in Ashcroft v. Iqbal.24 Under the first prong, a court may “begin by
identifying pleadings that, because they are no more than conclusions, are not
entitled to the assumption of truth.”25 For example, “[t]hreadbare recitals of the
See id. ¶¶ 90-92. The Complaint also contains several allegations that
only appear once and receive no further elaboration. See id. ¶¶ 10 (“Defendants
failed to disclose that the trading fees, short interest, and commissions would be a
significant part of the trading losses.”), 11 (“Defendants misrepresented the value
of plaintiffs’ interest in the fund when they provided the plaintiff with several
monthly reports with inflated financial information.”).
Grant v. County of Erie, 542 Fed. App’x 21, 23 (2d Cir. 2013).
See 556 U.S. 662, 678-79 (2009).
Id. at 679.
elements of a cause of action, supported by mere conclusory statements, do not
suffice.”26 Under the second prong of Iqbal, “[w]hen there are well-pleaded factual
allegations, a court should assume their veracity and then determine whether they
plausibly give rise to an entitlement for relief.”27 A claim is plausible “when the
plaintiff pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.”28 “The
plausibility standard is not akin to a probability requirement” because it requires
“more than a sheer possibility that a defendant has acted unlawfully.”29
When deciding a motion to dismiss, “a district court may consider the
facts alleged in the complaint, documents attached to the complaint as exhibits, and
documents incorporated by reference in the complaint.”30 A court may also
consider a document that is not incorporated by reference “where the complaint
‘relies heavily upon its terms and effect,’ thereby rendering the document ‘integral’
Id. at 678.
Id. at 679.
Id. at 678.
Id. (quotation marks omitted).
DiFolco v. MSNBC Cable LLC, 622 F.3d 104, 111 (2d Cir. 2010)
(citing Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002)).
to the complaint.”31
Heightened Pleading Standard Under Rule 9(b) and the Private
Securities Litigation Reform Act (“PSLRA”)
Private securities fraud claims are subject to a heightened pleading
standard. First, Rule 9(b) requires plaintiffs to allege the circumstances
constituting fraud with particularity. However, “[m]alice, intent, knowledge, and
other conditions of a person’s mind may be alleged generally.”32
Second, the PSLRA provides that, in actions alleging securities fraud,
“the complaint shall, with respect to each act or omission alleged to violate this
chapter, state with particularity facts giving rise to a strong inference that the
defendant acted with the required state of mind.”33
Leave to Amend
Whether to permit a plaintiff to amend its complaint is a matter
committed to a court’s “sound discretion.”34 Federal Rule of Civil Procedure 15(a)
provides that leave to amend a complaint “shall be freely given when justice so
Id. (quoting Mangiafico v. Blumenthal, 471 F.3d 391, 398 (2d Cir.
Fed. R. Civ. P. 9(b).
15 U.S.C. § 74u-4(b)(2).
McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 200 (2d Cir.
requires.”35 “When a motion to dismiss is granted, the usual practice is to grant
leave to amend the complaint.”36 In particular, it is the usual practice to grant at
least one chance to plead fraud with greater specificity when a complaint is
dismissed under Rule 9(b).37 Leave to amend should be denied, however, where
the proposed amendment would be futile.38
Section 10(b) of the Exchange Act and Rule 10b-5
Section 10(b) of the Exchange Act prohibits using or employing, “in
connection with the purchase or sale of any security . . . any manipulative or
deceptive device or contrivance. . . .”39 Rule 10b-5, promulgated thereunder, makes
it illegal to “make any untrue statement of a material fact or to omit to state a
material fact . . . in connection with the purchase or sale of any security.”40 To
sustain a claim for securities fraud under section 10(b), “a plaintiff must prove (1) a
Fed. R. Civ. P. 15(a).
Hayden v. County of Nassau, 180 F.3d 42, 53 (2d Cir. 1999).
See ATSI, 493 F.3d at 108.
See Dougherty v. Town of N. Hempstead Bd. of Zoning Appeals, 282
F.3d 83, 87-88 (2d Cir. 2002).
15 U.S.C. § 78j(b).
17 C.F.R. § 240.10b-5.
material misrepresentation or omission by the defendant; (2) scienter; (3) a
connection between the misrepresentation or omission and the purchase or sale of a
security; (4) reliance upon the misrepresentation or omission; (5) economic loss;
and (6) loss causation.”41
Material Misstatements or Omissions
In order to satisfactorily allege misstatements or omissions of material
fact, a complaint must “state with particularity the specific facts in support of
[plaintiffs’] belief that [defendants’] statements were false when made.”42 “[A] fact
is to be considered material if there is a substantial likelihood that a reasonable
person would consider it important in deciding whether to buy or sell [securities] . .
. .”43 Mere “allegations that defendants should have anticipated future events and
made certain disclosures earlier than they actually did do not suffice to make out a
claim of securities fraud.”44
Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S.
148, 157 (2008).
Rombach v. Chang, 355 F.3d 164, 172 (2d Cir. 2004) (internal
quotation marks omitted).
Operating Local 649 Annuity Trust Fund v. Smith Barney Fund Mgmt.
LLC, 595 F.3d 86, 92-93 (2d Cir. 2010) (internal quotation marks omitted).
Id. Accord Rothman v. Gregor, 220 F.3d 81, 90 (2d Cir. 2000).
The required level of scienter under section 10(b) is either “intent to
deceive, manipulate, or defraud”45 or “reckless disregard for the truth.”46 Plaintiffs
may meet this standard by “alleging facts (1) showing that the defendants had both
motive and opportunity to commit the fraud or (2) constituting strong circumstantial
evidence of conscious misbehavior or recklessness.”47 Under the latter theory,
plaintiffs must allege that the defendants have engaged in “conduct which is highly
unreasonable and which represents an extreme departure from the standards of
ordinary care to the extent that the danger was either known to the defendant or so
obvious that the defendant must have been aware of it.”48 “[S]ecurities fraud claims
typically have sufficed to state a claim based on recklessness when they have
specifically alleged defendants’ knowledge of facts or access to information
contradicting their public statements. Under such circumstances, defendants knew
Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 (1976).
South Cherry St., LLC v. Hennessee Grp. LLC, 573 F.3d 98, 109 (2d
Cir. 2009) (“By reckless disregard for the truth, we mean ‘conscious recklessness
— i.e., a state of mind approximating actual intent, and not merely a heightened
form of negligence.’”) (quoting Novak v. Kasaks, 216 F.3d 300, 308 (2d Cir.
ATSI, 493 F.3d at 99 (citing Ganino v. Citizens United Co., 228 F.3d
154, 168-69 (2d Cir. 2000)).
Kalnit v. Eichler, 264 F.3d 131, 142 (2d Cir. 2001) (internal quotation
marks and citations omitted).
or, more importantly, should have known that they were misrepresenting material
facts related to the corporation.”49 An inference of scienter “must be more than
merely plausible or reasonable — it must be cogent and at least as compelling as
any opposing inference of nonfraudulent intent.”50
Section 20(a) of the Exchange Act
Section 20(a) of the Exchange Act creates a cause of action against
“control persons” of the primary violator.51 “To establish a prima facie case of
control person liability, a plaintiff must show (1) a primary violation by the
controlled person, (2) control of the primary violator by the defendant, and (3) that
the defendant was, in some meaningful sense, a culpable participant in the
controlled person’s fraud.”52 Where there is no primary violation, there can be no
“control person” liability under section 20(a).53
The Complaint Does Not State a Claim Under Section 10(b)
Novak, 216 F.3d at 308.
Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 314
See 15 U.S.C. § 78t(a).
ATSI, 493 F.3d at 108.
See id. See also In re eSpeed, Inc. Sec. Litig., 457 F. Supp. 2d 266,
297-98 (S.D.N.Y. 2006).
This case is not about the poor performance of the Fund and the
trading losses Erie sustained as a result, or misrepresentations concerning the
efficacy of Mouse Trap. Instead, Erie alleges that defendants “conceal[ed]
significant material liabilities [of GCL and GGL], thereby inflating the value of the
limited partnership interest held by [Erie].”54 Further, Erie contends that
“[d]efendants concealed their plan to hold [Erie] liable for  92.6 percent of the[se]
undisclosed material liabilities . . . .”55 According to Erie, defendants engaged in
this conduct in order to induce Erie’s investment in the Fund.56
The Complaint Fails to Plead Any Actionable Misstatements
The Complaint fails to “state with particularity the specific facts in
support of [plaintiff’s] belief that [defendants’] statements were false when made.”57
The Complaint does not identify any affirmative misrepresentations made by the
defendants. Instead, the Complaint seeks to impose liability based on defendants’
Compl. ¶ 3.
Id. ¶ 8.
See id. ¶ 99. However, Erie does not allege that it would not have
invested in the Fund had it known about the undisclosed liabilities. Rather, Erie
alleges that “[a]s a result of the omissions and false material misrepresentations of
the Defendants, Plaintiff purchased [a] limited partnership interest in the fund at
[an] inflated valuation.” Id. ¶ 101.
Rombach, 355 F.3d at 172 (internal quotation marks omitted).
“Rule 10b-5 forbids the making of any untrue statement of a material
fact or the omission of any material fact necessary in order to make the statements
made not misleading.”58 The Complaint alleges that there were five months of
conversations between Erie’s principal and Espinosa, yet fails to identify the
content of any of those communications.59 Because the Complaint fails to identify
any misleading statements made by defendants, and instead forces the Court to
speculate about what statements made by defendants were allegedly misleading, the
Court cannot determine whether disclosure of any of the alleged omissions would
have made any of those statements not misleading. Thus, the Complaint does not
permit a reasonable inference that disclosure of the alleged omissions was required.
The only specific allegation is that “[d]efendants disguised  material
Dalberth v. Xerox Corp., 766 F.3d 172, 182 (2d Cir. 2014) (quotation
marks and alterations omitted). Accord Glazer v. Formica Corp., 964 F.2d 149,
156 (2d Cir. 1992) (explaining that “there is no liability under Rule 10b-5 unless
there is a duty to disclose [the information]”); Monroe County Employees’
Retirement Sys. v. YPF Sociedad Anonima, 15 F. Supp. 3d 336, 349 (S.D.N.Y.
2014) (stating that an “omission is only actionable ‘when the failure to disclose
renders a statement misleading’”) (quoting In re Alstom SA, 406 F. Supp. 2d 433,
453 (S.D.N.Y. 2005) (citing In re Time Warner Inc. Sec. Litig., 9 F.3d 259, 268 (2d
The Complaint also does not attach as exhibits the Private Offering
Memorandum or the Limited Partnership Agreement, or otherwise refer to the
provisions of these Agreements concerning Erie’s potential liability for partnership
liabilities within the financial books and records of companies plaintiff did not own
an interest in, thus preventing plaintiff from discovering these liabilities through
due diligence.”60 This allegation does not describe a misstatement or an omission
per se, but even assuming it did, the Complaint does not permit an inference that the
alleged omissions are material. While Erie alleges that it was charged $124,469 in
expenses, the Complaint does not itemize these expenses, and the expenses that are
listed in the Complaint — $12,000 charged for early termination, $32,000 for legal
fees associated with the formation of the Fund, and $51,167.77 in legal feels related
to the failed Lombardo deal — do not total $124,469.61 Of these expenses, the only
one described in the Complaint that relates to the Lombardo deal is $51,167.77 in
legal fees,62 and Erie’s 92.6 percent responsibility for those fees is $47,381.36.
There is no basis to infer that a charge of $47,381.36 is material in the context of a
one million dollar investment.63 Indeed, the Complaint does not provide any
Compl. ¶ 5.
See id. ¶¶ 83, 55, 47. Erie does not challenge the accuracy of the
expense accounting or allege that the charges were in breach of the parties’
See id. ¶ 47.
See ECA, Local 134 IBEW Joint Pension Trust of Chicago v. JP
Morgan Chase Co., 553 F.3d 187, 204 (2d Cir. 2009) (stating that the “use of a
percentage as a numerical threshold, such as 5%, may provide the basis” for
determining whether an alleged misstatement could be material) (quotation marks
indication of how the partnership shares were priced, and therefore whether
inclusion of the Lombardo fees materially impacted the price of the shares.64
Because Erie received its investment back after the dissolution of the Fund, its only
losses are a small investment loss and the disputed expenses. Accordingly, the
Complaint fails to plead any actionable misstatements or omissions.65
The Complaint Fails to Adequately Allege Scienter or
The Complaint’s scienter allegations consist almost entirely of legal
conclusions that are not entitled to a presumption of truth. Particularly glaring is
that the Complaint is devoid of allegations concerning Espinosa’s motivation to
defraud Erie. The Complaint does not “with respect to each act or omission alleged
to violate this chapter, state with particularity facts giving rise to a strong inference
In its opposition papers, plaintiff also refers to a $25,000 fee that
Lombardo collected from Espinosa. But that fee is not mentioned in the
Complaint. Furthermore, the inclusion of an additional $23,150, or 92.6 percent of
$25,000, would still not give rise to an inference of materiality.
The failure to disclose that Erie held an interest of over ninety percent
or that the Lombardo transaction was a failure do not by themselves suggest either
falsity or materiality. Likewise, although the Complaint alleges that defendants
intended to charge Erie certain fees, the Complaint does not allege that charging
these fees constituted a breach of the terms of either the Private Offering
Memorandum or the Limited Partnership Agreement.
that the defendant acted with the required state of mind.”66
The facts alleged in the Complaint tend to undermine any plausible
inference of intent in connection with the initial sale of securities. Espinosa only
sought to charge the fees after Erie withdrew and the Fund was dissolved. The
Complaint does not allege how Espinosa could have extracted these fees if the Fund
had continued to perform and Erie did not withdraw. In addition, Erie’s
responsibility for 92.6 percent of the Fund’s expenses also appears to be a function
of the timing of the dissolution of the Fund, not any intentional conduct by
Espinosa: had the Fund been successful, other investors may have joined or
existing investors may have increased their holdings, thereby reducing Erie’s share.
Finally, plaintiff does not even argue, let alone plead, that at the time
of transacting with defendants it inquired about the debts of the enterprise, whether
there had been previous but failed attempts to attract investors, or whether there
were other investors. Nor does plaintiff describe the due diligence it conducted
prior to entering into the partnership. In other words, plaintiff fails to plead
reasonable reliance. In fact, the far stronger inference is that plaintiff failed to
undertake the due diligence expected of a sophisticated investor in an arm’s length
transaction. Thus, the Complaint fails to plead the required elements of a claim
15 U.S.C. § 74u-4(b)(2).
under section 10(b). Accordingly, this claim must be dismissed.
Control Person Liability
A primary violation of the securities laws is an element of control
person liability under section 20(a).67 Because I have already held that Erie has not
adequately alleged a primary violation, Erie’s control person claim against Espinosa
must also be dismissed.
State Law Claims
Because there are no remaining federal claims, I decline to exercise
supplemental jurisdiction over plaintiff’s state law claims.68 Accordingly, the
claims against each defendant must be dismissed.
Leave to Replead
Plaintiff requests leave to amend in the event any portion of
defendants’ motion is granted. Leave to amend should be freely given “when
justice so requires.”69 However, based on my review of the Complaint and
plaintiff’s submissions in opposition to defendants’ motion, justice does not require
See ATSI, 493 F.3d at 108.
See Pitchell v. Callan, 13 F.3d 545, 549 (2d Cir. 1994) (stating that “it
is axiomatic that a court should decline to exercise jurisdiction over state-law
claims when it dismisses the federal claims prior to trial”).
Fed. R. Civ. P. 15(a)(2).
leave to replead the securities fraud claims.
First, plaintiff has already had an opportunity to amend its claims and
had notice of defendants’ anticipated defenses prior to the filing of this motion to
dismiss.70 Second, plaintiff did not indicate what additional allegations it would add
to the Complaint to cure the deficiencies described by defendants in this motion.
Third, the paucity of plaintiff’s allegations seems intentional. Plaintiff refers to the
parties’ underlying Agreements in the Complaint, but strategically fails to describe
their terms. The failure to describe these terms is strategic because both the Private
Offering Memorandum and the Limited Partnership Agreement contain provisions
addressing the obligations of the partnership to pay certain expenses.71 Likewise,
See Individual Rules and Procedures of Judge Shira A. Scheindlin,
Rule IV.B (stating that parties must exchange letters prior to bringing a motion to
dismiss to “attempt to eliminate the need for [the] motion”).
See 3/25/13 Limited Partnership Agreement of Guayaba Total Return
Fund LP, Ex. B to the Amended Declaration of Igor Severinovskiy, the Managing
Member of Erie, in Opposition to Defendants [sic] Motion to Dismiss
(“Severinovskiy Decl.”), §§ 4.02 (“All other expenses shall be borne by the
Partnership and shall include: the Management Fee; the Partnership’s legal,
compliance, administrator, audit and accounting expenses (including third party
accounting services); organizational expenses . . .[;] and any other expenses related
to the purchase, sale, preservation or transmittal of Partnership assets.), 4.03 (“The
organizational expenses of the Partnership (including expenses of the initial offer
and sale of limited partnership interests) will be paid by the Partnership.”); and
3/–/13 Confidential Private Offering Memorandum, Ex. D to the Severinovskiy
Decl., at 7-8 (describing expenses to be borne by the Partnership, including legal
the Complaint alleges that “Espinosa communicated regularly with the principals of
Erie for the five months prior to the launch of the Fund,” but does not contain a
single allegation revealing the content of those communications.72
Finally, at its core, this case is about Erie being charged $124,469 in
expenses after the dissolution of the Fund. It is not about investment losses due to
misrepresentations about the value of a security. Whether or not those expenses
were rightly included in the charges passed along to Erie is a question of contract
law, but the facts of this case do not suggest a securities fraud violation.73
For the foregoing reasons, defendants’ motion is GRANTED, the
securities fraud claims are dismissed with prejudice, and the common law claims
Compl. ¶ 56.
Based on the terms of the parties’ Agreements, Erie cannot plead facts
consistent with reasonable reliance. Plaintiff nonetheless directs the Court’s
attention to a December 2012 Confidential Private Placement Memorandum of
Guayaba Capital Total Return Fund, LLC (“CPPM”), which is attached as Exhibit
C to the Severinovskiy Declaration. However, according to the Complaint, it is
Erie’s investment in, and the charges incurred by the Fund, a limited partnership,
which are at issue in this action, not charges to Guayaba Capital Total Return
Fund, LLC, a fund in which Erie did not invest. Moreover, the Complaint alleges
that Erie relied on the Private Offering Memorandum, not the CPPM. The
language plaintiff cites from the CPPM is irrelevant — and potentially misleading
to the Court. The Private Offering Memorandum upon which plaintiff is alleged to
have relied explicitly permits charging the Fund for certain fees, even assuming the
CPPM does not, but plaintiff fails to quote the operative provisions of the Private
Offering Memorandum in the Complaint.
are dismissed because I decline to exercise jurisdiction over them. The Clerk of the
Court is directed to close this motion (Docket No. 18) and this case.
New York, New York
June 8, 2015
- Appearances For Defendants Guayaba Capital,
LLC, Guayaba GP, LLC, and Keith
Feliks Finkel, Esq.
Finkel Associates LLC
237 Marcus Garvey Blvd.
Brooklyn, New York 11221
Richard G. Haddad, Esq.
230 Park Avenue
New York, New York 10169
For Defendants SS&C Technologies,
Inc. and Gus Sacoulas:
Gregory J. Hindy, Esq.
McCarter & English, LLP
245 Park Avenue, 27th Floor
New York, New York 10167
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?