Kirschner, v. JP Morgan Chase Bank, N.A. et al

Filing 181

ORDER for 169 Report and Recommendations, 132 Motion for Leave to File Document filed by Marc S. Kirschner. The R&R (Dkt. No. 169) is adopted as set forth above. Plaintiff's motion to file an amended complaint is denied. The Clerk of Court is directed to terminate the motion (Dkt. No. 132), and to close this case. So Ordered. (Signed by Judge Paul G. Gardephe on 9/30/21) (yv)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
MARC S. KIRSCHNER, solely in his
capacity as Trustee of THE MILLENNIUM
LENDER CLAIM TRUST,
Plaintiff,

ORDER
17 Civ. 6334 (PGG)

- against JPMORGAN CHASE BANK, N.A.;
JPMORGAN SECURITIES LLC;
CITIGROUP GLOBAL MARKETS INC.;
CITIBANK, N.A.; BMO CAPITAL
MARKETS CORP.; BANK OF
MONTREAL; SUNTRUST ROBINSON
HUMPHREY, INC.; and SUNTRUST
BANK,
Defendants.
PAUL G. GARDEPHE, U.S.D.J.:
Plaintiff Marc S. Kirschner – in his capacity as trustee of the Millennium Lender
Claim Trust (the “Trust”) – brings this action against J.P. Morgan Chase Bank, N.A. (“Chase”),
J.P. Morgan Securities LLC (“JPM Securities,” with Chase, “JP Morgan”), Citibank, N.A.
(“Citibank”), Citigroup Global Markets, Inc. (“CitiGlobal,” with Citibank “Citi”), Bank of
Montreal, BMO Capital Markets Corp. (together “BMO”), SunTrust Bank, and SunTrust
Robinson Humphrey, Inc. (together “SunTrust”) (collectively, “Defendants”). The Complaint
alleges violations of various state securities laws; negligent misrepresentation; breach of
fiduciary duty; breach of contract; and breach of the implied covenant of good faith and fair
dealing. (Cmplt. (Dkt. No. 1-1))

Plaintiff’s claims arise out of a $1.775 billion syndicated loan transaction 1 that
closed on April 16, 2014 (the “2014 Transaction” or “2014 Credit Agreement”). (Id. ¶¶ 1, 96)
In the 2014 Transaction, Defendants sold to the Trust’s beneficiaries – approximately seventy
institutional investor groups, comprised of approximately 400 mutual funds, hedge funds, and
other institutional investors (the “Investors”) – debt obligations of Millennium Laboratories LLC
(“Millennium”). (Id. ¶¶ 1, 94-95)
In November 2015 – nineteen months after the 2014 Transaction closed –
Millennium filed a bankruptcy petition. (Id. ¶ 3) The bankruptcy plan issued by the Bankruptcy
Court created the Trust and authorized the Trust to pursue the Investors’ claims against
Defendants. (Id. ¶ 8)
The Complaint alleges that “Defendants misrepresented or omitted . . . material
facts in the offering materials they provided and communications they made to Investors
concerning the legality of [Millennium’s] sales, marketing, and billing practices,” as well as “the
known risks posed by a pending government investigation into the illegality of such practices.”
(Id. ¶ 1)
In a May 22, 2020 opinion (the “May 22, 2020 Opinion”), this Court granted
Defendants’ motion to dismiss under Fed. R. Civ. P. 12(b)(6), but gave Plaintiff leave to amend.
See generally Kirschner v. JP Morgan Chase Bank, N.A., No. 17 Civ. 6334 (PGG), 2020 WL
2614765 (S.D.N.Y. May 22, 2020).
On July 31, 2020, Plaintiff moved for leave to file an amended complaint. (Mot.

1

“A syndicated loan is a commercial credit provided by a group of lenders,” and “is structured,
arranged, and administered by one or several commercial or investment banks, known as
arrangers.” S&P Global Market Intelligence, Syndicated Loans: The Market and the Mechanics
1 (2017), https://www.lcdcomps.com/d/pdf/LCD%20Loan%20Primer.pdf.
2

(Dkt. No. 132)) The Proposed Amended Complaint (“PAC”) asserts common law fraud claims
against JP Morgan and Citi, and aiding and abetting fraud, conspiracy to commit fraud, and
negligent misrepresentation claims against all Defendants. (See generally PAC (Dkt. No. 1341))
On August 12, 2020, this Court referred Plaintiff’s motion to Magistrate Judge
Sarah L. Cave for a Report and Recommendation (“R&R”). (Dkt. No. 148) On December 1,
2020, Judge Cave issued a forty-two page R&R recommending “that Plaintiff’s Motion be
denied on grounds of futility.” (R&R (Dkt. No. 169) at 2) 2 On January 15, 2021, Plaintiff filed
objections to the R&R. (Dkt. No. 172)
This Court will adopt the R&R as set forth below.
BACKGROUND
I.

FACTS 3
Plaintiff is the trustee of the Millennium Lender Claim Trust. (PAC (Dkt. No.

134-1) ¶¶ 23, 39; id. at 1) Millennium was headquartered in San Diego and provided laboratorybased diagnostic testing of urine samples for physicians. (Id. ¶ 45)
Defendants are national banking associations, a bank chartered under the Bank
Act of Canada, a bank chartered under Georgia law, and registered broker-dealers and
investment advisors. (Id. ¶¶ 24-32)
In April 2011, “a competitor [of Millennium], Ameritox, filed a civil action
against Millennium in a federal court in Florida (the ‘Ameritox Litigation’),” alleging violations

2

All references to page numbers in this Order are as reflected in this District’s Electronic Case
Files (“ECF”) system.
3
The Court’s factual statement is drawn from the PAC. The well-pleaded facts alleged in the
PAC are presumed true for purposes of resolving Plaintiff’s motion for leave to file an amended
complaint. See Kassner v. 2nd Ave. Delicatessen, Inc., 496 F.3d 229, 237 (2d Cir. 2007).
3

of the Anti-Kickback statute and the Stark Law. (Id. ¶ 61) In March 2012, the U.S. Department
of Justice (“DOJ”) began investigating Millennium for federal healthcare law violations. (Id. at
¶¶ 1-2, 73-74) That same month, Chase, JPM Securities, SunTrust, SunTrust Robinson
Humphrey, Bank of Montreal, and “a handful of others” entered into a credit agreement with
Millennium in which they provided the company with a $310 million term loan facility and a $20
million revolving credit facility (the “2012 Credit Agreement”). (Id. ¶72)
Defendants monitored the DOJ’s investigation of Millennium and began
“exploring with the Insiders ways to sell [Millennium] to a third-party in a mergers and
acquisitions transaction and/or to refinance the 2012 Credit [Agreement] with other lenders or
through an initial public offering [(‘IPO’)] of Millennium stock” so as to escape their “term loan
exposure to Millennium.” (Id. ¶¶ 81, 90; see also id. ¶¶ 84-85; see also id. ¶ 2 (defining
“Insiders” as Millennium’s controlling equity, debenture and warrant owners – the founder,
president, general counsel, and certain associates from a private equity firm)) In other words,
Defendants were working with Millennium on an exit strategy. (Id. ¶¶ 3-6)
“By the end of February 2014, however, the only financing option left on the table
was a ‘maximum leverage’ institutional financing” – totaling $1.775 billion – that would
“replace[] by allocations and assignments” the banks’ loans with the new Investors’ loans. (Id. ¶
86 (original alteration marks omitted)) This institutional financing would also provide
Millennium’s Insiders with dividends, options, and bonuses “just shy of $1.27 billion.” (Id. ¶ 90
(emphasis omitted); see also id. ¶¶ 6, 16; id. ¶ 17 (“Millennium itself received nothing of value
in the 2014 Transaction.”))
In a March 16, 2014 commitment letter (the “2014 Commitment Letter”), JP
Morgan, CitiGlobal, SunTrust, and BMO agreed that they would fund the $1.775 billion

4

financing through a term loan as “Initial Lenders,” and “all four of the Defendant broker-dealers
were named as ‘Arrangers’ of the syndication effort.” “JPM Securities and CitiGlobal were
made ‘Lead Arrangers’ and ‘Joint Bookrunners.’” (Id. ¶¶ 86, 88)
The syndicated loan transaction was effectuated on April 16, 2014 (the “2014
Credit Agreement”) after Chase made the initial term loan of $1.775 billion to Millennium,
which triggered the commitments of the Investors to purchase the entire amount from Chase
through the assigned allocations. (Id. ¶ 15)
On June 16, 2014, a jury in the Ameritox case returned a verdict in favor of
Ameritox, finding that Millennium had violated both the Anti-Kickback statute and the Stark
Law. (Id. ¶ 145) The jury awarded Ameritox $2.755 million in compensatory damages and $12
million in punitive damages – later remitted to $8.5 million – based on Millennium’s misconduct
in Florida, Tennessee, and Texas. (Id. ¶ 146) On the day of the jury’s verdict, Chase and JPM
Securities concluded that the verdict would have a $500 million negative impact on
Millennium’s valuation. (Id. ¶ 149)
In December 2014, the DOJ notified Millennium that it intended to intervene in
the False Claims Act proceedings brought by qui tam relators based on Millennium’s alleged
federal healthcare law violations. (Id. ¶ 153) And, in February 2015, a Medicare Administrative
Contractor for Centers for Medicare and Medicaid Services “notified Millennium that the
Company’s Medicare billing privileges would be revoked on account of alleged administrative
billing abuses relating to claims submitted by Millennium for services provided, after their dates
of death, to 59 Medicare beneficiaries.” (Id. ¶ 155; see id. (“As Medicare reimbursement was
Millennium’s single largest source of revenue by a considerable margin, termination of those
billing privileges would likely be fatal to the Company.”))

5

In May 2015, Millennium disclosed that it had agreed in principle to a $256
million global settlement with the DOJ. (Id. ¶ 158) Millennium finalized that settlement on
October 16, 2015, and on November 10, 2015, Millennium filed a bankruptcy petition. (Id. ¶
160) The Bankruptcy Court issued a bankruptcy plan that established the Trust, and Plaintiff
was appointed as Trustee. (Id. ¶ 23)
II.

THE COMPLAINT
The Complaint alleges eleven causes of action: Causes of Action One through

Six arise under the securities laws of California, Massachusetts, Colorado, and Illinois, and
allege that Defendants made actionable misstatements and omissions to the Investors. (Cmplt.
(Dkt. No. 1-1) ¶¶ 125-172) The Seventh Cause of Action alleges negligent misrepresentation as
to all Defendants. (Id. ¶¶ 173-181) Causes of Action Eight through Eleven name only Chase,
and allege breach of fiduciary duty, breach of contract, breach of post-closing contractual duties,
and breach of the implied covenant of good faith and fair dealing. (Id. ¶¶ 182-207)
Accordingly, the Complaint alleges that all Defendants committed negligent misrepresentation
and securities law violations (id. ¶¶ 53-65), and that JPM Securities and CitiGlobal created
offering materials that contained material misstatements and omissions that were designed to,
and did, induce the Investors’ purchases of the Millennium notes. (Id. ¶¶ 70-91)
III.

THE MAY 22, 2020 OPINION GRANTING
DEFENDANTS’ MOTION TO DISMISS
Set forth below is a summary of the Court’s May 22, 2020 Opinion granting

Defendants’ motion to dismiss. See Kirschner, 2020 WL 2614765.
A.

State Securities Law Claims
Defendants moved to dismiss the Complaint’s state securities laws claims “on the

ground that ‘a syndicated bank loan is not a “security” and a loan syndication is not a “securities

6

distribution.”’” Id. at *6 (citation omitted). “In determining whether debt obligations such as the
Millennium notes are ‘securities,’ courts apply the ‘family resemblance’ test set forth in Reves v.
Ernst & Young[,] 494 U.S. 56 (1990)[,] [a four-part test.]” Id. at *6-7. Finding that the second,
third, and fourth Reves factors weigh in favor of finding that the Notes are not securities, the
Court concluded that Plaintiff’s state securities laws claims – Causes of Action One through Six
– failed. Id. at *8-10.
B.

Negligent Misrepresentation Claim
Defendants moved to dismiss Plaintiff’s negligent misrepresentation claim. The

Court concluded that New York law applies. Id. at *11-12. Under New York law, “a party
bringing a negligent misrepresentation claim must plead facts demonstrating that ‘(1) the parties
stood in some special relationship imposing a duty of care on the defendant to render accurate
information; (2) the defendant negligently provided incorrect information; and (3) the plaintiff
reasonably relied upon the information given.’” Id. at *12 (quoting LBBW Luxemburg S.A. v.
Wells Fargo Sec. LLC, 10 F. Supp. 3d 504, 525 (S.D.N.Y. 2014)).
Plaintiff claimed that a “special relationship” existed between the Investors and
Defendants because “‘Defendants were uniquely situated and possessed special knowledge about
Millennium.’” Id. (citation omitted). For example, Plaintiff claimed that “‘Defendants had
knowledge superior to that of the Investors of the facts surrounding the DOJ Investigation
because of the[ir] unique access,’ including to Millennium’s general counsel.” Id. (citation
omitted). The Court concluded, however, that “the Complaint [did] not contain factual
allegations demonstrating that Defendants used this ‘unique access’ to induce purchase of the
Notes.” Id. “For example, Plaintiff assert[ed] that Chase ‘controlled every aspect of the rating
process for Millennium, down to writing the Rating Agency Presentation . . . and scripting oral

7

responses to [rating agency] questions.’” Id. (citation omitted). But this alleged conduct “was
directed at a third party and not [at the Investors].” Id. And Plaintiff’s allegations concerning
statements by Millennium’s outside counsel on an investor call suggesting that the DOJ
investigation would not have a material effect on Millennium’s finances were likewise
insufficient, because “Plaintiff ha[d] not alleged that Defendants had any control over
[Millennium’s lawyer, or what the lawyer] said during this investor call.” Id. The Court also
noted that “potential investors participating in the call were presumably free to ask
[Millennium’s lawyer] any question they wished regarding Millennium’s potential exposure.”
Id. The Court thus distinguished Plaintiff’s claims from those made in Kimmell v. Schaefer, 89
N.Y.2d 257 (1996), “where the defendant was responsible for generating the data designed to
promote the investment, and presented that data to potential investors.” Id.
The Court further found that, “[a]ssuming arguendo that the agreements [between
Defendants and] investors demonstrate privity, Plaintiff [could not] overcome disclaimers in
the[] agreements [which are] fatal to [the] negligent misrepresentation claim.” Id. at *13. The
Court found that the case was “analogous to UniCredito Italiano SPA v. JPMorgan Chase Bank,
288 F. Supp. 2d 485 (S.D.N.Y. 2003),” where “the court dismissed a negligent misrepresentation
claim because ‘even if the bank Defendants had the knowledge the Complaint attributes to them,
the banks had no duty to disclose it to Plaintiffs,’” given disclaimers in the applicable
agreements. Id. (quoting UniCredito, 288 F. Supp. 2d at 499). The Court also emphasized that
Plaintiff “ha[d] not pled factual allegations demonstrating that Defendants prevented Millennium
from making necessary disclosures to the investors.” Id. Unlike in Financial Guaranty Insurance
Co. v. Putnam Advisory Co., 783 F.3d 395, (2d Cir. 2015), here the disclaimers tracked the
alleged misrepresentations, such that no special relationship existed between the investors and

8

Defendants. Id. at *13-14. Accordingly, the Court granted Defendants’ motion to dismiss
Plaintiff’s negligent misrepresentation claim. Id. at *14.
C.

Breach of Fiduciary Duty Claim
Chase argued that “Plaintiff’s breach of fiduciary duty claim [should be

dismissed, because] it had no such duties under the Credit Agreement.” Id. “‘In order to
establish a breach of fiduciary duty, a plaintiff must prove the existence of a fiduciary
relationship, misconduct by the defendant, and damages that were directly caused by the
defendant’s misconduct.’” Id. (quoting Kurtzman v. Bergstol, 40 A.D.3d 588, 590 (2d Dept.
2007)). “‘A fiduciary relationship exists under New York law when one [person] is under a duty
to act for or to give advice for the benefit of another upon matters within the scope of the
relation.’” Id. (quoting Kidz Cloz, Inc., No. 00 CIV. 6270 (DC), 2002 WL 392291, at *4
(S.D.N.Y. Mar. 13, 2002)). The Court found that a disclaimer in the Credit Agreement made
clear that Chase “would have only limited and non-fiduciary duties,” such that dismissal of
Plaintiff’s breach of fiduciary duty claim was warranted. Id. at *15.
D.

Breach of Contract Claims
The Complaint pleads two breach of contract claims against Chase. The first

breach claim is premised on Chase’s alleged failure to satisfy conditions precedent to the closing,
and the second breach claim alleges that Chase failed to provide notice of Millennium’s default.
Id.
As to the first claim, the Court found that the Credit Agreement provisions on
which Plaintiff’s breach claim was premised – regarding conditions precedent to closing – did
not support such a claim. Id. “None of the[] provisions suggest[ed] that Chase ha[d] a duty to
enforce compliance with, or investigate, Millennium’s representations and warranties. And

9

Section 9.3 of the Credit Agreement absolves Chase from liability ‘for any recitals, statements,
representations or warranties made by any Loan Party’ and from ‘any obligation . . . to ascertain
or to inquire as to the observance or performance of any of the . . . conditions.’” Id. (citation
omitted). In response to Plaintiff’s argument that Chase knew that Millennium’s representations
were false, and that the conditions precedent had not been satisfied, the Court explained that:
“Chase’s alleged actual knowledge is [] irrelevant to Plaintiff’s breach of contract claim.” Id.;
see also id. (“Plaintiff does not cite any contractual provision in which Chase takes on an
obligation to do anything with respect to Millennium’s representations and warranties, or the
conditions precedent, except for administrative actions that are not relevant here.”).
Accordingly, the Court granted Defendants’ motion to dismiss Plaintiff’s first breach of contract
claim. Id. at *16.
In his second breach of contract claim, Plaintiff claims that Chase “actually
knew” of Millennium’s default and failed to provide notice. Id. (citation, quotation marks, and
emphasis omitted). The 2014 Credit Agreement provides, however, that Chase’s duty to provide
notice of a default is triggered only upon receipt of a formal notice of default as set forth in
Section 9.5 of the agreement. Id. Because the Complaint does not allege that Chase had
received the required notice of default, this Court dismissed Plaintiff’s second breach of contract
claim.
E.

Breach of the Covenant of Good Faith and Fair Dealing
Chase argued that Plaintiff’s good faith and fair dealing claim “‘is barred by the

express terms of the Credit Agreement.’” Id. (citation omitted). Although the Complaint does
not cite to the New York Uniform Commercial Code (“N.Y. U.C.C.”), in connection with his
good faith and fair dealing claim, Plaintiff alleged that Chase’s duties are governed by the N.Y.

10

U.C.C., and that Chase knew or recklessly disregarded misstatements by Millennium in
connection with the 2014 Credit Agreement and frustrated the ability of Investors by withholding
knowledge of facts and events. Id. Plaintiff’s good faith and fair dealing claim does not “refer[]
back to a contractual provision that Chase allegedly breached, however, . . . [and] to the extent
that Plaintiff’s good faith and fair dealing claim rests on the conditions precedent and notice
provisions that form the basis for Plaintiff’s breach of contract claims, its good faith and fair
dealing claim must be dismissed as duplicative of its breach of contract claims.” Id. at *16-17.
Accordingly, the Court granted Defendant’s motion to dismiss Plaintiff’s good faith and fair
dealing claim.
IV.

THE PROPOSED AMENDED COMPLAINT
Although the Court granted Defendants’ motion to dismiss the Complaint, it gave

Plaintiff leave to amend. Id. at *17. On July 31, 2020, Plaintiff filed the PAC. (PAC (Dkt. No.
134-1)) The PAC asserts five causes of action: (1) “Fraud in Controlling and in Making,
Authorizing and Causing the Company’s False Statements and Omissions to Investors,” against
JP Morgan and Citi; (2) “Fraud in Direct Communications with Investors and Lead Arrangers
and Joint Bookrunners,” against JP Morgan and Citi; (3) “Aiding and Abetting the Insiders’
Fraud,” against all Defendants; (4) “Conspiracy to Defraud Investors,” against all Defendants;
and (5) “Negligent Misrepresentation,” against all Defendants. (Id. ¶¶ 161-209)
The PAC thus alleges “‘two [core] frauds’”:
(i) a health care fraud built on years of pervasive business practices that illegally
encouraged and/or coerced referring physicians and recovery clinics to order
medically unnecessary tests, and (ii) a $1.775 billion investment fraud on the
Investors by the Insiders and Defendants that falsely and deliberately attributed
Millennium’s financial success to its superior technology and lawful business
practices while hiding the true and known facts about governmental investigation
and private litigation surrounding those practices and the associated inflated
billings.

11

(Id. ¶ 44 (emphasis omitted); see also ¶¶ 49-71 (allegations regarding Millennium’s fraudulent
business practices))
According to the PAC, in the 2012 Credit Agreement several defendants
“committed to provide . . . loans to . . . Millennium.” (Id. ¶ 1) By “January 2014,” however,
these defendants “had a serious problem,” because Millennium was being investigated for health
care fraud. (Id.) Company insiders at Millennium “were anxious to monetize their investments
in [the company]” (id. ¶ 2) and “engaged affiliates of Defendant Bank of Montreal and, later,
those of Defendant Citibank to work with them on the ‘exit’ strategy” (id. ¶ 3) – i.e., a sale of
Millennium to third parties. (Id. ¶ 2)
In preparation for this sale, certain Defendants – those “in the 2012 loan and those
working on a sale to a third-party” – “conducted detailed examinations of the Millennium
business practices,” learning of conduct that had triggered, for example, the DOJ investigation.
(Id. ¶ 3; see also generally id. ¶¶ 72-80 (discussing Defendants’ alleged knowledge of
Millennium’s fraudulent business practices and the DOJ’s investigation of Millennium)) Efforts
to sell the company failed, however, and because these Defendants had doubts about the
“legitimacy of Millennium’s revenues and profit margins,” these Defendants “advised . . .
against a securities offering to the public (‘IPO’) as a way out of the loans[,] . . . fearing that
federal and state securities laws would mandate detailed disclosure of the DOJ Investigation, the
numerous related litigations and the challenged business practices.” (Id. ¶ 4)
Accordingly, these Defendants and Millennium turned to a loan syndication, a
transaction that “would be subject to less rigid disclosure requirements than an IPO and would
not allow the investors the time or access for the due diligence performed by a traditional bank or
third-party acquirer.” (Id. ¶ 5; see also id. ¶¶ 81-90 (describing Defendants’ plans to “pump and

12

dump – leveraged loans to Investors, dividends to Insiders, pay-off and fees to Defendants”))
Defendants conducted due diligence of Millennium. (Id. ¶¶ 91-96, 100-03; see also id. ¶ 82
(“Because of their unique and superior access to non-public information about Millennium in
their role as existing lenders and/or financial advisors, Defendants were aware of details of the
underlying fraud and its impact on Millennium’s business, and they later deliberately
misrepresented that information in the false narrative they created for the Investors in the 2014
Transaction.”)) “Insiders insisted that the Defendants underwrite the $1.775 billion term loan on
a ‘firm-commitment’ basis, meaning that Defendants themselves would have to finance any or
all of the amount that they were not able to syndicate to unwitting investors.” (Id. ¶ 7)
Thus, Defendants “not only had motive to mislead investors [i.e., to facilitate the
‘exit’], they had the opportunity to direct the fraud. As a condition of their agreement to make
the initial loan to Millennium . . . [Defendants] demanded and obtained control over
[Millennium’s] own disclosures . . . to the investors regarding [Millennium’s] business practices
at issue in the DOJ investigation and related qui tams, employee retaliation and competitor
litigation.” (Id. ¶ 8; see also id. ¶¶ 97-98, 104, 128-33 (discussing certain Defendant’s motive to
deceive and ensure the syndication was successful, as well as alleged deception); id. ¶¶ 105-09
(alleging the procurement of inflated ratings so as to mislead Investors, an effort led by JP
Morgan); id. ¶¶ 110-18 (alleging fraud in the formal offering materials given to Investors); id. ¶¶
119-27 (alleging that Defendants made false and misleading representations when responding to
Investors’ questions about legal risks); ¶ 87 (“Defendants imposed as a condition on their
obligation to make the Initial Loan and syndicate the Notes to Investors on a firm commitment
basis that Millennium itself commit to a deliberate falsehood: ‘[no] possibility of disclosure of
material litigations, requiring instead a clean representation [to Investors] that [Millennium is]

13

not subject to any material litigation at all.’ The Banks and the Insiders knew . . . that the truth
‘could prevent [their] utilization of the term loans and revolving loans.’” (no citation provided)
(emphasis omitted)); id. ¶ 134 (citing representations in the 2014 Credit Agreement “that were
materially and deliberately false”))
According to Plaintiff, “Defendants . . . stood in a special relationship with
investors by virtue of their superior knowledge of Millennium’s legal-regulatory risks and
exposure and thus owed the investors a non-disclaimable duty of care not to make negligent
misrepresentations to induce investors’ purchases.” (Id. ¶ 9) Indeed, Defendants had “unique
access” to Millennium’s business practices, access the investors did not have, and thus investors
had to “rely on Defendants for legal due diligence of Millennium.” (Id. ¶¶ 10-11) “Defendants
nevertheless sought to disclaim investors’ reliance on them through boilerplate statements.” (Id.
¶ 11; see also id. ¶¶ 113, 118, 131, 135-37 (discussing disclaimers))
Investors discovered Defendants’ misconduct upon learning of the settlement
agreement between Millennium and the DOJ. (Id. ¶ 19; see also id. ¶¶ 143-160 (alleging that,
inter alia, Millennium did not inform the Investors of the Ameritox verdict and the DOJ’s
decision to intervene in the qui tam suits))
Examples of “Defendants’ acts of primary fraud, aiding and abetting fraud,
conspiracy to defraud, and negligent misrepresentation” include:
Defendants prohibiting Millennium from disclosing “material litigation against
Millennium” and “requir[ing]” Millennium to “falsely make a clean representation that it
is not subject to any material litigation at all” (id. ¶ 12(a) (quotation marks, alteration
marks, and emphasis omitted));
“Defendants script[ing] for Millennium management deliberately false and misleading
answers” about government investigations or litigation, such as “‘non-event; have not
heard from them [DOJ] in some time,’” all while “Defendants knew that such statements
were false” (id. ¶ 12(c) (emphasis omitted));

14

Defendants fielding Investor inquires and also “g[iving] the same deliberately false and
misleading answers” regarding investigations and litigations (id. ¶ 12(d));
“Defendants and the Insiders similarly conspir[ing] to misrepresent to Investors who
asked about the Company’s exposure in the DOJ Investigation that it was merely $20
million and thus immaterial. That rosy projection was misleading, and Defendants knew
it.” (id. ¶ 12(e));
“Defendants also engaged in fraud by conspiring with the Millennium Insiders to obtain
artificially-inflated ratings for the $1.775 billion term loan” (id. ¶ 13); and
“Defendants falsely represented to the Investors by words and conduct that Millennium
was in compliance with the representations and warranties in the draft” 2014 Credit
Agreement. (Id. ¶ 15).
V.

THE MAGISTRATE JUDGE’S REPORT AND RECOMMENDATION
In her December 1, 2020 R&R, Judge Cave recommends that Plaintiff’s motion to

amend be denied on grounds of futility. (R&R (Dkt. No. 169) at 2) The R&R groups Plaintiff’s
claims as follows: (1) the primary fraud claims (Causes of Action One and Two); (2) secondary
fraud claims (Causes of Action Three and Four); and (3) the negligent misrepresentation claim
(Cause of Action Five). (Id. at 8; see also generally id. at 14-37)
A.

Primary Fraud Claims
As discussed above, the PAC sets forth two primary fraud claims against JP

Morgan and Citi: (1) that Millennium made actionable misstatements and omissions to Investors
as part of a scheme by the Insiders and Defendants, and that “JP Morgan and Citi not only knew
of but also directed, controlled, caused and/or authorized the statements and omissions,” for
example, by prohibiting Millennium from disclosing the risks of the ongoing litigations and
controlling the ratings (PAC (Dkt. No. 134-1) ¶ 164 (emphasis omitted); id. ¶¶ 161-69); and (2)
that JP Morgan and Citi themselves made fraudulent statements to Investors about Millennium,
for example, by placing their logos on the Confidential Information Memorandum (“CIM”) and

15

becoming joint makers of the false and misleading statements and omissions contained therein. 4
(Id. ¶¶ 170-77; see also generally R&R (Dkt. No. 169) at 9)
Judge Cave analyzes four aspects of the primary fraud claims: (1) whether
Defendants controlled Millennium’s statements (Cause of Action One); (2) the statements made
by JP Morgan and Citi (Cause of Action Two); (3) JP Morgan and Citi’s scienter (an element of
fraud applicable to both claims); and (4) the disclaimers (applicable to both of the primary fraud
claims). (R&R (Dkt. No. 169) at 14-30)
1.

Whether Defendants Controlled Millennium’s Statements

The PAC alleges that “JP Morgan and Citi exercised such a degree of control over
[Millennium’s] misstatements and omissions . . . that they are legally responsible as if they were
their makers.” (PAC (Dkt. No. 134-1) ¶ 164) In the alternative, the PAC alleges that “JP
Morgan and Citi are primarily liable for fraud because they authorized or caused Millennium to
make the misstatements and omissions to Investors.” (Id.) According to Plaintiff, the motive for
Defendants’ misconduct was “their own unwanted credit exposure to Millennium.” (Id. ¶ 165)
The PAC claims that JP Morgan and Citi “imposed” on Millennium “as a
condition of their firm commitment underwriting” that Millennium not disclose to Investors
“‘material litigation against Millennium.’” (Id. ¶ 12 (emphasis omitted); see also id. ¶¶ 87, 102-

4

The PAC alleges that the
JP Morgan and Citi Defendants materially misled Investors directly (and through
the rating agencies) about (i) the Company’s systemic non-compliance with health
care and whistleblower non-retaliations laws, (ii) its solvency and fraudulentlyinflated financial results and projections, (iii) the fair presentation of its financial
condition in its audited financial statements (including failure to account for or
disclose any material contingent liabilities), (iv) its fraudulently-inflated credit
ratings, and (v) its material litigations and the DOJ Investigation.

(PAC (Dkt. No. 134-1) ¶ 173)
16

04, 164) JP Morgan “led the effort to deliberately mislead Investors through the procurement of
inflated ratings with a fictitious rating agency presentation.” (Id. ¶ 106; see also id. ¶ 13
(regarding obtaining “artificially-inflated ratings”); see also id. ¶ 109 (“JP Morgan controlled
every aspect of the rating process for Millennium, down to writing the Ratings Presentation and
scripting oral responses to questions that the Insiders and other Millennium management
representatives were likely to be asked by rating agency personnel”)) “JP Morgan and Citi [also]
scrubbed the CIM and Investor Presentation of any reference to the material regulatory and
litigation risks that threatened Millennium’s very existence, [and] they directed the Company to
misrepresent and omit material facts concerning the underlying business practices that created
those risks and loss contingencies.” (Id. ¶ 114)
Plaintiff contends that Millennium and the Insiders made fraudulent statements to
Investors (Pltf. Br. (Dkt. No. 133) at 15-16 (citing PAC (Dkt. No. 134-1) ¶¶ 2, 12-15, 18-19, 65,
72-129, 134-38, 143-60, 163, 166-68, 175-76)), and that JP Morgan and Chase are liable for
these fraudulent statements, because they caused and authorized the fraud. (Id. at 16-17 (citing
PAC (Dkt. No. 134-1) ¶¶ 11-12, 87, 102-04, 164)) As set forth above, Plaintiff claims that JP
Morgan “controlled and scripted misleading presentations to the ratings agencies and answers for
Millennium management.” (Id. at 17 (citing PAC (Dkt. No. 134-1) ¶¶ 12, 105-09, 119-24, 164);
see also id. at 18 (citing PAC (Dkt. No. 134-1) ¶¶ 12, 87, 96-99, 102-04, 119-27)) And as is
discussed below, Plaintiff argues that the disclaimers do not insulate Defendants from liability.
(Id. at 27-31)
In response, JP Morgan and Citi contend that the disclaimers bar all of Plaintiff’s
claims. (Def. Br. (Dkt. No. 136) at 17) In the alternative, these Defendants argue that the PAC
does not plead facts demonstrating that “JP Morgan and Citi were in a position to control

17

Millennium’s statements” (id. at 22), or that “JPMorgan and Citi did in fact authorize or
otherwise cause Millennium’s statements.” (Id. at 24) These Defendants note that “the PAC
identifies just one allegedly inaccurate statement actually made by” JP Morgan, and they argue
that “Plaintiff’s allegations of direct misrepresentations” made by JP Morgan and Citi are
insufficient to plead fraud. (Id. at 25-26) These Defendants further contend that the PAC does
not sufficiently plead reasonable reliance or scienter. (Id. at 29-31)
Judge Cave concludes that the PAC does not plead facts sufficient to demonstrate
that JP Morgan and Citi authorized or caused Millennium’s alleged misrepresentations. (R&R
(Dkt. No. 169) at 17 (citing Woori Bank v. RBS Secs., Inc., 910 F. Supp. 2d 697, 702 (S.D.N.Y.
2012)); see id. (“[T]he Court finds that Plaintiff has not adequately alleged that JP Morgan and
Citi were in a position to control, and did control, Millennium’s false statements.”)) Noting that
Plaintiff relies substantially on an email that he asserts demonstrates that JP Morgan and Citi
prohibited Millennium from disclosing information to Investors about material litigations, Judge
Cave finds that the email “does not support Plaintiff’s allegation.” (Id. at 18 (citing PAC (Dkt.
No. 134-1) ¶¶ 12, 164)) The email “concerns Millennium’s representations and warranties in the
Fee Letter and Commitment Letter to Defendants – [and not communications with] Investors.”
Judge Cave further concludes that “Plaintiff’s alteration of the document is materially misleading.”
(Id. (citing Viapiano Decl., Ex. D (Dkt. No. 137-4) at 7) (emphasis omitted)) Plaintiff’s remaining
allegations in support of his theory of JP Morgan and Citi control over Millennium are conclusory. 5

5

Judge Cave also finds that “the presence of JP Morgan and Citi’s corporate logos on the CIM
[– which the PAC alleges contains misrepresentations –] does not render them ‘joint makers’ of
the statements therein.” (R&R (Dkt. No. 169) at 18 (citing PAC (Dkt. No. 134-1) ¶ 172); see
also id. (distinguishing In re Virtus Investment Partners Securities Lit., 195 F. Supp. 3d 528
(S.D.N.Y. 2016))) Judge Cave notes that the cases Plaintiff relies on to “support his control
theory of primary fraud liability” are not persuasive here, because in those cases the defendant
had complete control over the misstatements by virtue of (1) being in the same corporate family
18

(Id.) Accordingly, Judge Cave concludes that the PAC fails to plausibly allege that JP Morgan
and Citi authorized, caused, or controlled Millennium’s statements, such that leave to amend
should be denied as to Plaintiff’s First Cause of Action. (Id. at 20)
2.

Statements by JP Morgan and Citi

In Support of the PAC’s Second Cause of Action – which alleges that JP Morgan
and Citi themselves made fraudulent statements to Investors (PAC (Dkt. No. 134-1) ¶¶ 170-177)
– Plaintiff asserts, for example, that “JP Morgan’s and Citi’s logos are on every page of the
misleading CIM,” and that they “gave the same fraudulent answers to Investor questions about
material litigation and the DOJ investigation that they had scripted for Millennium
management.” (Pltf. Br. (Dkt. No. 133) at 18; see id. at 19 (citing PAC (Dkt. No. 134-1) ¶¶ 11027); see also PAC (Dkt. No. 134-1) ¶¶ 12, 93-99, 123, 131-32, 154, 158, 172-73)) They also
“misled any Investor who asked about Millennium’s potential exposure to damages, fines and
penalties in the DOJ Investigation by citing [Millennium’s lawyer’s] . . . figure.” (Id. at 19)
“When JPMorgan informed the Investors through words, actions, or silence that the funding of
the Term Loan had occurred with ‘no material change’ . . . JPMorgan committed fraud through
an actionable ‘half-truth.’” (Id. 19-20)
As to the Second Cause of Action, Judge Cave focuses on four examples of JP
Morgan’s and Citi’s alleged fraud pled in the PAC: (1) that JP Morgan and Citi repeated a

or (2) having prepared the documents containing the misstatements. (Id. at 18-19; see id. at 19
(“In contrast, Plaintiff alleges that JP Morgan and Citi ‘helped Millennium’ draft statements to
investors, such as PowerPoint slides or Q&A responses, and shared information about how to
dial into the presentation. The PAC makes clear[, however,] that the underlying fraudulent
statements were made by Millennium and the Insiders, not [by] JP Morgan and Citi.” (citing
PAC (Dkt. No.134-1) ¶¶ 12-15, 65, 98-123, 125-27, 129, 136)) Finally, a document Plaintiff
relies on in support of his claim that Millennium lied to investors during a presentation
contradicts Plaintiff’s allegation. (Id. at 19 (citing PAC (Dkt. No. 134-1) ¶ 121; Viapiano Decl.,
Ex., E (Dkt. No. 137-5) at 2))
19

statement made by Millennium’s lawyer regarding the potential cost of a settlement with the
DOJ; (2) the use of the companies’ logos in the CIM; (3) “words and conduct” that constitute
misrepresentations; and (4) JP Morgan’s response to an Investor’s question about Millennium’s
litigation history. (R&R (Dkt. No. 169) at 20 (citations omitted)) Judge Cave finds that none of
the matters cited by Plaintiff are actionable, because (1) they do not constitute actual
misrepresentations or half-truths that materially mislead; and (2) “‘[n]ondisclosure is not
actionable under the common law of fraud and deceit unless there is a duty to speak,’” and JP
Morgan and Citi had no such duty here. (Id. at 21 (quoting Frigitemp Corp. v. Fin. Dynamics
Fund, Inc., No. 74 Civ. 1335, 1974 WL 466, at *5 (S.D.N.Y. Dec. 6, 1974); see also id. 20-22
(citing cases))
As to “Plaintiff’s allegation that JP Morgan and Citi should have but did not
disclose the methodology by which damages might be assessed in the DOJ Investigation,” Judge
Cave “finds that Plaintiff has failed to allege that [JP Morgan and Citi] omitted any material
qualifying information that would render this statement a ‘half-truth.’” (Id. at 21 (citation
omitted)) In short, JP Morgan and Citi did not have a duty to disclose information to Plaintiff,
and what they did disclose was not misleading. (Id. at 21-22; see also id. at 24 (concluding that
information JP Morgan communicated to an investor regarding Millennium’s litigation exposure
was not a half-truth)) As to Plaintiff’s arguments regarding the presence of the companies’ logos
on the CIM, Judge Cave concludes that the presence of the logos on the CIM does not “render”
JP Morgan and Citi “‘joint makers’ of the statements.” (Id. at 18, 23) As to Plaintiff’s claim that
“Defendants by words and conduct . . . mispresented to the Investors that conditions precedent
for funding the 2014 Credit Agreement had been satisfied” (PAC (Dkt. No. 134-1) ¶ 132), Judge
Cave finds that Plaintiff’s allegations “fail[] to satisfy the particularity requirements of [Federal

20

Rule of Civil Procedure 9(b)].” (R&R (Dkt. No. 169) at 23)
In sum, Judge Cave concludes that the PAC does not plead facts sufficient to
demonstrate that JP Morgan and Citi made fraudulent material misrepresentations and omissions
to investors, and that leave to amend should be denied as to the Second Cause of Action. (Id. at
24)
3.

Scienter

The PAC asserts that JP Morgan and Citi acted with intent to defraud, because
they hoped to achieve a “clean exit” from the 2012 loan transaction with Millennium. (PAC
(Dkt. No. 134-1) ¶¶ 2, 83) Judge Cave notes that “Plaintiff relies in large part on the motiveand-opportunity theory of scienter” (R&R (Dkt. No. 169) at 25), and she finds insufficient
Plaintiff’s factual allegations in support of this theory. (Id. at 25-27)
Judge Cave goes on to explain that,
[t]o the extent Plaintiff invokes the conscious misbehavior or recklessness theory
of scienter by pointing to allegations that Defendants knew about the false
misrepresentations in the Offering Materials and the 2014 Credit Agreement
because of their role as Millennium’s lenders, involvement in the unsuccessful
sale to a third party, and “unique access” to Insiders and Millennium’s outside
counsel (ECF No. 143 at 14), he might fare better.
(Id. at 27) This is so because the PAC pleads several allegations concerning statements by JP
Morgan and Citi employees that cast doubt on the strength of Millennium’s financial condition.
(Id.) These allegations “‘go beyond generalized accusations of negligence’ to satisfy Rule 9(b).”
(Id. (citing PAC (Dkt. No. 134-1) ¶¶ 92, 109; In re Adelphia Comms. Corp. Secs & Deriv. Litig.,
No. 03 Md. 1529 (LMM), 2007 WL 2615928, at *4 (S.D.N.Y. Sept. 10, 2007))) Judge Cave
concludes, however, that even if Plaintiff has sufficiently pled scienter, the “primary fraud
claim[s] [are] . . . deficient for [other] reasons.” (Id.)

21

4.

The Disclaimers

As discussed above, Defendants’ primary argument as to all of Plaintiff’s claims –
including the primary fraud claims – is that they are barred by the contractual disclaimers. (Def.
Br. (Dkt. No. 136) at 17) Because both fraud claims and negligent misrepresentation claims
require reasonable reliance, this Court ruled in the May 22, 2020 Opinion that the disclaimers in
the agreements are fatal to Plaintiff’s claim that the Investors reasonably relied on Defendant’s
statements, because the Investors “specifically agreed that they had, and would continue to, make
their own credit decisions and would not rely on the Defendants.” Kirschner, 2020 WL
2614765, at *13 (citation and quotation marks omitted).
Defendants also argue that any exceptions that would render the disclaimers
unenforceable are not present in this case. (Def. Br. (Dkt. No. 136) at 18-22) Defendants note
that this Court found that the Investors are “‘highly sophisticated’” “‘institutional buyers’” (id. at
19) (quoting Kirschner, 2020 WL 2614765, at *10)) who disclaimed reliance on Defendants’
statements. (Id.) To the extent that Plaintiff argues that the disclaimers are “lies” or are too
general, Defendants assert that this Court has already rejected that argument or that there is not
legal support for such a claim. (Id. at 20 (citing Kirschner, 2020 WL 2614765, at *14))
Defendants further argue that this Court has likewise previously rejected Plaintiff’s argument
that the disclaimers are void because Defendants had superior knowledge. (Id. at 21 (citing
Kirschner, 2020 WL 2614765, at *12-13)) Finally, Defendants contend that Plaintiff’s argument
that the “no duty” disclaimer in Section 9.6 cannot bar his claim for failure to track the alleged
misrepresentations – and does not preclude a finding of a special relationship – was also
considered and rejected by this Court. (Id. at 22 (citing Kirschner, 2020 WL 2614765, at *1314))

22

Plaintiff argues that the disclaimers either do not apply or are unenforceable.
(Pltf. Br. (Dkt. No. 133) at 26) Plaintiff first argues that the reliance disclaimers – using Section
9.6 of the 2014 Credit Agreement as an example – do not bar his primary or secondary fraud
claims, because these disclaimers do not apply to statements made by Millennium, which “were
secretly controlled or caused by JP Morgan and Citi.” (Id.) Plaintiff also argues that the reliance
disclaimers are unenforceable as to statements by Defendants because (1) they are false on their
face; (2) generalized; (3) Defendants had specific/peculiar knowledge negating the effect of the
disclaimers; and (4) the “reasonableness of reliance in light of a disclaimer and the extent to
which the peculiar knowledge exception might apply are issues that are not properly resolved at
the motion to dismiss stage, and thus cannot render the PAC claims ‘futile’ at this even earlier
stage.” (Id. at 31; see also id. at 27-31) Finally, Plaintiff argues that the “‘duty’ disclaimer, in
Section 9.6 of the Credit Agreement or otherwise” cannot bar his claims. (Id. at 31)
In her analysis, Judge Cave reiterates that a primary fraud claim “must adequately
allege reasonable reliance and, to the extent they are based on omissions, a duty to disclose.”
(R&R (Dkt. No. 169) at 27 (citation omitted)) Judge Cave finds that the primary fraud claims
fail because of the disclaimers in the relevant agreements that preclude those essential elements
of fraud. (Id. at 28 (citation omitted)) Judge Cave also cites this Court’s finding in the May 22,
2020 Opinion that the disclaimers are “‘fatal to’ Plaintiff’s claim that the Investors reasonably
relied on any alleged misstatements or omissions by the Defendants because the Investors
‘specifically agreed that they had, and would continue to, make their own credit decisions and
would not rely on the Defendant banks.’” (Id. (quoting Kirschner, 2020 WL 2614765, at *13))
The 2014 Credit Agreement and the CIM thus contain “express non-reliance provisions.” (Id.)
“Plaintiff[’s] argu[ment] that the disclaimers do not apply to statements or

23

omissions by Millennium that JP Morgan and Citi orchestrated” fails, because the PAC does not
plead facts sufficient to demonstrate that JP Morgan and Citi controlled, assisted in making, or
made the misleading statements at issue. (Id. at 29) And “Plaintiff’s attempt to recharacterize
the disclaimers as relating only to ‘general risks or conditions, including “credit risk,” which are
present in every transaction’” (id. (quoting Pltf. Br. (Dkt. No. 133) at 28)) also fails, because this
argument directly contradicts this Court’s finding, in the May 22, 2020 Opinion, that “‘the
contractual disclaimers at issue address the evaluation of credit risk, which is exactly what the
alleged misrepresentations relate to.’” (Id. (quoting Kirschner, 2020 WL 2614765, at *14))
“Plaintiff’s attempt to recycle the ‘peculiar knowledge’ exception” fails because this Court
“already rejected” that argument. 6 (Id. (citing Kirschner, 2020 WL 2614765, at *12-13))
Finally, Plaintiff’s argument that the disclaimers do not preclude the existence of a special
relationship was likewise previously rejected by this Court. (Id. at 30 (citing Kirschner, 2020
WL 2614765, at *14)) “Having rejected Plaintiff’s theory that JP Morgan and Citi controlled
Millennium’s statements, [Judge Cave] finds that this argument gives Plaintiff no traction in
evading the preclusive effect of the disclaimers, which ‘track the misrepresentations’ that
Plaintiff attempts to allege here.” (Id. (citation omitted))
Judge Cave concludes that “the disclaimers provide a separate and independent
basis on which to [find] that Plaintiff’s primary fraud claims in the PAC are futile.” (Id.)
B.

Secondary Fraud Claims
In the PAC’s Third and Fourth Causes of Action, Plaintiff pleads secondary fraud

6

“And, even assuming that JP Morgan and Citi had greater access to Millennium’s outside
counsel – an allegation that appears in both the 2017 Complaint and the PAC (compare ECF No.
1-1 ¶¶ 56-63, 84-85, 87 with ECF No. 134-1 ¶¶ 94-97, 100-03, 125-26) – that allegation does not
lead to an inference that the Investors could not themselves access information from Millennium
or its counsel.” (Id. at 30 (citation omitted))
24

claims against all Defendants. Plaintiff alleges that (1) Millennium made misstatements and
omissions to Investors, that Defendants knew of the Insiders’ scheme to defraud, and that
Defendants aided and abetted the Insiders’ fraudulent scheme (PAC (Dkt. No. 134-1) ¶¶ 178185) 7; and (2) Defendants conspired to act in concert with the Insiders in connection with their
scheme to defraud. 8 (Id. ¶¶ 186-193; see also generally R&R (Dkt. No. 169) at 10)
In addition to arguing that the disclaimers bar Plaintiff’s secondary fraud claims,
Defendants contend that the PAC insufficiently pleads either an aiding and abetting claim or a

7

The PAC alleges that
[a]ll Defendants substantially assisted the Insiders in the latter’s scheme to
defraud the Investors by (a) committing to act as Initial Lenders to Millennium of
the $1.775 billion Term Loan B facility through which the Insiders’ fraud was
consummated; (b) underwriting and syndicating the Notes to Investors as part of
that term loan transaction; (c) counseling the Insiders on false written and oral
communications with rating agencies and with Investors concerning the
Company’s business practices and the legal challenges thereto; and (d) themselves
falsely communicating directly or through their counsel with the rating agencies
and Investors on those same subjects throughout the course of the 2014
Transaction.”

(PAC (Dkt. No. 134-1) ¶ 182)
8

The PAC alleges that
Defendants agreed and conspired to act in concert with the Insiders and with one
another with the understanding to advance the scheme to defraud, and actively
and intentionally participated with the Insiders and with one another in
furtherance of the scheme to defraud by (i) consciously avoiding or concealing
information revealed during due diligence that the Company was required to
disclose; (ii) directing the false and misleading content of the Insiders’
presentations to rating agencies and in the Offering Materials to the Investors
themselves; (iii) acting as Initial Lenders to Millennium; (iv) arranging for the
distribution of Millennium’s Notes to the Investors and (v) engaging in a postclosing cover-up of the fraud in the 2014 Transaction. All Defendants engaged in
one or more of these overt acts in furtherance of the conspiracy.

(Id. ¶ 190)
25

conspiracy claim against Defendants, as it fails to “adequately allege[] under Rule 9(b) that any
Defendant had actual knowledge of any purported fraud perpetrated by Millennium.” (Def. Br.
(Dkt. No. 136) at 32) Defendants further contend that – absent a duty to disclose – a failure to
disclose material information does not support an aiding and abetting fraud claim and does not
constitute an overt act for purposes of a conspiracy claim. (Id.) Defendants go on to argue that
the PAC does not allege any “affirmative actionable misstatements by a Defendant – much less
misstatements that could plausibly have ‘proximately caused’ the [Investors’] alleged injury as
required for both secondary liability claims.” (Id. (citations omitted)) Finally, Defendants
contend that the allegations of conspiratorial agreement in the PAC are conclusory. (Id. at 33)
Plaintiff argues that “the PAC alleges all the elements of primary fraud by
Millennium” (Pltf. Br. (Dkt. No. 133) at 21), and that JP Morgan’s and Citi’s “statements,
omissions and conduct” supporting the primary liability claims “all equally support the
knowledge, substantial assistance, agreement, overt act and intentional participation prongs of
aiding and abetting and conspiracy to defraud liability.” (Id. at 22) These “statements,
omissions and conduct” are: “(i) authorizing or causing Millennium’s disclosures and nondisclosures to Investors and to the rating agencies and (ii) making (and their counsel’s making)
false and misleading disclosures directly to Investors.” (Id.)
Plaintiff asserts that the PAC alleges secondary fraud as to BMO and SunTrust as
well, citing to portions of the PAC alleging that these defendants had “material non-public
information” about Millennium’s business practices. (Id. (citing PAC (Dkt. No. 134-1) ¶¶ 3-4,
12-13, 77, 81-87)) Plaintiff further asserts that the PAC shows that BMO and SunTrust agreed to
participate in the alleged fraudulent scheme by committing a percentage of money to the term
loan financing and by assisting and participating in the fraudulent scheme. (Id. at 23 (citing PAC

26

(Dkt. No. 134) ¶¶ 12, 29, 32, 81-113, 118-27))
As to Plaintiff’s aiding and abetting claim, Judge Cave notes that other courts
“have held that disclaimers similar to those in this case [] barred aiding and abetting [fraud]
claims.” (R&R (Dkt. No. 169) at 34; see also id. at 34-35 (citing cases)) Judge Cave concludes
that “[i]n the absence of a duty to disclose, Plaintiff’s aiding and abetting claim is
unsustainable,” and she recommends “that Plaintiff’s aiding and abetting claim be dismissed as
futile.” (Id. at 35 (citing cases))
As to Plaintiff’s conspiracy claim, Judge Cave focuses on whether the PAC
adequately alleges an “overt act,” which is a necessary element of a conspiracy claim. (Id. at 37
(citation and quotation marks omitted)) Judge Cave explains that
the crux of Plaintiff’s civil conspiracy claim is Defendants’ failure to disclose to
the Investors the risk that the DOJ Investigation and the Ameritox litigation would
result in Millennium having to pay a settlement greater than $20 million, but such
a failure to act or to disclose is insufficient to constitute an overt act for purposes
of pleading a civil conspiracy claim.
(Id. (citing cases))
Concluding that the PAC does not adequately allege an overt act, Judge Cave
“recommends that Plaintiff’s civil conspiracy claim be dismissed as futile.” (Id.)
C.

Negligent Misrepresentation Claim
The Fifth Cause of Action alleges a negligent misrepresentation claim against all

Defendants. (PAC (Dkt. No. 134-1) ¶¶ 194-209) The PAC asserts that the “Investors
constituted a limited group of persons for whose benefit and guidance the Defendants supplied
[materials]” (id. ¶ 195); that JP Morgan and Citi “caused and authorized Millennium’s
[misstatements and omissions],” and that “JP Morgan also controlled the Ratings Presentation[,]
with the intent that the ratings” would influence the Investors. (Id. ¶ 196) “As senior lenders,

27

mergers and acquisition advisors and underwriters/arrangers for Millennium, the Defendants had
knowledge superior to that of the Investors . . . of Millennium’s business practices at issue in the
DOJ Investigation and related qui tams, employee retaliation litigation and the Ameritox
Litigation, as well as the legal and financial exposure of [Millennium] in such matters.” (Id. ¶
197) Accordingly, “Investors were totally reliant on Defendants” (id. ¶ 198), and “Defendants
stood in a special relationship with the Investors that imposed upon Defendants a duty of care to
render accurate information to the Investors in the 2014 Transaction.” (Id. ¶ 199)
Plaintiff further alleges that “the Investors were in contractual privity with those
Defendants who acted as Arrangers of the Investors’ commitments to purchase and who assigned
to Investors their interests as Initial Lenders to Millennium in the 2014 Transaction.” (Id. ¶ 200)
“Defendants used their control over Millennium’s disclosures and their superior knowledge . . .
to induce the Investors’ purchases of the Notes,” namely pertaining to the “material litigations or
investigations.” (Id. ¶ 202) Defendants themselves also made false, incomplete, and inaccurate
statements to Investors. (Id. ¶ 203)
As to the disclaimers, Plaintiff alleges that “disclaimers of Investor reliance on
Defendants . . . are not enforceable as to statements by Millennium that the Investors had no
reason to know were caused or authorized by a Defendant.” (Id. ¶ 205) And “Defendants’
disclaimers as to ‘creditworthiness’ (or other similarly generic disclaimers about the ‘status’) of
the borrower are not enforceable because they do not track with the requisite specificity the
alleged negligent misrepresentations detailed” in the PAC. (Id.; see also generally R&R (Dkt.
No. 169) at 11)
Plaintiff maintains that the PAC sufficiently pleads all the elements of a negligent
misrepresentation claim, including a special relationship of trust (Pltf. Br. (Dkt. No. 133) at 24-

28

25 (citing PAC (Dkt. No. 134-1) ¶¶ 12-16, 18, 91-127, 159, 194-203)), and argues that the PAC
cures the defects cited in this Court’s May 20, 2020 Opinion. (Pltf. Reply Br. (Dkt. No. 143) at
7-8 (citing PAC (Dkt. No. 134-1) ¶¶ 8-10, 12-13, 82, 87, 94, 99, 105-09, 163, 173, 202))
Defendants respond that the disclaimers bar Plaintiff’s negligent
misrepresentation claim, and further contend that the PAC does not sufficiently plead the
requisite relationship for a negligent misrepresentation claim. (Def. Br. (Dkt. No. 136) at 33)
Defendants also argue that Plaintiff’s negligent misrepresentation claim fails under this Court’s
May 22, 2020 Opinion which, inter alia, distinguishes the instant case from Kimmell, upon
which Plaintiff again relies. (Id. (citing Kirschner, 2020 WL 2614765, at *12))
In finding that the PAC’s negligent misrepresentation claim is deficient, Judge
Cave reiterates that the PAC does not adequately allege that JP Morgan and Citi controlled,
caused, or authorized Millennium’s statements, and that – in any event – such a “theory does not
open the door to a negligent misrepresentation claim.” (R&R (Dkt. No. 169) at 32) Nor does the
PAC plead facts demonstrating that Defendants were in a special relationship or in contractual
privity with Plaintiff. (Id. at 31-33) Judge Cave notes that “‘banking relationships are not
viewed as a special relationship giving rise to a heightened duty of care,’” and that this
“‘principle applies to loan participation agreements, . . . in which there is deemed to be no
fiduciary relationship unless expressly and unequivocally created by contract.’” (Id. at 32
(quoting Banque Arabe et Intn’l D’Investissement v. Maryland Nat’l Bank, 57 F.3d 146, 158 (2d
Cir. 1995))) Here, Plaintiff did not bargain for “‘a special relationship[] giving rise to a
heightened duty of care.’” (Id. (citation omitted)) Judge Cave further concludes that the PAC
does not plead new allegations showing “‘actual privity of contract or a relationship so close as
to approach that of privity.’” (Id. at 33 (quoting Kirschner, 2020 WL 2614765, at *12)) And

29

“Plaintiff’s allegations about Defendants’ ‘unique access’ and ‘control[]’ of the rating process
are the same allegations” that this Court found insufficient in the May 22, 2020 Opinion. (Id. at
33 (citing Kirschner, 2020 WL 2614765, at *12))
Judge Cave concludes “that Plaintiff has failed to remedy the defects in his
negligent misrepresentation claim, such that amending his pleading to add this claim would be
futile.” (Id.)
D.

Judge Cave’s Remaining Findings
Judge Cave also finds that the PAC does not (1) plead fraud with particularity as

to Defendants Citibank and CitiGlobal, because these defendants are grouped together and the
PAC does not allege specific misrepresentations by either; (2) adequately plead scienter as to
Citibank or CitiGlobal (id. at 38); and (3) allege that “BMO or SunTrust prepared any allegedly
fraudulent documents or [were] otherwise involved in Millennium’s alleged misstatements or
omissions.” (Id. at 39-40)
*

*

*

*

The R&R states that “the deficiencies outlined above lead to the conclusion that
Plaintiff’s amendments are futile,” and that accordingly, leave to amend should be denied. (Id. at
41)
VI.

PLAINTIFF’S OBJECTIONS TO THE R&R
Plaintiff filed his objections to the R&R on January 15, 2021. (Pltf. Obj. (Dkt.

No. 172)) Plaintiff stresses that “[t]he PAC pleads a scheme by Millennium and Defendants to
defraud Investors in the 2014 leveraged loan transaction[,] . . . not simply fraud in particular
misstatements or omissions in [the] Offering Materials.” (Id. at 7 (emphasis in original))
Plaintiff repeats his assertions that Defendants were responsible for directing, assisting, and

30

participating in Millennium’s fraudulent misrepresentations and omissions to Investors. (Id.)
Plaintiff further argues that Judge Cave (1) applies an incorrect standard of review; and (2)
misstates and misapplies New York law. (Id. 7-8) Plaintiff broadly “objects to all adverse
rulings in the R&R.” (Id. at 7)
VII.

PROCEDURAL HISTORY
On August 1, 2017, the Complaint was filed in Supreme Court of the State of

New York, New York County. (Cmplt. (Dkt. No. 1-1)) On August 21, 2017, Defendants
removed the case to this District, asserting jurisdiction under the Edge Act, 12 U.S.C § 611 et
seq. (Notice of Removal (Dkt. No. 1)) On June 28, 2019, Defendants moved to dismiss for
failure to state a claim. (Dkt. No. 76) On May 22, 2020, this Court granted Defendants’ motion
to dismiss, but gave Plaintiff leave to move to file an amended complaint. (Dkt. No. 119)
On July 31, 2020, Plaintiff moved for leave to file an amended complaint. (Dkt.
No. 132) On August 12, 2020, this Court referred Plaintiff’s motion to Judge Cave for an R&R.
(Dkt. No. 148) On December 1, 2020, Judge Cave issued her R&R, recommending that
Plaintiff’s motion to amend be denied as futile. (Dkt. No. 169) Plaintiff filed his objections to
the R&R on January 15, 2021 (Dkt. No. 172), and Defendants filed their response that same day.
(Dkt. No 173)
DISCUSSION
I.

LEGAL STANDARDS
A.

Review of a Report and Recommendation
A district court reviewing a magistrate judge’s report and recommendation “may

accept, reject, or modify, in whole or in part, the findings or recommendations made by the
magistrate judge.” 28 U.S.C. § 636(b)(1)(C). When a timely objection has been made to a

31

magistrate judge’s recommendation, the district court judge “shall make a de novo determination
of those portions of the report or specified proposed findings or recommendations to which
objection is made.” Id. However, “[o]bjections that are merely perfunctory responses argued in
an attempt to engage the district court in a rehashing of the same arguments set forth in the
original papers will not suffice to invoke de novo review.’” Phillips v. Reed Grp., Ltd., 955 F.
Supp. 2d 201, 211 (S.D.N.Y. 2013) (citation, quotation marks, and alteration marks omitted).
“To the extent . . . that the party makes only conclusory or general arguments, or simply
reiterates the original arguments, [courts] will review the [R&R] strictly for clear error.”
IndyMac Bank, F.S.B. v. Nat’l Settlement Agency, Inc., 07 Civ. 6865 (LTS) (GWG), 2008 WL
4810043, at *1 (S.D.N.Y. Nov. 3, 2008); see also Ortiz v. Barkley, 558 F. Supp. 2d 444, 451
(S.D.N.Y. 2008) (“Reviewing courts should review a report and recommendation for clear error
where objections are merely perfunctory responses, . . . rehashing . . . the same arguments set
forth in the original petition.” (citation and quotation marks omitted)). For portions of the R&R
to which no timely objection is made, a Court’s review is limited to a consideration of whether
there is any “‘clear error on the face of the record’” that precludes acceptance of the
recommendations. Wingate v. Bloomberg, No. 11-CV-188 (JPO), 2011 WL 5106009, at *1
(S.D.N.Y. Oct. 27, 2011) (quoting Fed. R. Civ. P. 72(b) advisory committee note and citing
Nelson v. Smith, 618 F. Supp. 1186, 1189 (S.D.N.Y. 1985)).
B.

Leave to Amend
Under the Federal Rules of Civil Procedure, leave to amend should be “freely

give[n] . . . when justice so requires.” Fed. R. Civ. P. 15(a)(2). District courts “ha[ve] broad
discretion in determining whether to grant leave to amend.” Gurary v. Winehouse, 235 F.3d 792,
801 (2d Cir. 2000). “Where the possibility exists that [a] defect can be cured, leave to amend . . .

32

should normally be granted” at least once. Wright v. Ernst & Young LLP, No. 97 CIV. 2189
(SAS), 1997 WL 563782, at *3 (S.D.N.Y. Sept. 10, 1997), aff’d, 152 F.3d 169 (2d Cir. 1998).
Moreover, where a claim is dismissed on the grounds that it is “inadequate[ly] pled,” there is “a
strong preference for allowing [a] plaintiff[ ] to amend.” In re Bear Stearns Companies, Inc.
Sec., Derivative, & ERISA Litig., No. 08 MDL 1963, 2011 WL 4072027, at *2 (S.D.N.Y. Sept.
13, 2011).
Leave to amend may properly be denied in cases of “‘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 the allowance of the
amendment, futility of amendment, etc.’” Ruotolo v. City of N.Y., 514 F.3d 184, 191 (2d Cir.
2008) (quoting Foman v. Davis, 371 U.S. 178, 182 (1962)); see Murdaugh v. City of N.Y., No.
10 Civ. 7218 (HB), 2011 WL 1991450, at *2 (S.D.N.Y. May 19, 2011) (“Although under Rule
15(a) of the Federal Rules of Civil Procedure leave to amend complaints should be ‘freely
given,’ leave to amend need not be granted where the proposed amendment is futile.” (citations
omitted)). Leave to amend may be denied as futile where the proposed amended pleading would
not survive a motion to dismiss. Ricciuti v. N.Y.C. Transit Auth., 941 F.2d 119, 123 (2d Cir.
1991) (“When the plaintiff has submitted a proposed amended complaint, the district judge may
review that pleading for adequacy and need not allow its filing if it does not state a claim upon
which relief can be granted.”). The party opposing the proposed amendment bears the burden of
establishing futility. Ballard v. Parkstone Energy, LLC, No. 06 CIV. 13099 (RWS), 2008 WL
4298572, at *3 (S.D.N.Y. Sept. 19, 2008).
C.

Federal Rule of Civil Procedure 9(b)
Federal Rule of Civil Procedure 9(b) sets standards for pleading fraud claims and

33

requires that “[i]n alleging fraud or mistake, a party must state with particularity the
circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). Rule 9(b) requires a plaintiff
to “‘(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.’” Kottler v. Deutsche Bank AG, 607 F. Supp. 2d 447, 462 (S.D.N.Y. 2009)
(quoting Stevelman v. Alias Research, Inc., 174 F.3d 79, 84 (2d Cir. 1999)).
D.

Rule 12(b)(6) Standard
“To survive a motion to dismiss, a complaint must contain sufficient factual

matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
“In considering a motion to dismiss[,] . . . the court is to accept as true all facts alleged in the
complaint,” and must “draw all reasonable inferences in favor of the plaintiff.” Kassner v. 2nd
Ave. Delicatessen Inc., 496 F.3d 229, 237 (2d Cir. 2007). A complaint is inadequately pled “if it
tenders ‘naked assertion[s]’ devoid of ‘further factual enhancement,’” Iqbal, 556 U.S. at 678
(quoting Twombly, 550 U.S. at 557), and does not provide factual allegations sufficient “to give
the defendant fair notice of what the claim is and the grounds upon which it rests.” Port Dock &
Stone Corp. v. Oldcastle Northeast Inc., 507 F.3d 117, 121 (2d Cir. 2007) (citing Twombly, 550
U.S. at 555). “Threadbare recitals of the elements of a cause of action, supported by mere
conclusory statements, do not suffice [to establish entitlement to relief].” Iqbal, 556 U.S. at 678.
In resolving a motion to dismiss, a court may “consider . . . the complaint and
any documents attached thereto or incorporated by reference and documents upon which
the complaint relies heavily.” Bldg. Indus. Elec. Contractors Ass’n v. City of N.Y., 678 F.3d
184, 187 (2d Cir. 2012) (citation and quotation marks omitted). However, “[w]here . . . the
allegations pled in the complaint are contradicted by documents on which the complaint relies
34

the reviewing court need not accept as true an allegation pled nor draw inferences in its favor.”
Alexander v. Bd. of Educ. of City Sch. Dist. of City of New York, 107 F. Supp. 3d 323, 331
(S.D.N.Y. 2015), aff’d sub nom. Alexander v. The Bd. of Educ. of City of New York, 648 F.
App’x 118 (2d Cir. 2016) (citation and quotation marks omitted). A court considering a motion
to dismiss may also take judicial notice of publicly filed documents. Vazquez v. City of New
York, No. 99 Civ. 4606 (DC), 2000 WL 869492, at *1 n.1 (S.D.N.Y. June 29, 2000). Finally, as
discussed above, claims sounding in fraud must satisfy Federal Rule of Civil Procedure 9(b).
Kalnit v. Eichler, 264 F.3d 131, 138 (2d Cir. 2001).
II.

ANALYSIS
A.

Primary Fraud Claims
In his objections, Plaintiff argues generally that “the R&R misstated the

circumstances under which a non-speaker can be liable under New York law for ‘causing or
authorizing’ the speaker’s fraudulent statements or omissions to a plaintiff, and dramatically
departed from the FRCP 12(b)(6) standards for ruling on a motion to dismiss.” (Pltf. Obj. (Dkt.
No. 172) at 17) To the extent that Plaintiff’s objections repeat arguments made before Judge
Cave (see, e.g., Pltf. Br. (Dkt. No. 133) at 14-21; Pltf. Reply Br. (Dkt. No. 143) at 8-14), this
court will review Judge Cave’s recommendation for clear error. To the extent that Plaintiff
argues that Judge Cave misconstrued the law, the Court reviews the relevant portion of the R&R
de novo. Phillips, 955 F. Supp. 2d at 211; IndyMac Bank, 2008 WL 4810043, at *1.
1.

First Cause of Action: Claim that JP Morgan and Citi Caused or
Authorized Millennium’s Alleged Fraudulent Statements

Under New York law, the five elements of a fraud claim must be shown by clear
and convincing evidence: (1) a material misrepresentation or omission of fact (2)
made by defendant with knowledge of its falsity (3) and intent to defraud; (4)
reasonable reliance on the part of the plaintiff; and (5) resulting damage to the
plaintiff.

35

Crigger v. Fahnestock & Co., 443 F.3d 230, 234 (2d Cir. 2006) (citing Schlaifer Nance & Co. v.
Estate of Warhol, 119 F.3d 91, 98 (2d Cir. 1997)).
“The elements of a fraudulent concealment claim under New York law are: (1) a
duty to disclose material facts; (2) knowledge of material facts by a party bound to make such
disclosures; (3) failure to discharge a duty to disclose; (4) scienter; (5) reliance; and (6)
damages.” De Sole v. Knoedler Gallery, LLC, 139 F. Supp. 3d 618, 640 (S.D.N.Y. 2015)
(citation, quotation marks, and alteration marks omitted)). “A duty to disclose arises where 1)
one party has superior knowledge of certain information; 2) that information is not readily
available to the other party; and 3) the first party knows that the second party is acting on the
basis of mistaken knowledge.” UniCredito, 288 F. Supp. 2d at 497 (citing Banque Arabe, 57
F.3d at 153).
In determining
whether reliance on allegedly fraudulent misrepresentations is reasonable or
justifiable, New York takes a contextual view, focusing on the level of
sophistication of the parties, the relationship between them, and the information
available at the time of the operative decision. Where a party has the means to
discover the true nature of the transaction by the exercise of ordinary intelligence,
and fails to make use of those means, he cannot claim justifiable reliance on
defendant’s misrepresentations.
....
As a matter of law, a sophisticated plaintiff cannot establish that it entered into an
arm’s length transaction in justifiable reliance on alleged misrepresentations if
that plaintiff failed to make use of the means of verification that were available to
it.
....
Under New York’s contextual approach, the question of what constitutes
reasonable reliance is always nettlesome because it is so fact-intensive.
De Sole, 139 F. Supp. 3d at 642-43 (citations, quotation marks, and alteration marks omitted).

36

Finally, with regard to allegations that one party controlled statements issued by
another party, “[a] party may be liable for fraud if it ‘made’ a misrepresentation or ‘authorized’
or ‘caused’ a misrepresentation to be made.” Woori Bank, 910 F. Supp. 2d at 702 (citation
omitted); see also, e.g., Pasternack v. Lab. Corp. of Am. Holdings, 27 N.Y.3d 817, 828-29
(2016) (discussing third-party reliance in the context of fraud claims).
Contrary to Plaintiff’s arguments (see Pltf. Obj. (Dkt. No. 172) at 18), Judge Cave
does not stray from these legal principles. Indeed, she applies these principles and concludes
that Plaintiff’s allegations are not sufficient to demonstrate that JP Morgan and Citi controlled,
authorized, or caused Millennium’s alleged false statements. (R&R (Dkt. No. 169) at 14-20
(citing PAC (Dkt. No. 134-1) at ¶¶ 12-15, 65, 98-123, 129, 136, 164, 172); see also PAC (Dkt.
No. 164) ¶¶ 87, 96-97, 124-127) The Court sees no error in the R&R’s conclusions. 9

9

Plaintiff objects to Judge Cave’s handling of an email referenced in the PAC, which Plaintiff
alleges shows that JP Morgan and Citi prevented Millennium from disclosing material litigation
to the Investors. (Pltf. Obj. (Dkt. No. 172) at 20; see also PAC (Dkt. No. 134-1) ¶¶ 12, 87, 164)
The PAC quotes the email, but provides no citation for it. (See PAC (Dkt. No. 134-1) ¶¶ 12, 87)
Defendants submitted the email exhibit in connection with their opposition to Plaintiff’s motion
to amend. (Def. Br. (Dkt. No. 136) at 24; Viapiano Decl., Ex. D (Dkt. No. 137-4) at 7) Judge
Cave considered the email and found that it does not support Plaintiff’s allegations that JP
Morgan and Citi caused or authorized Millennium’s misstatements. (R&R (Dkt. No. 169) at 18)
Given that the PAC quotes the email, it was proper for Judge Cave to consider it. Bldg. Indus.
Elec. Contractors Ass’n, 678 F.3d at 187. Moreover, this Court finds no error in Judge Cave’s
conclusion that the email contradicts Plaintiff’s allegations of control. See IndyMac Bank, 2008
WL 4810043, at *1.
The email at issue concerns the Fee Letter and Commitment Letter and states that Defendants
“rejected any possibility of the disclosure of material litigations, requiring instead a clean
representation that we [Millennium] are not subject to any material litigation at all.” (Viapiano
Decl., Ex. D (Dkt. No. 137-4) at 7) It is thus clear that this email pertains to representations and
warranties in a Fee Letter and Commitment Letter that Millennium sent to Defendants; the email
does not relate to Millennium’s communications with Investors. Plaintiff’s argument that this
email relates to Millennium’s communications with the Investors is misleading, as Judge Cave
properly found. (R&R (Dkt. No. 169) at 18) This Court notes that this is not the only instance in
the PAC in which Plaintiff’s allegations are contradicted by the underlying document on which
Plaintiff relies. (Id. at 19 (citing PAC (Dkt. No. 134-1) ¶ 121; Viapiano Decl., Ex. E (Dkt. No.
37

Accordingly, this Court will adopt the R&R’s recommendation that leave to
amend be denied as to Plaintiff’s First Cause of Action, because the proposed amendment would
be futile. (R&R (Dkt. No. 169) at 20); see also Phillips, 955 F. Supp. 2d at 211; IndyMac Bank,
2008 WL 4810043, at *1.
2.

Plaintiff’s Second Cause of Action: Claim that
JP Morgan and Citi Directly Made Misstatements

Plaintiff complains that “[t]he R&R incorrectly finds [that his Second Cause of
Action is] supported by only four allegations[,] . . . when in fact there are many allegations that
the R&R does not address. . . . However, even the few allegations that the R&R does consider
are sufficient to sustain” the Second Cause of Action. (Pltf. Obj. (Dkt. No. 172) at 23) Because
Plaintiff’s objections to Judge Cave’s findings as to this claim are a mere “‘perfunctory
response,’’ Phillips, 955 F. Supp. 2d at 211, this Court will review the relevant portions of the
R&R for clear error. Indymac, 2008 WL 4810043, at *1.
No. 137-5) at 2)) Judge Caves goes on to find that “[t]he otherwise conclusory language [in the
PAC] does not support Plaintiff’s theory that JP Morgan and Citi controlled Millennium’s
statements.” (Id. at 18) This Court sees no error in Judge Cave’s conclusions.
As to Plaintiff’s complaint that Judge Cave’s use of the word “control” is improper (Pltf. Obj.
(Dkt. No. 172) at 18-19), in context it is clear that Judge Cave uses the word “control” as a proxy
for “causing or authorizing” Millennium’s false statements. See, e.g., R&R (Dkt. No. 169) at 17.
Finally, and contrary to Plaintiff’s arguments (see Pltf. Obj. (Dkt. No. 172) at 19), Judge Cave
correctly distinguished two cases on which Plaintiff relies: Allstate Insurance Co. v.
Countrywide Financial Corp., 824 F. Supp. 2d. 1164 (C. D. Cal. 2011) and Orchard Hotel LLC
v. D.A.B. Grp., LLC, 102 N.Y.S.3d 550 (1st Dep’t 2019). (See R&R (Dkt. No. 169) at 18-19)
In Allstate, control over the statement-maker could be found because plaintiff had alleged that
the parties were in the same corporate family. Allstate, 824 F. Supp. 2d at 1186. And in Orchard
Hotel, the company-defendant was alleged to be the sole creator of the document at issue.
Orchard Hotel, 172 A.D.3d at 531. There are no such facts here.
In sum, this Court agrees with Judge Cave’s finding that “[t]he PAC makes clear that the
underlying fraudulent statements were made by Millennium and the Insiders, not JP Morgan and
Citi.” (R&R (Dkt. No. 169) at 19 (citing PAC (Dkt. No. 134-1) ¶¶ 12-15, 65, 98-123, 125-27,
129, 136))
38

In connection with the Second Cause of Action, Judge Cave closely analyzes four
alleged misstatements by JP Morgan and Citi. (R&R (Dkt. No. 169) at 20 (citing PAC (Dkt. No.
134-1) ¶¶ 96-97, 123, 132, 172)) The first alleged misrepresentation pertains to whether “JP
Morgan and Citi should have but did not disclose the methodology by which damages might be
assessed in the DOJ Investigation.” (Id. at 21) The second pertains to Citi and JP Morgan’s
“joint statements” with Millennium in the CIM. (Id. at 20) The third concerns “‘[w]ords and
conduct [that] misrepresented to Investors that conditions precedent for funding in the 2014
Credit Agreement had been satisfied.” (Id. (quoting PAC (Dkt. No. 134-1) ¶ 132)) The fourth
allegation concerns “JP Morgan’s response to an Investor’s question concerning Millennium’s
litigation exposure.” (Id. at 24)
The first and fourth allegations implicate JP Morgan and Citi’s duty to disclose
information to the Investors. In this regard,
[n]ondisclosure is not actionable under the common law of fraud and deceit unless
there is a duty to speak. That duty may arise when plaintiff and defendant are in a
confidential, fiduciary relationship, when defendant has notice that plaintiff is
acting upon a mistaken belief as to a material fact, or when defendant resorts to
misrepresentation or some other artifice aimed at preventing disclosure of the
facts.
Frigitemp Corp., 1974 WL 466, at *5; see also In re UBS AG Sec. Litig., No. 07 CIV. 11225
(RJS), 2012 WL 4471265, at *31 (S.D.N.Y. Sept. 28, 2012), aff’d sub nom. City of Pontiac
Policemen’s & Firemen’s Ret. Sys. v. UBS AG, 752 F.3d 173 (2d Cir. 2014) (finding that a
defendant “did not make positive assurances or guarantees that would necessitate additional
disclosures”); id. at *32 (“[t]he law in this Circuit is clear that a party can be relieved of a duty to
disclose when certain developments affecting a corporation become matters of general public
knowledge” (citation and quotation marks omitted)).

39

Judge Cave concludes that JP Morgan and Citi had no duty to make a complete
disclosure about either the DOJ investigation into Millennium or the outcome of that
investigation, because (1) JP Morgan and Citi had made no “‘assurances or guarantees that
would necessitate additional disclosures’”; and (2) DOJ’s investigation was public knowledge
well before the Syndicated Loan Transaction took place. (R&R (Dkt. No. 169) at 22 (quoting In
re UBS AG Secs. Litig., 2012 WL 4471265, at *31); see id. at 21 (quoting Novak v. Kaskas, 216
F.3d 300, 309 (2d Cir. 2000) for the proposition that “allegations that defendants should have
anticipated future events and made certain disclosures earlier than they actua[lly] did do not
suffice to make out a claim of securities fraud”); see also id. at 22 (citing In re UBS AG Secs.
Litig., 2012 WL 4471265, at *32, and noting that as of 2012 the DOJ’s investigation into
Millennium was public knowledge, as was the Ameritox litigation); id. at 24 (“As with the first
allegation, the Court finds that Plaintiff has failed to allege that JP Morgan omitted any material
qualifying information that would render this statement a ‘half-truth’” (citation omitted))) This
Court sees no error in Judge Cave’s determination.
Judge Cave further concludes that the presence of the JP Morgan and Citi logos
on the CIM prepared by Millennium does not render JP Morgan and Citi “joint makers” of the
statements in the CIM. (R&R (Dkt. No. 169) at 18, 23) Absent a showing that JP Morgan and
Citi actually assisted in the drafting of the CIM, or had direct involvement in the everyday
business of Millennium, the logos are insufficient to show that JP Morgan and Citi made the
statements. (Id. at 18 (citing In re Virtus Investment Partners Securities Litigation, 195 F. Supp.
3d 528, 541 (S.D.N.Y. 2016); King Cty., Wash. v. IKB Deutsche Industriebank AG, 751 F.
Supp. 2d 652, 658 (S.D.N.Y. 2010))) This Court finds no error in Judge Cave’s reasoning or
conclusion.

40

As to Plaintiff’s assertion that “Defendants by words or conduct . . .
misrepresented to the Investors that conditions precedent for funding in the 2014 Credit
Agreement had been satisfied” (PAC (Dkt. No. 134-1) ¶ 132), Judge Cave find that this
allegation does not meet the pleading requirement of Rule 9(b). (R&R (Dkt. No. 169) at 23) As
discussed above, Rule 9(b) provides a heightened pleading standard for claims sounding in fraud.
Fed. R. Civ. P. 9(b); see also, e.g., Kottler, 607 F. Supp. 2d at 462. Judge Cave did not err in
concluding that
[t]o the extent that Plaintiff is attempting to allege that Defendants committed
fraud by accepting commitments from the Investors despite Defendants’
knowledge that Millennium had not complied with the representations and
warranties in the 2014 Credit Agreement, Judge Gardephe’s holding that “Section
9.3 of the Credit Agreement absolves [JP Morgan] from liability for ‘any recitals,
statements, representations or warranties made by [Millennium][’]” precludes that
theory of liability.
(R&R (Dkt. No. 169) at 23-24 (quoting Kirschner, 2020 WL 2614765, at *15))
In sum, this Court finds no error in Judge Cave’s recommendation that leave to
amend be denied as to the Second Cause of Action on grounds of futility. 10

10

This Court finds no merit in Plaintiff’s objection that Judge Cave ignored other plausible
allegations in the PAC demonstrating that JP Morgan and Citi were involved with Millennium’s
alleged fraudulent statements. For example, while Plaintiff claims that Judge Cave ignored “the
PAC’s plausible allegations that JP Morgan and Citi are primarily liable in fraud for materially
misleading Investors . . . with false ratings” (Pltf. Obj. (Dkt. No. 172) at 23; id. at 24-26), Judge
Cave explicitly addresses the allegedly false ratings (see, e.g., R&R (Dkt. No. 169) at 4, 9-11,
16) as well as a JP Morgan associate’s alleged statement that the ratings presentation was “‘pulp
fiction.’” (Id. at 27 (citation omitted)) As discussed above, however, Judge Cave attributes the
alleged misrepresentations to Millennium and concludes that JP Morgan and Citi did not cause
Millennium to make – or make themselves –misstatements or omissions. (Id. at 14-24) To the
extent that the JP Morgan associate’s “‘pulp fiction’” comment supports Plaintiff’s scienter
claim, as Judge Cave explains, Plaintiff’s primary fraud claim fails because other elements of
this claim are unsatisfied. (Id. at 27) In particular, the PAC does not plead facts showing a
connection between Millennium’s alleged misrepresentations and JP Morgan or Citi. To the
extent that Plaintiff alleges that JP Morgan and Citi directly made misstatements, his allegations
are conclusory and do not meet Rule 9(b)’s pleading requirements. Moreover, some of the
41

3.

The Effect of the Disclaimers on Plaintiff’s Primary Fraud Claims

Plaintiff argues that Judge Cave “errs in concluding that the Investors’ disclaimer
of reliance on, and duty owed by, Defendants requires dismissal of the First Cause of Action.”
(Pltf. Obj. (Dkt. No. 172) at 19) But Plaintiff’s argument is premised on the notion that JP
Morgan and Citi “orchestrated” Millennium’s misstatements (see id. (citation omitted)), and this
Court has found that the PAC does not plead sufficient factual allegations demonstrating that JP
Morgan and Citi caused, authorized, or controlled Millennium’s alleged misstatements, or that
these Defendants directly made misstatements or omissions.
Plaintiff complains that Judge Cave did not follow applicable New York law in
concluding that the
disclaimers preclude (i) the PAC’s fraudulent omissions claims against JP Morgan
as assignor, (ii) the finding of [a] special relationship between any Defendant and
[the] Investors that creates a duty of care necessary for the PAC’s negligent
misrepresentation claim, and (iii) reasonable reliance by any Investor on
Defendants for either intentional or fraudulent misrepresentations claims.
(Id. at 28)
Because Plaintiff repeats in his objections the same arguments he made to Judge Cave, this Court
reviews the relevant portions of the R&R for clear error. Phillips, 955 F. Supp. 2d at 211;
IndyMac Bank, 2008 WL 4810043, at *1.

allegations cited by Plaintiff in his objections are not attributable to JP Morgan and Citi. (See,
e.g., Pltf. Obj. (Dkt. No. 172) at 26 n.17 (citing PAC (Dkt. No. 134-1) ¶¶ 14-15, 24-32, 75-88,
91-104, 133))
As discussed above, Judge Cave finds – as to the Citi entities – that Plaintiff engaged in improper
group pleading. (R&R (Dkt. No. 169) at 38-39) The Court finds no error in that conclusion.
The fact that the PAC, in certain paragraphs, distinguishes between the Citi entities (Pltf. Obj.
(Dkt. No. 172) at 15 n.9) does not excuse Plaintiff’s failure to distinguish between the Citi
entities in other paragraphs.
42

Judge Cave concludes that the “disclaimers in the relevant agreements” preclude
Plaintiff’s primary fraud claims, because they make it impossible for Plaintiff to satisfy two
elements of a fraud claim: a duty to disclose and reasonable reliance. (R&R (Dkt. No. 169) at
28 (citation omitted)) Judge Cave acknowledges that this Court – in the May 22, 2020 Opinion –
finds that the disclaimers are “‘fatal to’ Plaintiff’s claim that the Investors reasonably relied on
any alleged misstatements or omissions by the Defendants because the Investors ‘specifically
agreed that they had, and would continue to, make their own credit decisions and would not rely
on the Defendant banks.’” (Id. (quoting Kirschner, 2020 WL 2614765, at *13)) The PAC does
not plead any new allegations that would require a change in that analysis.
As an initial matter, Plaintiff’s arguments regarding the disclaimers are predicated
on the notion that Defendants participated in the fraud (see, e.g., Pltf. Obj. (Dkt. No. 172) at 29),
a proposition that this Court has rejected.
Moreover, Judge Cave properly concludes that Plaintiff’s “attempt to circumvent”
this Court’s May 22, 2020 Opinion by arguing “that the disclaimers do not apply to statements or
omissions by Millennium that JP Morgan and Citi orchestrated” is not persuasive, because the
PAC does not plead facts demonstrating that these Defendants “orchestrated” the alleged
misstatements. (Id. at 29) Judge Cave also correctly notes that “Plaintiff’s attempt to
recharacterize the disclaimers as relating only to ‘general risks or conditions, including “credit
risk,” which are present in every transaction’” (id. (citation omitted)) “runs head-on into” this
Court’s finding – in the May 22, 2020 Opinion – that “‘the contractual disclaimers at issue
address the evaluation of credit risk, which is exactly what the alleged misrepresentations relate
to.’” (Id. (quoting Kirschner, 2020 WL 2614765, at *14)) Judge Cave also correctly notes that
Plaintiff’s “peculiar knowledge” and “special relationship” arguments were rejected in the May

43

22, 2020 Opinion, and that the PAC does not plead any new allegations that would require a
change in the Court’s analysis. (Id. at 29-30 (citing Kirschner, 2020 WL 2614765, at *12-14))
Accordingly, this Court adopts the R&R’s recommendation that “the disclaimers
provide a separate and independent basis on which to conclude that Plaintiff’s primary fraud
claims in the PAC are futile.” (Id. at 30)
B.

Secondary Fraud Claims
Plaintiff contends that Judge Cave misstates and misapplies New York law as to

his Third and Fourth Causes of Action, which allege aiding and abetting fraud and conspiracy to
commit fraud. (Pltf. Obj. (Dkt. No. 172) at 10) He asserts that Judge Cave – in concluding that
Defendants’ “silence,” absent “a duty to disclose[,] cannot constitute substantial assistance or
overt acts” in furtherance of the conspiracy (id. (citing R&R (Dkt. No. 169) at 34-37)) –
overlooked the PAC’s allegations demonstrating Defendants’ active participation in the fraud.
(Id. at 10-11)
Judge Cave did not overlook any allegations in the PAC. To the contrary, she
finds that the PAC does not adequately allege the Defendants’ active participation in
Millennium’s alleged fraud. It is in this context – when beginning her discussion of Plaintiff’s
aiding and abetting claim – that Judge Cave addresses the impact of the disclaimers and case law
holding “that disclaimers similar to those in this case . . . barred aiding and abetting claims.” In
this regard, Judge Cave cites Stanfield Offshore Leveraged Assets, Ltd. v. Metropolitan Life
Insurance Co., 64 A.D. 3d 472 (1st Dept. 2009), in which the court “held that a substantially
similar disclaimer providing that the defendant ‘did not have a duty to disclose any information
relating to the [company] and could not be held liable for failure to disclose any information’
precluded a claim for aiding and abetting fraud ‘based on allegations of silence or inaction.’”

44

(R&R (Dkt. No. 169) at 34 (quoting Stanfield, 64 A.D. at 476); see also id. at 34-35 (discussing
Jebran v. LaSalle Business Credit, in which the “the court held that allegations that the defendant
‘remained silent regarding a purported misrepresentation in a loan agreement between plaintiffs
and defendant’s borrower’ [were] ‘insufficient to sustain a claim for aiding and abetting’ in the
absence of an ‘independent duty to the plaintiff’” (quoting Jebran v. LaSalle Business Credit,
LLC, 33 A.D. 3d 424, 424, (1st Dept. 2006)))) Judge Cave concluded that, “[i]n the absence of a
duty to disclose, Plaintiff’s aiding and abetting claim is unsustainable. . . . Accordingly, given the
preclusive effect of the disclaimers, any alleged failure to disclose adverse information about
Millennium does not constitute substantial assistance for purposes of an aiding and abetting
claim.” (Id. at 35 (citing cases)) Judge Cave’s reasoning is discussed in more detail below.
1.

Third Cause of Action: Aiding and Abetting Fraud

In his objections to Judge Cave’s findings concerning the Third Cause of Action –
aiding and abetting fraud – Plaintiff contends that Defendants assisted in the planning of
Millennium’s alleged fraud, and that accordingly it is irrelevant whether Defendants had a duty
to disclose. (See, e.g., Pltf. Obj. (Dkt. No. 172) at 11-17; see also, e.g., PAC (Dkt. No. 134-1) ¶
182)) As discussed above, however, Judge Cave correctly found that the PAC does not plead
facts adequate to demonstrate Defendants’ direct and active participation in Millennium’s
alleged fraud. 11 (See generally R&R (Dkt. No. 169) at 14-33) Accordingly, what remains to
11

In his objections, Plaintiff claims that the role BMO, Sun Trust, Citi, and JP Morgan played in
the creation of the Syndicated Loan Transaction is sufficient to demonstrate that they assisted in
the alleged fraudulent scheme. (Pltf. Obj. (Dkt. No. 172) at 13-17) But pleading “‘[s]ubstantial
assistance,’ a necessary element of aiding and abetting fraud, [requires] more than just [alleging
that a defendant] perform[ed] routine business services for the alleged fraudster.” CRT Invs.,
Ltd. v. BDO Siedman, LLP, 85 A.D.3d 470, 472 (1st Dept. 2011) (citation omitted)). As set
forth below, a plaintiff must show the defendant’s actual knowledge of the fraud scheme
and active role in bringing it about. See Kirschner v. Bennett, 648 F. Supp. 2d 525, 544
(S.D.N.Y. 2009) (“To survive a motion to dismiss, therefore, the [plaintiff] must allege facts
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determine is whether Defendants’ inaction – their failure to disclose information to the Investors
– provides a sufficient basis for aiding and abetting liability .
“To establish liability for aiding and abetting fraud [under New York law], [a
plaintiff] must show ‘(1) the existence of a fraud; (2) [the] defendant’s knowledge of the fraud;
and (3) that the defendant provided substantial assistance to advance the fraud’s commission.’”
Lerner v. Fleet Bank, N.A., 459 F.3d 273, 292 (2d Cir. 2006) (citation omitted); Stanfield
Offshore Leveraged Assets, Ltd. v. Metro. Life Ins. Co., 64 A.D.3d 472, 476 (1st Dept. 2009)
(“Substantial assistance exists ‘where (1) a defendant affirmatively assists, helps conceal, or by
virtue of failing to act when required to do so enables the fraud to proceed, and (2) the actions of
the aider/abettor proximately caused the harm on which the primary liability is predicated[.]’”
(citations omitted)).
Judge Cave does not misstate the law of aiding and abetting (see R&R (Dkt. No.
169) at 33-34), and having found that the PAC does not plead facts demonstrating that the
Defendants provided affirmative assistance to, or directly participated in, Millennium’s alleged
fraud, she correctly concludes that the disclaimers – which vitiate any duty to disclose that
giving rise to a ‘strong inference’ of defendant’s actual knowledge of the underlying harm, or the
conscious avoidance of the same such that ‘it can almost be said that the defendant actually knew
because he or she suspected a fact and realized its probability, but refrained from confirming it in
order later to be able to deny knowledge.’” (quoting Fraternity Fund Ltd. v. Beacon Hill Asset
Mgmt., LLC, 479 F. Supp. 2d 349, 367-68 (S.D.N.Y. 2007))); JP Morgan Chase Bank v.
Winnick, 406 F. Supp. 2d 247, 256 (S.D.N.Y. 2005) (“‘A defendant provides substantial
assistance only if [she] affirmatively assists, helps conceal, or by virtue of failing to act when
required to do so enables [the fraud] to proceed.’” (quoting Nigerian Nat’l Petroleum Corp. v.
Citibank, N.A., No. 98 Civ. 4960(MBM), 1999 WL 558141, at *8 (S.D.N.Y. July 30, 1999)))
(first alteration in Winnick); see also Krys v. Pigott, 749 F.3d 117, 127 (2d Cir. 2014) (“[U]nder
New York law, a complaint adequately alleges the knowledge element of an aiding and abetting
claim when it pleads ‘not . . . constructive knowledge, but actual knowledge of the fraud as
discerned from the surrounding circumstances.’” (quoting Oster v. Kirschner, 77 A.D.3d 51, 56
(1st Dept. 2010))).
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Defendants might otherwise have – render Plaintiff’s aiding and abetting claims insufficient.
(R&R (Dkt. No. 169) at 14-33; id. at 33-35)
In reaching this conclusion, Judge Cave relies in part on Stanfield Offshore
Leveraged Assets, Ltd. v. Metropolitan Life Insurance Co., 64 A.D.3d 472 (1st Dept. 2009).
(See id. at 34) In Stanfield Offshore, plaintiffs – which had been assigned the right to collect
debt in connection with loans made to a distressed company – brought an aiding and abetting
fraud claim against the lead arrangers of the distressed company’s refinancing. Stanfield
Offshore, 64 A.D.3d at 473. As here, plaintiffs had signed agreements in which they expressly
disclaimed any reliance on defendants, and in which they acknowledged that the defendants had
no duty to disclose information. Id. at 474. A year after the refinancing, the distressed company
declared bankruptcy. Plaintiffs sued, claiming that the company’s “solvency was falsely
represented, fraudulently inducing them (or their predecessors-in-interest) to sign the loan
agreements. [Plaintiffs claimed that,] . . . by jointly arranging the April 2004 refinancing,
[defendants had] aided and abetted [the now-bankrupt company’s] fraud and aided and abetted
breaches of fiduciary duties.” Id. As here, plaintiffs alleged that the defendants had “provided”
written materials for the distressed company to use in soliciting financing, and that “‘[t]he term
sheet provided to prospective lenders, including [p]laintiffs and/or their predecessors, plainly
stated that [the company’s] solvency would be represented in the eventual credit agreements,
despite the knowledge of the [d]efendants and [the company] that [the company] was already
insolvent and would become more insolvent. . . .’” Id.
The First Department concluded that plaintiffs had not adequately pled substantial
assistance, despite alleging that the defendants had “assisted in the fraud by contacting
prospective investors and distributing information about [the distressed company], as well as by

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organizing the refinancing.” Id. at 476. This was so because the “the crux of [the] plaintiffs’
claim is that [the defendants] assisted in the alleged fraud by failing to disclose [the distressed
company’s] insolvency.” Plaintiffs’ aiding and abetting fraud claim was found insufficient
“absent a fiduciary duty or some other independent duty owed by [the defendants] to the
plaintiffs[.]” Id. Because the disclaimers in the governing agreements provided that the
defendants had no such duty, plaintiffs’ aiding and abetting fraud claim failed. Id.
There was no error in Judge Cave’s finding that the disclaimers at issue here
likewise have a “preclusive effect,” such that “any alleged failure to disclose adverse information
about Millennium does not constitute substantial assistance for purposes of an aiding and
abetting claim.” (R&R (Dkt. No. 169) at 35) Accordingly, this Court will adopt her
recommendation, and leave to amend will be denied as to the aiding and abetting fraud claim, on
grounds of futility.
2.

Fourth Cause of Action: Conspiracy to Commit Fraud

In objecting to Judge Cave’s treatment of his conspiracy to commit fraud claim,
Plaintiff once again argues that he adequately pled the Defendants’ active involvement in, and
intent to assist, Millennium’s alleged fraud scheme. (Pltf. Obj. (Dkt. No. 172) at 11) The overt
acts Plaintiff cites are akin to those discussed above. (Id. at 13-17)
“The elements of a civil conspiracy are (1) an agreement between two or more
persons, (2) an overt act, (3) an intentional participation in the furtherance of a plan or purpose
and (4) resulting damage.” UniCredito, 288 F. Supp. 2d at 504 (citing Official Comm. of
Unsecured Creditors v. Donaldson, Lufkin & Jenrette Sec. Corp., No. 00 Civ. 8688 (WHP), 2002
WL 362794, at *13 (S.D.N.Y. Mar. 6, 2002)).

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The R&R’s statement of the applicable law (see R&R (Dkt. No. 160) at 36) is
correct, and Judge Cave properly concludes that the PAC does not sufficiently allege an overt
act. (Id. at 36-37) There is considerable overlap between the analysis applicable to the aiding
and abetting count and the conspiracy count, because Plaintiff relies on largely the same
allegations in support of each. (See R&R (Dkt. No. 169) at 33-37; PAC (Dkt. No. 134-1) ¶¶ 182,
190)
The overt act element of the conspiracy claim is critical here, because an “‘overt
act’ typically must be an affirmative act; mere inaction is insufficient.” Ritchie Capital Mgmt.,
L.L.C. v. Gen. Elec. Capital Corp., 121 F. Supp. 3d 321, 339 (S.D.N.Y. 2015) (citations
omitted). Noting that “the crux of Plaintiff’s civil conspiracy claim is Defendants’ failure to
disclose [the investigations of and litigation regarding Millennium],” Judge Cave concludes that
“such a failure to act or to disclose is insufficient to constitute an overt act for purposes of
pleading a civil conspiracy claim.” (R&R (Dkt. No. 169) at 37 (citing Ritchie, 121 F. Supp. 3d
at 339).
This Court finds sees no error in Judge Cave’s analysis, reasoning, and
conclusion. Accordingly, the Court will adopt her recommendation that leave to amend be
denied as to the conspiracy claim, on grounds of futility. (Id.)
C.

Negligent Misrepresentation Claim
Plaintiff objects to Judge Cave’s findings concerning his negligent

misrepresentation claim. Citing once again to Kimmell, 89 N.Y.2d 257, Plaintiff argues that the
PAC pleads “[a]ll of the elements of the duty prong of the negligent misrepresentation claim.”
(Pltf. Obj. (Dkt. No. 172) at 30 (citing Kimmell, 89 N.Y.2d at 263)) Because Plaintiff repeats
the same arguments that he made to Judge Cave, the applicable portion of the R&R will be

49

reviewed for clear error. Phillips, 955 F. Supp. 2d at 211; IndyMac Bank, 2008 WL 4810043, at
*1.
As an initial matter, Judge Cave applies the correct legal standard, which she
quotes from this Court’s May 22, 2020 Opinion:
Under New York law . . . a party bringing a negligent misrepresentation claim
must plead facts demonstrating that “(1) the parties stood in some special
relationship imposing a duty of care on the defendant to render accurate
information; (2) the defendant negligently provided incorrect information; and (3)
the plaintiff reasonably relied upon the information given.” LBBW Luxemburg
S.A. v. Wells Fargo Sec. LLC, 10 F. Supp. 3d 504, 525 (S.D.N.Y. 2014) (citation
omitted). Accordingly, in order for “a party [to] recover in tort for pecuniary loss
sustained as a result of another’s negligent misrepresentations there must be a
showing that there was either actual privity of contract between the parties or a
relationship so close as to approach that of privity.” Prudential Ins. Co. of Am. v.
Dewey, Ballantine, Bushby, Palmer & Wood, 80 N.Y.2d 377, 382 (1992)
(citations omitted).
(R&R (Dkt. No. 169) at 31 (quoting Kirschner, 2020 WL 2614765, at *12))
In the May 20, 2020 Opinion, this Court concludes that the disclaimers are “fatal”
to Plaintiff’s negligent misrepresentation claim:
Plaintiff cannot overcome disclaimers in these agreements that are fatal to its negligent
misrepresentation claim. Section 9.6 of the Credit Agreement states that Chase, the
“Administrative Agent[,] shall not have any duty or responsibility to provide any Lender
with any credit or other information . . . .” (Credit Agreement (Dkt. No. 79-1) § 9.6)
And Section 9.6 further provides that “[e]ach Lender also represents that it will,
independently and without reliance upon any Agent or any other Lender, and based on
such documents and information as it shall deem appropriate at the time, continue to
make its own credit analysis . . . .” (Id.) Accordingly, the agreements on which Plaintiff
relies to claim privity contain a clear disclaimer of the “special relationship” and “duty of
care” alleged by Plaintiff.
Kirschner, 2020 WL 2614765, at *13.
This Court agrees with Judge Cave that (1) Plaintiff has not provided any reason
for this Court to ignore the case law holding that “‘[g]enerally, banking relationships [of the sort
at issue here] are not viewed as special relationships giving rise to a heightened duty of care.’”

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(R&R (Dkt. No. 169) at 32 (quoting Banque Arabe, 57 F.3d at 158)); and (2) “the PAC does not
. . . contain any new allegations showing ‘actual privity of contract or a relationship so close as
to approach that of privity.’” (Id. at 32-33 (quoting Kirschner, 2020 WL 2614765, at *12))
Accordingly, this Court will adopt Judge Cave’s recommendation that leave to amend be denied
as to Plaintiff’s negligent misrepresentation claim, on grounds of futility.
CONCLUSION
The R&R (Dkt. No. 169) is adopted as set forth above. Plaintiff’s motion to file
an amended complaint is denied. The Clerk of Court is directed to terminate the motion (Dkt.
No. 132), and to close this case.
Dated: New York, New York
September 30, 2021

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