Arkansas Teacher Retirement System v. Allianz Global Investors U.S. LLC et al

Filing 106

OPINION AND ORDER re: (70 in 1:20-cv-07952-KPF) MOTION to Dismiss the First Amended Complaint filed by Allianz Global Investors U.S. LLC, (52 in 1:20-cv-07842-KPF) MOTION to Dismiss the First Amended Complaint filed by All ianz Global Investors U.S. LLC, (62 in 1:20-cv-09479-KPF) MOTION to Dismiss the Complaint. filed by Allianz Global Investors U.S. LLC, (82 in 1:20-cv-05615-KPF) MOTION to Dismiss the Complaint. filed by Allianz Global Invest ors U.S. LLC, (44 in 1:20-cv-10028-KPF) MOTION to Dismiss the First Amended Complaint filed by Allianz Global Investors U.S. LLC, (62 in 1:20-cv-09478-KPF) MOTION to Dismiss the Complaint filed by Allianz Global Investors U. S. LLC, (51 in 1:20-cv-09587-KPF) MOTION to Dismiss the Complaint filed by Allianz Global Investors U.S. LLC, (54 in 1:20-cv-05817-KPF) MOTION to Dismiss the Second Amended Complaint filed by Allianz Global Investors U.S. LL C, (54 in 1:20-cv-07061-KPF) MOTION to Dismiss the First Amended Complaint filed by Allianz Global Investors U.S. LLC, (71 in 1:20-cv-07606-KPF) MOTION to Dismiss the Complaint filed by Allianz Global Investors U.S. LLC, (70 in 1:20-cv-07154-KPF) MOTION to Dismiss the Second Amended Complaint filed by Allianz Global Investors U.S. LLC. For the reasons set forth above, Defendant's motions to dismiss are GRANTED IN PART and DENIED IN PART as set forth in this Opinion. Plaintiffs are hereby ORDERED to notify the Court, on or before October 30, 2020, regarding whether they will file amended pleadings. The Clerk of Court is directed to docket this Opinion in case numbers No. 20 Civ. 5615, No. 20 Civ. 5 817, No. 20 Civ. 7061, No. 20 Civ. 7154, No. 20 Civ. 7606, No. 20 Civ. 7842, No. 20 Civ. 7952, No. 20 Civ. 8642, No. 20 Civ. 9478, No. 20 Civ. 9479, No. 20 Civ. 9587, and No. 20 Civ. 10028. The Clerk of Court is further directed to terminate the moti ons pending at No. 20 Civ. 5615, Dkt. #82; No. 20 Civ. 5817, Dkt. #54; No. 20 Civ. 7061, Dkt. #54; No. 20 Civ. 7154, Dkt. #70; No. 20 Civ. 7606, Dkt. #71; No. 20 Civ. 7842, Dkt. #52; No. 20 Civ. 7952, Dkt. #70; No. 20 Civ. 9478, Dkt. #62; No. 20 Civ. 9479, Dkt. #62; No. 20 Civ. 9587, Dkt. #51; and No. 20 Civ. 10028, Dkt. #44. SO ORDERED. (Signed by Judge Katherine Polk Failla on 9/30/2021) (mml)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
In re:
ALLIANZ GLOBAL INVESTORS U.S. LLC
ALPHA SERIES LITIGATION

20 Civ. 5615 (KPF)
20 Civ. 5817 (KPF)
20 Civ. 7061 (KPF)
20 Civ. 7154 (KPF)
20 Civ. 7606 (KPF)
20 Civ. 7842 (KPF)
20 Civ. 7952 (KPF)
20 Civ. 8642 (KPF)
20 Civ. 9478 (KPF)
20 Civ. 9479 (KPF)
20 Civ. 9587 (KPF)
20 Civ. 10028 (KPF)
OPINION AND ORDER

KATHERINE POLK FAILLA, District Judge:
Plaintiffs, large institutional investors, have brought more than a dozen
related actions, including two putative class actions, against Defendant Allianz
Global Investors U.S. LLC (“AllianzGI”) arising out of the collapse of a series of
Structured Alpha Funds (the “Funds”) in which Plaintiffs had invested. The
Funds lost much of their value, and in some instances collapsed completely, in
February and March of 2020 during the market turmoil caused by the COVID19 pandemic. Plaintiffs allege that Defendant’s mismanagement and selfdealing caused the Funds’ precipitous collapse in value, and they assert claims
under the Employee Retirement Income Security Act of 1974 (“ERISA”), and at
common law for breach of contract, breach of fiduciary duty, and negligence.
One Plaintiff also asserts claims for fraud and misrepresentation. Now before
the Court is Defendant’s omnibus motion to dismiss in part Plaintiffs’
complaints in the first twelve of these related cases (collectively, the “Related

Cases”). For the reasons that follow, Defendant’s motion is granted in part and
denied in part.
BACKGROUND 1
A.

Factual Background
The Related Cases encompass twelve actions, each with a unique

complaint containing extensive factual allegations. Defendant moves to

1

This Opinion draws its facts from Plaintiffs’ complaints and amended complaints, the
well-pleaded allegations of which are taken as true for purposes of the instant motion.
See Ark. Tchr. Ret. Sys. v. AllianzGI, et al. (“ATRS”), No. 20 Civ. 05615 (KPF), Dkt. #1
(“ATRS ¶ []”); Ret. Program for Emps. of the Town of Fairfield, et al. v. AllianzGI
(“FFLD/NEHC”), No. 20 Civ. 5817 (KPF), Dkt. #46 (“FFLD/NEHC SAC ¶ []”); Lehigh Univ.
v. AllianzGI (“Lehigh”), No. 20 Civ. 7061 (KPF), Dkt. #46 (“Lehigh FAC ¶ []”); Teamster
Members Ret. Plan, et al. v. AllianzGI (“TMRT/BLYR”), No. 20 Civ. 7154 (KPF), Dkt. #61
(“TMRT/BLYR SAC ¶ []”); Blue Cross & Blue Shield Ass’n Nat’l Emp. Benefits Comm. v.
AllianzGI, et al. (“BCBS”), No. 20 Civ. 7606 (KPF), Dkt. #1 (“BCBS ¶ []”); Metro. Transp.
Auth. Defined Benefit Pension Plan Master Tr., et al. v. AllianzGI (“MTA”), No. 20 Civ.
7842 (KPF), Dkt. #44 (“MTA FAC ¶ []”); Chi. Area I.B.T. Pension Plan & Tr., et al. v.
AllianzGI (“CPPT”), No. 20 Civ. 7952 (KPF), Dkt. #62 (“CPPT FAC ¶ []”); Emps.’ Ret. Sys.
of the City of Milwaukee v. AllianzGI, et al. (“CMERS”), No. 20 Civ. 8642 (KPF), Dkt. #1
(“CMERS ¶ []”); Chi. & Vicinity Laborers’ Dist. Council Pension Fund, et al. v. AllianzGI, et
al. (“CLPF”), No. 20 Civ. 9478 (KPF), Dkt. #1 (“CLPF ¶ []”); Bds. of Trs. for the Carpenters
Health & Sec. Tr. of W. Wash., et al. v. AllianzGI, et al. (“CTWW”), No. 20 Civ. 9479 (KPF),
Dkt. #1 (“CTWW ¶ []”); United Food & Com. Workers Unions & Emps. Midwest Pension
Fund, et al. v. AllianzGI, et al. (“UFCW”), No. 20 Civ. 9587 (KPF), Dkt. #4 (“UFCW ¶ []”);
Bd. of Trs. of the Int’l Bhd. of Elec. Workers, Local No. 38 Pension Fund Pension Plan v.
AllianzGI (“IBEW”), No. 20 Civ. 10028 (KPF), Dkt. #36 (“IBEW FAC ¶ []”). For ease of
reference, citations to the docket in this Opinion are to the docket in the lead case,
Arkansas Teacher Retirement System v. AllianzGI, et al., No. 20 Civ. 5615 (KPF), unless
otherwise specified.
In making Rule 12(b)(6) determinations, courts “may consider any written instrument
attached to the complaint, statements or documents incorporated into the complaint by
reference ... and documents possessed by or known to the plaintiff and upon which it
relied in bringing the suit.” ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98
(2d Cir. 2007) (citation omitted); accord Goel v. Bunge, Ltd., 820 F.3d 554, 559 (2d Cir.
2016). “Even where a document is not incorporated by reference, the court may
nevertheless consider it where the complaint ‘relies heavily upon its terms and effect,’
which renders the document ‘integral’ to the complaint.” Chambers v. Time Warner,
Inc., 282 F.3d 147, 153 (2d Cir. 2002) (quoting Int’l Audiotext Network, Inc. v. Am. Tel. &
Tel. Co., 62 F.3d 69, 72 (2d Cir. 1995) (per curiam)). Accordingly, the Court also draws
facts from exhibits to the Declaration of Robert J. Giuffra, Jr. in Support of Defendant’s
Motion to Dismiss (Dkt. #87 (“Giuffra Decl., Ex. []”)), and exhibits attached to the
Declaration of Stephanie G. Wheeler in support of Defendant’s supplemental motion to
dismiss (Lehigh, Dkt. #63 (“Wheeler Decl., Ex. []”)).

2

dismiss only certain of Plaintiffs’ claims in each complaint. As such, the Court
relays in this Opinion only those facts relevant to resolving the instant motions
to dismiss. 2
1.

The Parties

Plaintiffs are institutional investors with millions, if not billions, of
dollars of investments under management. (See, e.g., BCBS ¶¶ 16, 17; CMERS
¶¶ 3, 21). 3 Most Plaintiffs are fiduciaries that owe duties to the individuals or
entities whose assets they have been entrusted to invest. (See, e.g., BCBS
¶ 16; TMRT/BLYR SAC ¶¶ 8, 10). Some Plaintiffs utilize the services of
independent investment advisors. (See, e.g., ATRS ¶ 17; CLPF ¶ 20). Eight of
the twelve Related Cases — the BCBS, CLPF, CPPT, CTWW, FFLD/NEHC, IBEW,
TMRT/BLYR, and UFCW actions — involve Plaintiffs that are subject to ERISA.
(See Giuffra Decl., App. B (summary of Plaintiffs’ investments)). 4 Across the

Throughout this Opinion, the Court refers to Defendant’s omnibus memorandum in
support of its motion to dismiss as “Def. Br.” (Dkt. #83); to Plaintiffs’ joint
memorandum in opposition to the omnibus motion to dismiss as “Pl. Opp.” (Dkt. #97);
to Defendant’s reply brief in further support of its omnibus motion to dismiss as “Def.
Reply” (Dkt. #104). Defendant’s brief in support of its supplemental motion to dismiss
Lehigh’s fraud claims is referred to as “Def. Supp. Br.” (Lehigh, Dkt. #57); Lehigh’s
opposition is referred to as “Lehigh Opp.” (Lehigh, Dkt. #69); and Defendant’s reply is
referred to as “Def. Supp. Reply” (Lehigh, Dkt. #75).
For the convenience of the reader, the Court adopts the abbreviations that Defendant
uses to refer to Plaintiffs in its omnibus memorandum of law in support of its motion to
dismiss. (See Def. Br. ix-xii).
2

In reciting facts that are commonly pleaded across multiple of the Related Cases, the
Court will generally cite in this Opinion to only one or two of Plaintiffs’ complaints as
exemplars to source each fact pleaded.

3

In some of the Related Cases the plan trustee is a named co-plaintiff. (See, e.g., CPPT
FAC; UFCW). Additionally, two individual investors are Plaintiffs in the TMRT/BLYR
case. (See TMRT/BLYR SAC ¶ 11).

4

The Plaintiffs subject to ERISA are: BCBS, BLYR, CLPF, CPPT, CTWW, IBEW, NEHC,
TMRT, and UFCW (collectively, the “ERISA Plaintiffs”). These nine ERISA Plaintiffs are

3

Related Cases, Plaintiffs invested in more than a dozen of Defendant’s
Structured Alpha Funds. (Id.).
Defendant is a Delaware limited liability company and registered
investment advisor under the Investment Advisers Act of 1940, with its
principal office in New York, New York. (See, e.g., ATRS ¶ 20; BCBS ¶ 17).
Defendant is the investment manager for the Funds. (See, e.g., ATRS ¶ 20;
CMERS ¶ 22). ATRS, the first of Plaintiffs to invest in the Funds, did so in
April 2009 (Giuffra Decl., Ex. 39), and the last investment made by any of the
Plaintiffs occurred in November 2019 (see Lehigh FAC ¶ 45).
2.

Defendant’s Investment Strategy 5

Broadly speaking, Plaintiffs allege that Defendant marketed the Funds as
relatively safe investments, pitching a multi-pronged investment strategy
designed to both provide “broad market exposure” and achieve “targeted
positive return potential,” while still maintaining “structural risk protections” to

plaintiffs in eight actions (the “ERISA Actions”) because TMRT and BLYR are named
Plaintiffs in a single putative class action.
5

The parties agree that the Funds are governed by a series of documents: a Limited
Liability Company Agreement (“LLC Agreement”), a Confidential Private Placement
Memorandum (“PPM”), and a Subscription Agreement (“SA,” and collectively with the
LLC Agreement and PPM, the “Governing Documents”). (See Def. Br. xii; Pl. Opp. 11).
Throughout this Opinion, the Court adopts the parties’ practice of citing to the
Governing Documents of the Structured Alpha 1000 LLC Fund (Giuffra Decl., Ex 1 (LLC
Agreement); id., Ex. 2 (PPM); id., Ex. 3 (SA)), unless specifically stated otherwise. The
Court notes that the Governing Documents for the various Funds are substantially
similar. (See generally id., Ex. 7-38 (Governing Documents of additional Funds); see
also id., App. D1-D3 (demonstrative summary tables comparing each of the Governing
Documents for each Fund at issue)). Certain Plaintiffs also executed “Side Letter”
agreements with Defendant. (See LLC Agreement § 2.13 (permitting Defendant to enter
into individualized “side letters or similar agreements” with non-managing members of
the Funds that could “alter[] or supplement[]” the terms of the LLC Agreement,
including “different ... [f]ee[s] ... and information rights”)). Plaintiffs allege that the
Funds were only “governed in part” by the Governing Documents. (Pl. Opp. 11).

4

safeguard against losses in the event of a market crash. (BCBS ¶ 20). The key
to the Funds’ investment strategy was the implementation of “alpha” and “beta”
components. (See, e.g., FFLD/NEHC SAC ¶ 17; MTA FAC ¶ 46). The “beta”
component consisted of investments “that [sought] to deliver a return
equivalent to” a specified “benchmark” index (PPM 1), essentially aiming to
replicate the return of a selected market index or other passive investment
strategy (Lehigh FAC ¶ 62). Depending on the Fund, the beta component could
be comprised of investments that tracked different market indices. (ATRS
¶ 53). The “alpha” component, by contrast, sought to generate returns above
the benchmark index, “using the underlying investments of the [b]eta
[c]omponent as collateral” (PPM 1-2) in order to execute an options-based
strategy (TMRT/BLYR SAC ¶¶ 36-37; PPM 1-2). 6
Plaintiffs allege that Defendant marketed the alpha component as a
strategy for trading options aimed at delivering a “steady, resilient return
stream with a fundamental emphasis on risk management.” (Lehigh FAC
¶ 65). Defendant purportedly marketed the alpha component as “nondirectional,” insofar as it “[wa]s not predicated on correctly taking a view on the
direction of equities, interest rates or any other fundamental factor.” (BCBS
¶ 22; UFCW ¶ 30). In other words, the alpha component was pitched to
Plaintiffs as a way of achieving relatively safe, risk-managed returns that were
uncorrelated with market performance. (See, e.g., ATRS ¶ 4; IBEW FAC ¶¶ 46

For example, Structured Alpha 1000 LLC sought to generate approximately 1000 basis
points (or 10%) of “alpha” outperformance, net of Defendant’s fees, over the Bank of
America Merrill Lynch 3-Month U.S. Treasury Bill Index. (See CMERS ¶ 54; PPM 1).

5

5). As such, Defendant told Plaintiffs that Defendant would “never make a
forecast on the direction of equities or volatility.” (BCBS ¶ 22; CMERS ¶ 7; see
also CLPF ¶ 5; CTWW ¶ 5). The risk protections Defendant purportedly utilized
“combine[d] both long- and short-volatility positions at all times,” meaning that
the Funds simultaneously held positions betting for (long-volatility) and against
(short-volatility) market vicissitudes. (BCBS ¶ 23; see also Giuffra Decl., Ex. 5
(“Lehigh Pitchbook”) at 12). Defendant’s risk management strategy aimed to
“capitalize on the return-generating features of selling options (short volatility),”
while “simultaneously benefit[ing] from the risk-control attributes associated
with buying options (long volatility)[.]” (BCBS ¶ 23).
Defendant told Plaintiffs that three types of trades were the “building
blocks” of Defendant’s investment strategy for the Funds: (i) range-bound
spreads, (ii) directional spreads, and (iii) hedging positions. (See, e.g., BCBS
¶ 24; CMERS ¶¶ 64-68). The range-bound spreads were “short volatility
positions,” “designed to collect option premium[s] and to generate excess
returns in normal market conditions.” (Lehigh FAC ¶ 81). The strategy
underpinning the range-bound spreads was to “sell options [with] the greatest
probability of expiring worthless” (Lehigh Pitchbook 12-13), meaning that these
positions “would make money if the underlying asset stayed in a particular
range” of volatility — the so-called “profit zone” — “but would lose money if the
price of the underlying asset landed outside” the profit zone. (Lehigh FAC ¶ 81;
see also PPM 1, 25; Lehigh Pitchbook 12). Directional spreads, which were
advertised as “combination long-short volatility positions,” consisted of “option
6

positions that benefit[ed] from a large index move to the upside and/or
downside” (Lehigh Pitchbook 12-13; see also BCBS ¶ 26). Directional spreads
were “intended to be a diversifier that provided returns when the market
behaved unusually” (CMERS ¶ 65; see also BCBS ¶ 26).
In deploying the range-bound and directional spreads, Defendant was
“effectively selling expensive insurance to other investors seeking to protect
themselves from large market swings.” (ATRS ¶ 10; see also CMERS ¶ 64). In
essence, the Funds’ options-based strategy sought to generate above-market
returns by collecting premiums from options sales, which premiums could be
passed along as profit to Plaintiffs if the market did not move in such a way as
to trigger the exercise of the options. (See TMRT/BLYR SAC ¶¶ 41-42; CMERS
¶ 79; PPM 1).
Defendant informed Plaintiffs of the substantial risks implicated by this
strategy. (See, e.g., PPM 25-26; Lehigh Pitchbook 36). In recognition of these
risks, Defendant employed the third component of the investment strategy, the
hedges, as “long-volatility positions” that were “designed to protect the portfolio
in the event of a market crash.” (UFCW ¶ 36; see also CPPT FAC ¶ 63). In
conjunction with writing options and collecting premiums, hedges involved
options that Defendant purchased itself to mitigate the risk that market
volatility would trigger the options it wrote as part of the range-bound and
directional spreads. (See TMRT/BLYR SAC ¶¶ 50-51, 53-54). Defendant told
Plaintiffs that as part of its hedging strategy, it would purchase put options
“out of the money at various levels to the downside, and always in a greater
7

quantity than the amount of puts sold for the range-bound positions,” in order
to protect against the exposure to market volatility. (BCBS ¶ 28; see also CLPF
¶ 8; Lehigh Pitchbook 14). Defendant purportedly emphasized to Plaintiffs that
the “long puts are in place at all times,” and were utilized “exclusively for riskmanagement purposes.” (BCBS ¶ 28; see also CPPT FAC ¶ 109). 7 These
hedges were supposed to prevent against the risk of an “ill-timed margin call,”
which could occur when options traders suffer particularly severe losses, and
which would require the liquidation of positions at unfavorable prices. (BCBS
¶ 58; see also CLPF ¶ 71; CMERS ¶ 62; CTWW ¶ 72). Defendant maintained
that “under no scenario can an equity-market decline cause our portfolio to
experience a margin call, a crucial differentiator from many options strategies.”
(BCBS ¶ 58; see also CTWW ¶ 72).
Defendant further advertised that it utilized the following “[i]nvestment
philosophy and objectives” to cabin risk:
•
•

Do not presume that the market will behave
normally or that history will repeat itself;

•

Outperform irrespective of the market environment;

•

Protect in adverse market environments;

•

7

Long and short volatility at the same time at all
times;

Prepare for the unexpected: pre-develop plans in
anticipation of scenarios in which the portfolio could
be at risk for losses; and

For example, in April 2018, Defendant told investors that the hedges would protect their
investments “in the event of multi-day or multi-week significant declines.” (BCBS ¶57;
see also CLPF ¶82).

8

•

Never make a forecast on the direction of equities or
volatility.

(BCBS ¶ 76; see also ATRS ¶¶ 5-6; CMERS ¶¶ 6-8). Defendant advertised
specific risk management components to Plaintiffs, such as portfolio- and firmlevel monitoring and stress testing. (See, e.g., ATRS ¶ 70; BCBS ¶ 59; CMERS
¶ 77; FFLD/NEHC SAC ¶¶ 26-27). Plaintiffs’ complaints are replete with
particularized examples of Defendant touting the risk management benefits of
investing in the Funds. (See, e.g., BCBS ¶ 81; CMERS ¶¶ 77-80; CLPF ¶¶ 8086; Lehigh FAC ¶ 82).
3.

The Funds and the Governing Documents

Each Fund was a separate Limited Liability Company (“LLC”) organized
under Delaware law, with Defendant as the managing member. (See BCBS
¶ 46; see also LLC Agreement ¶ 2.01; SA 7). To invest in the Funds (i.e., to
become a non-managing member of the LLC), each Plaintiff agreed to “the
terms and conditions set forth [in the Subscription Agreement], in the [PPM] of
the Fund, ... and in the Limited Liability Company Agreement of the Fund[.]”
(SA 7).
In the LLC Agreement, Defendant accepted appointment as, inter alia,
the Investment Manager of the Fund, with “duties” that included “management
of the [Fund’s] assets.” (LLC Agreement § 2.03). Section 2.12 of the LLC
Agreement provides:
[i]n the event that any assets of the [Fund] are subject
to fiduciary duty rules of ERISA ... [Defendant], in its
capacity as investment manager ... acknowledges that
it will be a fiduciary with respect to such assets.
Additionally, to the extent that the underlying assets of
9

the [Fund] constitute “plan assets” within the meaning
of ERISA and the regulations thereunder ... (“Plan
Assets”), [Defendant], in its capacity as “investment
manager” of the [Funds] within the meaning of Section
3(38) of ERISA, shall at all times discharge its duties
consistent with the standard of care imposed on
fiduciaries under ERISA[.]
(LLC Agreement § 2.12). In other words, when the Funds’ assets were
considered “plan assets” under ERISA — meaning 25% or more of the Funds’
assets were invested by ERISA benefit plans (the “ERISA 25% Threshold”) —
Defendant agreed to abide by “the standard of care imposed on fiduciaries
under ERISA” (the “Contractual ERISA Standard of Care”). (Id.; see also 29
C.F.R. § 2510.3-101(a)(2)(ii), (f) (establishing that when the assets of an entity,
such as the Funds, meet the ERISA 25% Threshold, any person who has
control or management responsibilities over the underlying assets is a fiduciary
of the investing plan)). 8 The PPM imposes similar duties, stating that “for so

8

The fiduciary duties under ERISA include the “prudent man standard of care,” which
provides in relevant part that:
(1) Subject to sections 1103(c) and (d), 1342, and 1344 of this title,
a fiduciary shall discharge his duties with respect to a plan solely
in the interest of the participants and beneficiaries and —
(A) for the exclusive purpose of:
(i) providing benefits to participants and their beneficiaries; and
(ii) defraying reasonable expenses of administering the plan;
(B) with the care, skill, prudence, and diligence under the
circumstances then prevailing that a prudent man acting in a like
capacity and familiar with such matters would use in the conduct
of an enterprise of a like character and with like aims;
(C) by diversifying the investments of the plan so as to minimize
the risk of large losses, unless under the circumstances it is clearly
prudent not to do so; and
(D) in accordance with the documents and instruments governing
the plan insofar as such documents and instruments are

10

long as the assets of the Fund are treated as ‘plan assets’ for purposes of
ERISA, the Managing Member is a ‘fiduciary,’ as such term is defined by
ERISA[.]” (PPM 57).
With respect to non-ERISA plan assets, Defendant agreed to “use its
reasonable best efforts to discharge its duties consistent with the standard of
care ... under Section 404(a)(1)(B) of ERISA [29 U.S.C. § 1104(a)(1)(B)],” but not
“any other provisions of ERISA” (the “Contractual Non-ERISA Standard of
Care,” together with the Contractual ERISA Standard of Care, the “Contractual
Standard of Care”). 9 (LLC Agreement § 2.12; see also PPM 58). Regardless of a
non-managing member’s status under ERISA, if the Fund is “subject to ERISA”
(i.e., meets the ERISA 25% Threshold), the LLC Agreement provides that “the
rights of Members that are plans subject to ERISA or Section 4975 of the Code
shall be extended to non-ERISA plan Members[.]” (LLC Agreement § 2.12). The
LLC Agreement also establishes:
[t]o the extent permitted by applicable law, whenever in
this Agreement the Managing Member is permitted or
required to make a decision (i) in its “discretion” or
under a similar grant of authority or latitude, the
Managing Member shall be entitled to consider only
such interests and factors as it desires and may, to the
extent that the assets of the Company are not treated
as Plan Assets (as defined in Section 2.12), consider its
own interests and the interests of its Affiliates, or (ii) in
“good faith” or under a similar standard, the Managing
consistent with the provisions of this subchapter and subchapter
III.
29 U.S.C. § 1104(a).
9

The Contractual Non-ERISA Standard of Care clearly disclaimed the duties imposed by
29 U.S.C. § 1104(a)(1)(A), (C), and (D), including ERISA’s duty of loyalty, duty to
diversify, and duty to administer the Fund in accordance with plan documents.

11

Member shall act under such standard and shall not be
subject to any other or different standards, except as
may be required by applicable law.
(Id. § 2.01). In other words, the LLC Agreement states that when the Fund
assets were not plan assets under ERISA, Defendant could “consider its own
interests” when making decisions in its “discretion.” (Id.).
Furthermore, in a section entitled “Indemnification,” the LLC Agreement
states:
[t]o the fullest extent permitted by law, the provisions of
this Agreement ... to the extent that they modify,
restrict[,] or eliminate the duties (including fiduciary
duties) and liabilities or rights and powers of any person
otherwise existing at law or in equity with respect to
matters expressly provided for in this Agreement, are
agreed by the parties hereto to replace such other duties
and liabilities of such person.
(LLC Agreement § 2.07). 10 As discussed in greater detail below, Defendant
argues that this provision explicitly replaces any common-law duties it owes to
Plaintiffs with the fiduciary duties as defined in Section 2.12, as permitted
under Delaware law. See 6 Del. C. § 18-1101(c). (See also Def. Br. 11-12).
The Governing Documents also address the issue of liability for, inter
alia, losses incurred by the Funds. For example, Section 2.06, entitled
“Exculpation,” precludes Defendant’s liability for “any acts or omissions arising
out of or in connection with the [Funds], any investment made or held by the
[Funds] or this Agreement unless such action or inaction was made in bad faith

10

The LLC Agreement notes that “the headings of the Sections of this Agreement are for
convenience of reference only, and are not to be considered in construing the terms and
provisions of this Agreement.” (LLC Agreement § 8.15). Consistent with this provision,
the Court refers to the LLC Agreement’s section headings only for ease of reference.

12

or constitutes willful misconduct or negligence[.]” (LLC Agreement § 2.06
(emphasis added)). 11 The LLC Agreement specifically notes that Section 2.06
does not “provide for the exculpation” of Defendant “for any liability ... to the
extent (but only to the extent) that such liability may not be waived, modified or
limited under applicable law,” including under liability imposed by ERISA in
certain circumstances “even on persons that acted in good faith.” (Id.).
Similarly, Section 2.07 of the LLC Agreement states in relevant part that:
[t]o the fullest extent permitted by law, the [Fund] shall
indemnify and hold harmless [Defendant] from and
against any loss, damage, penalty, obligation, liability,
cost[,] or expense suffered ... by reason of ... any acts,
omissions or alleged acts or omissions arising out of or
in connection with the [Fund], any investment made or
held by the [Fund] or this Agreement ... provided, that
such acts, omissions or alleged acts or omissions ...
were not made in bad faith and did not constitute willful
misconduct or negligence[.]
(Id. § 2.07).
Defendant did not receive a flat asset-based fee to manage the Funds.
(See BCBS ¶ 83). Instead, it received a performance-based fee, equal to 30
percent of the Fund’s quarterly returns in excess of the relevant benchmark
index, but only if those returns exceeded the aggregate amount of any past
underperformance from prior periods when compared to the benchmark index.
(PPM 6-7). As such, if Defendant underperformed, it received nothing — and

11

The PPM further explains that Defendant will not have “any liability to the Fund or the
Members as a result of performance of services under the [LLC] Agreement, except for
losses arising from its own bad faith, willful misconduct or negligence.” (PPM 31).

13

would have to recover the amount of any underperformance before it could
begin receiving fees again. (See, e.g., ATRS ¶ 100; CTWW ¶ 125).
The Funds were exempt from registration under the Securities Act of
1933 and the Investment Company Act of 1940 because, inter alia, interests in
the Funds were sold only to sophisticated investors “who underst[ood] the
nature of the investment, d[id] not require more than limited liquidity in the
investment and c[ould] bear the economic risks of the investment including
loss of principal.” (PPM 17-18, 35; see also SA § II.(Q)). As such, Fund
investors, including Plaintiffs, were required to be “accredited investors” under
the Securities Act and “qualified clients” under the Investment Advisers Act.
(PPM 17-18). See also 17 C.F.R. §§ 230.501(a)(1) (defining an “accredited
investor as, inter alia, “any plan established and maintained by a state, its
political subdivisions, or any agency or instrumentality of a state,” or “any
employee benefit plan” under ERISA with total assets in excess of $5 million),
275.205-3(d)(1) (defining qualified client).
Similarly, in signing the Subscription Agreement, each Plaintiff
represented that it had “made an independent decision to invest in the Fund
and that, in making its decision to subscribe for an Interest, the Investor [i.e.,
Plaintiff] has relied solely upon the [PPM], the [LLC] Agreement and
independent investigations made by the Investor.” (SA § II(E)). Plaintiffs also
represented that, in deciding to invest in the Funds, they were “not relying on
the Fund or the Managing Member, or any other person or entity with respect
to the legal, tax and other economic considerations involved in this investment
14

other than the Investor’s own advisers.” (Id.; see also id. § II(H), (K)). Each
Plaintiff further represented in the Subscription Agreement that its
“investment ... is consistent with [its] investment purposes, objectives[,] and
cash flow requirements ... and will not adversely affect [its] overall need for
diversification and liquidity.” (Id. § II(N)).
The PPM included disclosures about the risks Plaintiffs undertook in
investing in the Funds, including that “[u]nexpected volatility ... in the markets
in which the Fund[s] directly or indirectly hold[] positions could impair the
Fund[s’] ability to carry out [their] business or cause [them] to incur losses.”
(PPM 29; see also id. at 20-24; SA § II(L) (representing that by signing, each
investor could “afford a complete loss of the investment”)). The PPM also
informed investors that, although “the Fund[s] will generally follow the
investment strategies outlined [in the PPM,]” Defendant “may, however,
formulate new approaches to carry out the [Funds’] investment objective[s]”
and may “change any of its investment strategies without prior consent of, or
notice to” investors. (PPM 19-20).
4.

The Funds’ Collapse

Plaintiffs allege that throughout 2019 and 2020, Defendant secretly
abandoned its investment and risk management strategies. (See, e.g., BCBS
¶ 82; Lehigh FAC ¶¶ 10, 15). They allege that these changes constituted
imprudent, disloyal actions that subjected Plaintiffs’ investments in the Funds
to undisclosed risk and ultimately led to the massive losses the Funds incurred

15

in February and March of 2020. (See Lehigh FAC ¶ 16). As illustrative
examples, Plaintiffs claim that:
•

Defendant purchased hedging puts further out of the
money than Allianz had represented because those
hedges were cheaper (see, e.g., BCBS ¶ 85; CMERS
¶¶ 97-98; UFCW ¶ 68);

•

Defendant bought hedging puts that expired sooner
than the risk-bearing options it sold — contrary to
the representations it made to Plaintiffs — such that
there was a “duration mismatch” between the
options Defendant was short and those it was long,
essentially purchasing less “reinsurance” than
promised (see, e.g., BCBS ¶¶ 87-88; CTWW ¶ 110;
FFLD/NEHC SAC ¶ 42);

•

Defendant sold options on volatility indexes,
essentially betting against large increases in
volatility (i.e., taking short volatility positions, thus
compounding the Funds’ exposure to volatility)
without hedging these positions — in direct
contravention of Defendant’s representation to never
make a forecast on the direction of equities or
volatility (see, e.g., ATRS ¶¶ 78, 83, 103; BCBS
¶¶ 90-91; CTWW ¶ 110; FFLD/NEHC SAC ¶¶ 5051); and

•

Defendant failed to conduct adequate stress tests, or
if it did conduct such tests, those tests were “mere
window dressing” (CLPF ¶ 118), because Defendants
failed to respond to the risks that such tests would
have surely uncovered, i.e., “the risks of a severe,
multi-week decline” (CMERS ¶ 107; see also, e.g.,
ATRS ¶ 96; Lehigh FAC ¶ 156).

Plaintiffs allege that Defendant made these changes because doing so
was cheaper than implementing the risk management practices that Defendant
had promised to maintain, and, further, that these activities allowed Defendant
to inflate profits from its range-bound and directional spreads, while still
claiming that it was managing risk. (See, e.g., BCBS ¶¶ 88, 93; UFCW ¶¶ 68,
16

70; CTWW ¶¶ 128-130). More importantly, Plaintiffs allege that each of these
actions “left the portfolio effectively unhedged and exposed … to losses far
beyond those [Defendant] had presented as possible.” (BCBS ¶ 86; see also,
e.g., id. at ¶ 88; CMERS ¶¶ 97-98; FFLD/NEHC SAC ¶ 56; Lehigh FAC ¶¶ 132,
140). In consequence, Plaintiffs allege that going into late February and early
March 2020, the Funds were highly exposed to market volatility. (See, e.g.,
BCBS ¶ 103).
Throughout January and early February 2020, the Chicago Board
Options Exchange Volatility Index (“VIX”) 12 remained relatively low and the S&P
500 remained relatively stable before the market began to decline and volatility
spiked in the second half of February and March 2020. (BCBS ¶ 100). Yet
despite Defendant’s knowledge in early February 2020 that COVID-19 would
“cascade throughout the global economy” and cause major disruption (CLPF
¶ 96), rather than holding hedges to expiration to lock in minimal losses,
Defendant sold the hedges it had in place, replaced them with long puts much
further out of the money, and used the proceeds to close out existing positions
and sell new risk-bearing positions (BCBS ¶ 105). Plaintiffs allege that
Defendant should have kept the hedges in place and accepted modest losses to
act in the best interest of the Funds’ investors, but that the structure of
Defendant’s performance-based compensation incentivized Defendant to take a

12

The VIX represents market participants’ “expectations for market volatility over the next
30 days and typically moves upward as equity markets experience downturns.”
(FFLD/NEHC SAC ¶ 40 n.27).

17

risky gamble that the market would recover quickly. (See, e.g., BCBS ¶¶ 105106; CMERS ¶¶ 110-111, 118; TMRT/BLYR SAC ¶¶ 100, 134).
Defendant’s bet on a market recovery only compounded the Funds’
losses:
As Allianz acknowledged in its March 13 email, these
active management decisions ... created a “duration
mismatch” between the short and long puts that
contributed to the portfolio’s losses. This mismatch,
[Defendant] explained, meant that the long puts
“couldn’t be harvested because they were shorterdated” and about to expire. The resulting “theta decay
reduced their value,” and the puts “did not pay out.”
Another problem was that the cost to replace the
expiring long puts increased dramatically as the market
declined and volatility spiked. “We are continually
rolling into new long puts as they expire,” [Defendant]
wrote, “but there still is a duration mismatch that
causes a continued equity decline / vol increase to hurt
the mark and vice versa.”
(BCBS ¶ 107). The other hedges purchased by Defendant were, according to
Plaintiffs, “further out of the money than [Defendant] had represented” and
therefore “expired worthless in early March.” (Id. at ¶ 109). And in addition to
the duration mismatch, Defendant’s practice of selling unhedged calls on
volatility came home to roost, compounding the already significant losses.
(See, e.g., ATRS ¶¶ 104-108; BCBS ¶¶ 110-111).
By mid-March 2020, many of the Funds had suffered losses great
enough that they faced margin calls, lost most of their value, or were liquidated
completely. (See, e.g., CLPF ¶¶ 18-19; FFLD/NEHC SAC ¶ 75; MTA FAC
¶¶ 90-94). After two Funds were liquidated, Plaintiffs withdrew from the
remaining Funds. (See, e.g., ATRS ¶ 119; CLPF ¶¶ 137, 148; CTWW ¶ 138).
18

Plaintiffs collectively lost more than $4 billion during February and March
2020. (ATRS ¶ 18; BCBS ¶ 9; CLPF ¶ 21; CMERS ¶ 20; CPPT FAC ¶ 21; CTWW
¶ 20; FFLD/NEHC SAC ¶ 77; IBEW FAC ¶ 100; Lehigh FAC ¶ 16; MTA FAC
¶ 107; TMRT/BLYR SAC ¶ 5; UFCW ¶ 1).
B.

Procedural Background
Plaintiffs in the ATRS case initiated the first of the Related Cases on

July 20, 2020 (Dkt. #1), and Plaintiffs in the remaining cases filed their initial
complaints over the course of the following three months, with the last of the
Related Cases commenced on November 30, 2020 (IBEW, Dkt. #1). 13 On
September 11, 2020, the Court granted Defendant’s request to delay briefing
on Defendant’s anticipated motion to dismiss in part until after the initial
pretrial conference (“IPTC”) in mid-November of that year, citing a desire “to
coordinate motion practice and discovery in as many of [the Related Cases] as
possible, to the greatest extent possible.” (Dkt. #52).
On November 17, 2020, the parties attended an IPTC conducted via
videoconference (see Minute Entry for Nov. 17, 2020), at which conference the
parties discussed, inter alia, (i) pursuing consolidated motion practice due to
the significant overlap among Plaintiffs’ claims, the Governing Documents, and
Defendant’s anticipated grounds for dismissal; (ii) streamlining the claims at
issue by dismissing AllianzGI affiliates from certain of Plaintiffs’ complaints;
and (iii) preparing a proposed stipulation and order to govern discovery, the

13

Although not relevant to resolving the instant motion, Plaintiffs in two of the Related
Cases bring putative class actions. (See FFLD/NEHC, Dkt. #46; TMRT/BLYR, Dkt. #61).

19

filing of amended complaints, and Defendant’s anticipated motions to dismiss.
(See generally Dkt. #59 (transcript)). Defendant also indicated that it did not
plan to move to dismiss Plaintiffs’ claims that alleged breaches of the
Contractual Standard of Care. (See id. at 23:8-24:3).
The parties submitted their proposed case management plan and
scheduling order on December 3, 2020 (Dkt. #63), which plan the Court
adopted — with slight modifications — on December 7, 2020 (Dkt. #64, 65). As
relevant here, the scheduling order: (i) stayed motions to dismiss any
complaints in any related action filed after December 3, 2020; 14 (ii) required
that amended complaints in the Related Cases be filed by December 24, 2020,
absent consent of the Defendant or leave of Court; (iii) set a briefing schedule
on Defendant’s anticipated consolidated partial motion to dismiss; and (iv) set
a schedule for discovery, given that Defendant did not plan to move to dismiss
Plaintiffs’ complaints in their entirety. (Dkt. #65). Over the course of the
following several months, Plaintiffs voluntarily dismissed claims against the
AllianzGI affiliates without prejudice (see, e.g., Dkt #66; IBEW, Dkt. #27;
Lehigh, Dkt. #39), filed amended complaints (see, e.g., FFLD/NEHC, Dkt. #46;
TMRT/BLYR, Dkt. #61), and voluntarily dismissed certain claims without
prejudice (see, e.g., TMRT/BLYR, Dkt. #84), to streamline litigation in the
Related Cases. The parties also began discovery. (See Dkt. #65).

14

Since that date, at least six additional cases have been filed against AllianzGI or its
affiliates concerning Structured Alpha products. Those cases are not addressed in this
Opinion.

20

Defendant filed its consolidated motion to dismiss in part and supporting
papers on February 25, 2021 (Dkt. #82-85; see also Lehigh, Dkt. #57-58);
Plaintiffs filed their consolidated opposition and supporting papers on April 26,
2021 (Dkt. #97-100; see also Lehigh, Dkt. #69); and Defendant filed its reply on
May 26, 2021 (Dkt. #104; see also Lehigh, Dkt. #75). Accordingly, Defendant’s
motions to dismiss in part are fully briefed and ripe for decision.
DISCUSSION
A.

Applicable Law
“To survive a [Rule 12(b)(6)] 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)). “A claim is facially plausible
‘when the plaintiff pleads factual content that allows the court to draw the
reasonable inference that the defendant is liable for the misconduct alleged.’”
Allco Fin. Ltd. v. Klee, 861 F.3d 82, 94-95 (2d Cir. 2017) (quoting Iqbal, 556
U.S. at 678). “While Twombly does not require heightened fact pleading of
specifics, it does require enough facts to ‘nudge [plaintiffs’] claims across the
line from conceivable to plausible.’” In re Elevator Antitrust Litig., 502 F.3d 47,
50 (2d Cir. 2007) (quoting Twombly, 550 U.S. at 570). The Court must accept
as true all well-pleaded factual allegations in the complaint. See Iqbal, 556
U.S. at 678.

21

B.

Discussion 15
As noted, Defendant does not move to dismiss Plaintiffs’ claims arising

under Section 2.12 of the LLC Agreement for breach of the Contractual
Standard of Care. (See generally Def. Br.; Def. Reply). Rather, in the instant
motion, Defendant asks the Court to “trim” Plaintiffs’ “blunderbuss” complaints
of the following claims: (i) common-law claims where preempted by ERISA;
(ii) breach of contract (and quasi-contract) claims based on contractual duties
purportedly arising from sources other than Section 2.12; and (iii) tort claims
(common-law negligence and breach of fiduciary duty) as duplicative of
Plaintiffs’ ERISA or contract claims and for various other reasons. (Def. Br. 47). In a supplemental motion, Defendant moves to dismiss Lehigh’s securities
fraud, common-law fraud, and misrepresentation claims. (See generally Def.
Supp. Br.). The Court first addresses choice of law issues, and then addresses
each of Defendant’s arguments in turn.
1.

Choice of Law Issues

Defendant moves to dismiss several of Plaintiffs’ state-law claims, and
“[i]n deciding a question of state law, the federal court must apply the forum
state’s choice-of-law rules to determine which state’s law governs.” Zerman v.
Ball, 735 F.2d 15, 19-20 (2d Cir. 1984). New York choice of law rules mandate
application of the substantive law of the state with the most significant

15

In their opposition to the instant motion, Plaintiffs occasionally cite documents
produced in discovery. (See, e.g., Pl. Opp. 12 n.4). To the extent those documents are
“not incorporated by reference or otherwise integral to the Complaint” the Court
declines to consider them given the procedural posture of this case. Concord Assocs.,
L.P. v. Ent. Props. Tr., 817 F.3d 46, 51 n.2 (2d Cir. 2016).

22

relationship to the legal issue. See, e.g., Skaff v. Progress Int’l, LLC, No. 12 Civ.
9045 (KPF), 2014 WL 5454825, at *8 (S.D.N.Y. Oct. 28, 2014) (quoting
Intercontinental Plan., Ltd. v. Daystrom, Inc., 24 N.Y.2d 372, 382 (1969)).
The LLC and Subscription Agreements contain choice of law provisions
that specify that the documents are governed by Delaware law (LLC Agreement
§ 8.05; SA § VI), and the PPM is incorporated by reference into the Subscription
Agreement (SA 7). The parties do not dispute that Plaintiffs’ contract claims
are governed by Delaware law, and accordingly the Court applies Delaware law
to resolve Defendant’s motion to dismiss Plaintiff’s breach of contract claims.
See Arch Ins. Co. v. Precision Stone, Inc., 584 F.3d 33, 39 (2d Cir. 2009). By
extension, because “breach of the implied covenant of good faith and fair
dealing is a contractual cause of action,” Comprehensive Habilitation Servs.,
Inc. v. Com. Funding Corp., No. 05 Civ. 9640 (PKL), 2009 WL 935665, at *10
n.14 (S.D.N.Y. Apr. 7, 2009), “[c]hoice-of-law provisions that govern a contract
also govern related claims for breach of the implied covenant of good faith and
fair dealing,” ARS Kabirwala, LP v. El Paso Kabirwala Cayman Co., No. 16 Civ.
6430 (GHW), 2017 WL 3396422, at *3 (S.D.N.Y. Aug. 8, 2017). Therefore, the
Court also applies Delaware law to Plaintiffs’ claims asserting breach of the
implied covenant of good faith and fair dealing.
For tort claims, including negligence, breach of fiduciary duty, fraud, and
misrepresentation, “the law of the jurisdiction where the tort occurred will
generally apply because that jurisdiction has the greatest interest in regulating
behavior within its borders.” Negri v. Friedman, No. 14 Civ. 10233 (GHW),
23

2017 WL 2389697, at *3 (S.D.N.Y. May 31, 2017) (quoting Cooney v. Osgood
Mach., Inc., 81 N.Y.2d 66, 72 (1993)). 16 Plaintiffs’ negligence claims are
governed by New York law because Plaintiffs allege that the tortious conduct
(i.e., mismanagement and related negligence) occurred in New York, where
Defendant is headquartered. (See, e.g., ATRS ¶ 38; CLPF ¶ 47; CMERS ¶ 42;
CTWW ¶ 47; MTA FAC ¶ 19; TRMT/BLYR SAC ¶ 16; UFCW ¶ 27). See AHW
Inv. P’ship v. Citigroup Inc., 980 F. Supp. 2d 510, 524 (S.D.N.Y. 2013), aff’d sub
nom. AHW Inv. P’ship, MFS, Inc. v. Citigroup Inc., 661 F. App’x 2 (2d Cir. 2016)
(summary order). 17 Using that analysis, the Court finds that to the extent
Plaintiffs’ common-law breach of fiduciary duty claims are premised on duties
Defendant allegedly owed as an investment advisor or pursuant to public
policy, New York law applies to those claims as well. Conversely, to the extent
those claims arise out of duties Defendant owed as Managing Member of the

16

The Court rejects Plaintiffs’ argument that a “complex” choice of law analysis precludes
resolving Defendant’s motion to dismiss Plaintiffs’ tort claims as duplicative. (See Pl.
Opp. 39-40). For the reasons set forth in Defendant’s reply brief (Def. Reply 11-13), the
Court does not believe the choice of law analysis for Plaintiffs’ tort claims is particularly
complex. Furthermore, Plaintiffs identify no purported conflict between New York law
and any other state’s potentially applicable law, and their citations to allegations of
conduct in states other than New York are at best inconsequential, if not irrelevant, to
the interests analysis implicated by Plaintiffs’ allegations — namely that Defendant
mismanaged the Funds in New York.

17

Lehigh and Defendant agree that New York law governs Lehigh’s common-law fraud and
negligent misrepresentation claims (see generally Def. Supp. Br.; Lehigh Opp.), “and
such implied consent is sufficient to establish choice of law.” MIG, Inc. v. Paul, Weiss,
Rifkind, Wharton & Garrison, LLP, 701 F. Supp. 2d 518, 532 (S.D.N.Y. 2010) (quoting
Motorola Credit Corp. v. Uzan, 388 F.3d 39, 61 (2d Cir. 2004)), aff’d, 410 F. App’x 408
(2d Cir. 2011) (summary order). In any event, after conducting a choice of law analysis
the Court concludes that, for substantially the same reasons the Court applies New
York law to Plaintiffs’ negligence claims, it will apply New York law to Lehigh’s fraud
claim as well.

24

Funds, all of which were Delaware LLCs, Delaware law applies. See Trahan v.
Lazar, 457 F. Supp. 3d 323, 346 n.4 (S.D.N.Y. 2020). 18
2.

Defendant’s Motion to Dismiss Plaintiffs’ State-Law Claims as
Preempted by ERISA Is Denied as Premature

To begin, Defendant moves to dismiss Plaintiffs’ state-law claims as
preempted by ERISA in five of the Related Cases. 19 And it is true that ERISA
preempts “any and all State laws insofar as they may now or hereafter relate to
any employee benefit plan.” 29 U.S.C. § 1144(a). The express preemption
“provisions of ERISA are deliberately expansive, and designed to ‘establish
pension plan regulation as exclusively a federal concern.’” Pilot Life Ins. Co. v.
Dedeaux, 481 U.S. 41, 45-46 (1987) (quoting Alessi v. Raybestos-Manhattan,
Inc., 451 U.S. 504, 523 (1981)). As such, ERISA “completely preempts any
state-law cause of action that ‘duplicates, supplements, or supplants’ an ERISA
remedy.” Montefiore Med. Ctr. v. Teamsters Local 272, 642 F.3d 321, 327 (2d
Cir. 2011) (quoting Aetna Health Inc. v. Davila, 542 U.S. 200, 209 (2004)).
Indeed, a state-law claim that “merely amounts to an alternative theory of
recovery for conduct actionable under ERISA is preempted.” Venturino v. First
Unum Life Ins. Co., 724 F. Supp. 2d 429, 432 (S.D.N.Y. 2010) (quoting Diduck
v. Kaszycki & Sons Contractors Inc., 974 F.2d 270, 288 (2d Cir. 1992)). Of
potential significance to the instant motion, however, “ERISA bars only state

18

To the extent Plaintiffs argue that the entirety of their breach of fiduciary duty claims
are governed by New York law (see Pl. Opp. 42 & n.32), as noted below, see infra
Section B.4.c, the choice of law issue is not outcome-determinative, as the claims would
be resolved in the same manner under either Delaware or New York law.

19

These cases are: BCBS, CPPT, IBEW, FFLD/NEHC, and UFCW.

25

law claims against fiduciaries; state law claims against non-fiduciaries escape
preemption.” United Teamster Fund v. MagnaCare Admin. Servs., LLC, 39
F. Supp. 3d 461, 472 (S.D.N.Y. 2014) (citing Burger v. Empire Blue Cross &
Blue Shield, No. 99 Civ. 4366 (LMM), 2000 WL 1425101, at *2 (S.D.N.Y. Sept.
27, 2000)).
The issue at the heart of Defendant’s ERISA preemption argument is
whether Defendant was in fact an ERISA fiduciary throughout the relevant
period. Defendants argue that the Court should dismiss Plaintiffs’ state-law
claims as preempted by ERISA against BCBS, CPPT, IBEW, NEHC, and UFCW.
(Def. Br. 30-32; Def. Reply 5-7). 20 Plaintiffs concede that their state-law claims
are preempted if Defendant was an ERISA fiduciary. (Pl. Opp. 23). However,
they argue that dismissal on preemption grounds is premature at this stage of
the litigation because “where the evidence has not yet shown whether
defendants are fiduciaries, plaintiffs may plead state law claims in the
alternative.” United Teamster Fund, 39 F. Supp. 3d at 473 (internal quotation
marks omitted) (quoting Pedre Co. v. Robins, 901 F. Supp. 660, 666 (S.D.N.Y.
1995)). The Court agrees.

20

As noted above, the ERISA Plaintiffs are: BCBS, BLYR, CLPF, CPPT, CTWW, IBEW,
NEHC, TMRT, and UFCW. (See Giuffra Decl., Ex. App. B).
The five ERISA Plaintiffs against whom Defendant invokes ERISA preemption allege that
Defendant acted as an ERISA fiduciary in managing the Funds’ assets throughout the
relevant period because the ERISA 25% Threshold was met at all relevant times. (See
BCBS ¶ 144; CPPT FAC ¶ 120; FFLD/NEHC SAC ¶ 138; IBEW FAC ¶¶ 29, 136; UFCW
¶ 132). Defendant does not move to dismiss on preemption grounds in CLPF, CTWW,
and TMRT/BLYR because it concedes that “the application of ERISA is disputed or
unclear.” (Def. Reply 6; see also Def. Br. 30 n.19).

26

Defendant argues that there is no factual dispute as to its status as an
ERISA fiduciary, but, in some tension with that argument, Defendant has
declined to stipulate that it was an ERISA fiduciary for the relevant period,
though it has offered to “accept a stipulation as to when the ERISA 25%
Threshold was met.” (Def. Reply 6). While the Court takes no position as to
the parties’ attempts to reach an agreement regarding Defendant’s status
under ERISA at relevant times, the unconsummated stipulation necessarily
implies that there remains a dispute over the issue. Accordingly, at this early
stage in the litigation, without the benefit of discovery on this issue, and with
the parties in the process of resolving Defendant’s status under ERISA, the
Court declines to find as a matter of law that Defendant was a fiduciary under
ERISA when Plaintiffs’ causes of action arose. Therefore, dismissal on
preemption grounds is premature. See United Teamster Fund, 39 F. Supp. 3d
at 473; Pedre Co., 901 F. Supp. at 666.
The Court is unpersuaded by Defendant’s remaining arguments to the
contrary. Defendant cites Fastener Dimensions, Inc. v. Massachusetts Mutual
Life Insurance Co., Nos. 12 Civ. 8918 (DLC), 13 Civ. 4782 (DLC), 2013 WL
6506304 (S.D.N.Y. Dec. 12, 2013), and Toussaint v. JJ Weiser & Co., No. 04
Civ. 2592 (MBM), 2005 WL 356834 (S.D.N.Y. Feb. 13, 2005), to argue that the
Court can find at the motion to dismiss stage that Defendant is an ERISA
fiduciary purely on the basis of Plaintiffs’ allegations. (Def. Reply 6). The Court
is not convinced that either case compels dismissal of Plaintiffs’ claims on
preemption grounds here.
27

First, Fastener Dimensions is plainly distinguishable. In that case, the
issue was not whether a plan was subject to ERISA; rather, the plaintiff there
tried to plead state-law claims in the alternative on the theory that the ERISA
plan itself might not actually have existed. See Fastener Dimensions, 2013 WL
6506304, at *6. In that scenario, the court concluded that pleading state-law
claims in the alternative was not proper, as the argument that the plaintiff’s
employers “lied to [her] in saying” that the ERISA plan existed was “far outside
the scope of the allegations in the ... [c]omplaint.” That is not the case here,
where it is not “far outside the scope of the allegations” in Plaintiffs’ complaints
that the ERISA 25% Threshold may not in fact have been met for the duration
of the relevant period, especially given the parties’ inability to reach a
stipulation as to Defendant’s status as an ERISA fiduciary.
Second, the Court disagrees with Toussaint’s conclusion and notes that
the weight of authority in this District is to decline to dismiss state-law claims
pleaded in the alternative where there remains a disputed issue of fact as to
ERISA’s applicability. In Toussaint, the court accepted the plaintiff’s
allegations as true that defendants were ERISA fiduciaries and therefore
dismissed state-law claims as preempted. Toussaint, 2005 WL 356834, at *8,
15. However, in support of its conclusion at the motion to dismiss stage that
the defendants were ERISA fiduciaries, the court reasoned only that
“construing the allegations in the Complaint and inferences therefrom in the
light most favorable to plaintiffs, the Broker Defendants are deemed at this
stage to be fiduciaries under ERISA.” Id. at *8. Other courts in this District
28

regularly allow state-law claims pleaded in the alternative to ERISA claims to
advance at the motion to dismiss stage where a defendant’s status under
ERISA is unclear, and the Court joins them today in denying Defendant’s
motion to dismiss on preemption grounds as premature. See, e.g., United
Teamster Fund, 39 F. Supp. 3d at 473 (denying motion to dismiss on
preemption grounds where “the evidence has not yet shown whether
defendants are fiduciaries”); Burger, 2000 WL 1425101, at *2 (“In light of the
fact that [the defendant] has not admitted it acted in the capacity of a fiduciary
as defined by ERISA, its motion to dismiss is denied[.]”); Pedre Co., 901 F.
Supp. at 666 (“[A]t the motion-to-dismiss stage ... the evidence has not yet
shown whether defendants are fiduciaries. If they are fiduciaries, plaintiffs
must plead their injuries under ERISA. If they are not fiduciaries, plaintiffs
have no ERISA claim but may proceed at common law.”); see also Walker v.
Merrill Lynch & Co. Inc., 181 F. Supp. 3d 223, 236 (S.D.N.Y. 2016) (denying
motion to dismiss on preemption grounds where defendant’s fiduciary status
under ERISA was unclear, but declining to exercise supplemental jurisdiction
over state-law claim). Accordingly, Defendant’s motion to dismiss on
preemption grounds is denied as premature.
3.

Defendant’s Motion to Dismiss Plaintiffs’ Contract Claims Is
Granted in Part and Denied in Part

In moving to dismiss Plaintiffs’ breach of contract claims in part,
Defendant argues that the only contractual obligations it owes Plaintiffs are the
relevant portions of the Contractual Standard of Care imposed under
Section 2.12 of the LLC Agreement “or similar provisions” contained in Side
29

Letter agreements with Plaintiffs in the BCBS, TMRT/BLYR, FFLD/NEHC, and
MTA actions. (Def. Br. 33 & n.25; Def. Reply 7). Plaintiffs counter that
Defendant not only breached the Contractual Standard of Care, but also
breached contractual obligations to, inter alia, abide by the investment strategy
in the PPM. (Pl. Opp. 25-31). 21 As such, the key questions in resolving this
segment of Defendant’s motion are: (i) whether statements in the PPM
regarding Defendant’s investment strategy gave rise to contractual obligations;
and (ii) if so, whether Plaintiffs adequately allege a breach of such obligations.
Defendant also moves to dismiss two other types of claims addressing its
investment strategy, namely (i) claims predicated on provisions in certain of
Plaintiffs’ Side Letters ostensibly requiring Defendant to provide notice of a
change in investment strategies (Def. Br. 37), and (ii) claims alleging a breach
of the covenant of good faith and fair dealing for failing to implement the
investment strategy as described in the PPM and as represented to Plaintiffs in
other documents and presentations (id. at 39). As noted above, by the terms of
the Governing Documents, Delaware law governs disputes over contractual
interpretation. The Court thus begins with an analysis of that state’s law.

21

The parties dispute the degree to which language in the PPMs or in Defendant’s
communications with Plaintiffs (i.e., marketing presentations, reports, and in meetings)
informs the scope of Defendant’s Contractual Standard of Care under the LLC
Agreement. (See Pl. Opp. 25-26; Def. Reply 8-9). Because Defendant does not move to
dismiss Plaintiff’s breach of contract claims to the extent premised on the Contractual
Standard of Care, the Court need not determine at this time whether and to what extent
the Contractual Standard of Care is informed by the representations in the PPMs or in
any of Defendant’s marketing materials or other communications with Plaintiffs.

30

a.

Interpretation of Contracts Under Delaware Law

For a breach of contract claim to survive a motion to dismiss under
Delaware law, “the plaintiff must demonstrate: [i] the existence of the contract,
whether express or implied; [ii] the breach of an obligation imposed by that
contract; and [iii] the resultant damage to the plaintiff.” VLIW Tech., LLC v.
Hewlett-Packard Co., 840 A.2d 606, 612 (Del. 2003). “Under Delaware law, the
interpretation of a contract is a question of law suitable for determination on a
motion to dismiss.” MicroStrategy Inc. v. Acacia Rsch. Corp., No. 5735 (VCP),
2010 WL 5550455, at *5 (Del. Ch. Dec. 30, 2010) (collecting cases). “When
interpreting a cont[r]act, the court strives to determine the parties’ shared
intent, looking first at the relevant document, read as a whole, in order to
divine that intent.” Schuss v. Penfield Partners, LP, No. 3132 (VCP), 2008 WL
2433842, at *6 (Del. Ch. June 13, 2008) (citation and internal quotation marks
omitted).
A court must “interpret clear and unambiguous terms according to their
ordinary meaning.” GMG Cap. Invs., LLC v. Athenian Venture Partners I, LP, 36
A.3d 776, 780 (Del. 2012); see also Paul v. Deloitte & Touche, LLP, 974 A.2d
140, 145 (Del. 2009) (“In interpreting contract language, clear and
unambiguous terms are interpreted according to their ordinary and usual
meaning.”). “Contract terms themselves will be controlling when they establish
the parties’ common meaning so that a reasonable person in the position of
either party would have no expectations inconsistent with the contract
language,” and a contract “is not rendered ambiguous simply because the
31

parties do not agree upon its proper construction.” GMG, 36 A.3d at 780
(citation omitted).
“Dismissal of a claim based on contract interpretation is proper if the
defendants’ interpretation is the only reasonable construction as a matter of
law,” and if a plaintiff opposing a motion to dismiss offers an interpretation
that “is not a reasonable one.” Caspian Alpha Long Credit Fund, LP v. GS
Mezzanine Partners 2006 LP, 93 A.3d 1203, 1205 (Del. 2014) (citations and
internal quotation marks omitted); accord VLIW Tech., LLC, 840 A.2d at 615
(“In deciding a motion to dismiss, the trial court cannot choose between two
differing reasonable interpretations of ambiguous provisions. Dismissal,
pursuant to Rule 12(b)(6), is proper only if the defendants’ interpretation is the
only reasonable construction as a matter of law.” (internal footnote omitted)).
b.

Plaintiffs Adequately Plead Contract Claims Arising out
of Defendant’s Obligations Under the PPM

The primary dispute between the parties regarding Plaintiffs’ breach of
contract claims is the extent to which the representations in the PPM regarding
Defendant’s investment strategy gave rise to enforceable contractual
obligations. 22 The LLC Agreement’s merger clause makes explicit that “this
Agreement is to be read in conjunction with the subscription agreement ... and

22

The Court notes that under the Contractual ERISA Standard of Care, Defendant agreed
to discharge its duties “in accordance with the documents and instruments governing
the plan.” 29 U.S.C. § 1104(a)(1)(D). (See also LLC Agreement § 2.12). Because
Defendant does not move to dismiss breach of contract claims that arise under Section
2.12 at this time, the Court does not discuss whether Defendant agreed to discharge its
duties in accordance with the PPMs under this provision of the LLC Agreement, when
applicable, nor does it address whether such an obligation is different than Defendant’s
obligations under the PPM discussed in the remainder of this Section of the Opinion.

32

the PPM, which documents shall constitute the entire agreement of the parties
hereto.” (LLC Agreement § 8.20). Further, the Subscription Agreement clearly
provides that each investor purchases interests in the Funds “upon the terms
and conditions set forth herein [i.e., in the Subscription Agreement], in the
[PPM], and in the [LLC] Agreement[.]” (SA 7). The plain language of this
provision states that Defendant will be bound by the “terms and conditions” of
the PPM. It follows that a breach of those terms and conditions can give rise to
contractual liability.
As an example of such a term or condition, the PPM explicitly states that
the “assets of the Fund[s] will be invested in accordance with the investment
policies and objectives described in this Memorandum” (PPM 54), referencing
specific provisions detailed elsewhere in the PPM (see id. at 1-2, 19-20
(containing sections entitled “Investment Objective” and “Investment
Strategies”)), and clearly signaling an intent to follow the general contours of
the investment strategy described in those provision. 23 Similarly, the PPM
provides that Defendant, as Managing Member, will “implement[] the Fund’s
investment strategy” (PPM 38), again referencing the Investment Strategies

23

In a section entitled “Investment Considerations,” the PPM counsels that “an authorized
fiduciary of an employee benefit plan proposing to invest in the Fund should, in
consultation with its advisers, consider whether the investment would be consistent
with the terms of the plan’s governing documents and applicable law.” (PPM 54). That
this statement is made in the context of a warning to plan fiduciaries only strengthens
the plain reading that the parties intended to be bound by its terms. An ERISA
fiduciary otherwise would not be cautioned to consider whether the Fund’s “investment
policies and objectives” were consistent with those of the ERISA plan. See Schuss v.
Penfield Partners, LP, No. 3132 (VCP), 2008 WL 2433842, at *6 (Del. Ch. June 13, 2008)
(“When interpreting a contract, the court strives to determine the parties’ shared intent,
looking first at the relevant document, read as a whole, in order to divine that intent.”).

33

section, and specifically tying Defendant’s role as Managing Member to
carrying out that strategy. In their complaints, Plaintiffs plausibly allege that
Defendant abandoned these investment strategies and objectives (see, e.g.,
ATRS ¶¶ 9, 73-87; BCBS ¶¶ 81-96; CMERS ¶¶ 84-99, 107; Lehigh FAC ¶¶ 10,
215; MTA FAC ¶¶ 70-94; UFCW ¶¶ 66-76), and therefore, at this stage in the
litigation, the Court cannot conclude that “the defendants’ interpretation is the
only reasonable construction as a matter of law,” VLIW Tech., LLC, 840 A.2d at
615.
Undeterred, Defendant tries to cabin its liability by arguing that portions
of the PPM, including descriptions of the Funds’ intended investment strategy,
can be ignored because they are not “terms and conditions” of the PPM. (Def.
Br. 33; Def. Reply 8). But Defendant provides no explanation of what it
believes constitutes a “term and condition” of the PPM, and therefore provides
the Court with no principled basis to allow it to distinguish those portions of
the PPM that do not constitute terms or conditions. Instead, the Court
understands Defendant’s argument to simply ask the Court to accept the PPM
as a glorified advertising brochure, the substance of which Defendant could
ignore at will. Given the LLC Agreement’s merger clause and the Subscription
Agreement’s incorporation of the PPM, the Court declines this invitation, as it
would render the references to the PPM in the other Governing Documents
surplusage. See Kuhn Constr., Inc. v. Diamond State Port Corp., 990 A.2d 393,
396-97 (Del. 2010) (“We will read a contract as a whole and we will give each

34

provision and term effect, so as not to render any part of the contract mere
surplusage.”).
Similarly, Defendant contends that the PPM’s description of an
investment strategy (or specific representations regarding actions Defendant
was to take in carrying out that strategy) does not give rise to any contractual
cause of action because the PPM also “grant[s] [Defendant] broad discretion to
‘formulate new approaches’ or ‘change any of its investments strategies’
without Plaintiffs’ consent.” (Def. Reply 8 (quoting PPM 2, 19, 22)). Again,
Defendant seeks to have the Court ignore large swaths of the PPM, even as
Defendant represented that it would invest the Funds’ assets in accordance
with those provisions. Furthermore, a “change in investment strategy” is
different than complete repudiation of an investment strategy. Plaintiffs do not
merely allege that Defendant changed the strategy, but that Defendant
abandoned the strategy completely, while simultaneously representing the
exact opposite to Plaintiffs. (See, e.g., ATRS ¶¶ 9, 73-87, 103; BCBS ¶¶ 81-96;
CMERS ¶¶ 84-99; CTWW ¶¶ 110, 121-122; UFCW ¶¶ 66-76). Discovery may
not bear out Plaintiffs’ claims, but the Court will not foreclose them at this
stage in the litigation.
Finally, Defendant posits that any representations about investment
strategy were “forward-looking statements” that “merely described
[Defendant’s] present intentions with respect to investment strategy, and
made ... clear that the strategy could diverge[.]” (Def. Reply 9). While this may
be true in principle, as noted above, what Plaintiffs claim to be actionable
35

representations in the PPM are not specific forward-looking investment goals,
but rather the commitment to abide by the “investment policies and objectives”
and “investment strategy” in the PPM. (PPM 38, 54; see also id. at 19-20). At
this stage, the parties have not asked the Court to interpret those terms, and
the parties have not had the opportunity to brief their arguments as to the
meaning of — or their understanding of the meaning of — those terms in the
context of their agreement (including the potential relevance of marketing
materials or similar communications). Accordingly, the Court declines to
delineate the scope of Defendant’s contractual obligations under those
provisions on this motion, and denies Defendant’s motion to dismiss Plaintiff’s
breach of contract claims to the extent they are premised on Defendant’s
purported breach of its commitments (i) that “the assets of the Fund[s] … be
invested in accordance with the investment policies and objectives” in the PPM
(PPM 54), or (ii) to “implement[] the Fund[s’] investment strategy” (id. at 38). 24

24

CPPT alleges that Section 2.02 of the LLC Agreement imposes a contractual duty to “do
all acts for the preservation, protection, improvement, and enhancement in value of all
assets.” (CPPT FAC ¶ 113; see also Pl. Opp. 31 & n.17). The Court agrees with
Defendant that, read in its entirety, Section 2.02 imposes a duty on Defendant only to
“conduct the day-to-day administration of the [Funds].” (LLC Agreement § 2.02). CPPT
has not alleged that Defendant failed to carry out the daily administration of the Funds.
Section 2.02 also gives Defendant the discretionary power to “carry out any and all
objects and purposes of the [Funds],” along with an enumerated list of actions
Defendant was empowered to take if it “deem[ed] [those actions] necessary or
advisable.” (Id.). But the grant of authority to take a certain discretionary action,
without more, does not impose liability for an exercise of that discretion. See Cooper v.
Gottlieb, No. 95 Civ. 10543 (JGK), 2000 WL 1277593, at *4-5 (S.D.N.Y. Sept. 8, 2000),
aff’d, 12 F. App’x 28 (2d Cir. 2001) (summary order). As such, CPPT’s attempt to
impose contractual liability pursuant to Section 2.02 fails, regardless of whether CPPT
alleges omissions or affirmative actions.

36

c.

Plaintiffs Adequately Plead Certain Failure to Notify
Claims 25

Certain Plaintiffs — specifically, ATRS, BCBS, CMERS, MTA, and
UFCW — allege that Defendant breached contractual obligations “to provide
[Plaintiffs] with prompt notice of any fundamental change in the investment
strategy ... from that as described in the [Funds’] governing documents[.]”
(ATRS ¶¶ 153, 155; see also CMERS ¶¶ 181,183 (same); MTA FAC ¶ 124
(alleging Defendant failed to “inform [Plaintiffs] promptly in writing of ... any
material change in the investment strategies disclosed in the [Fund]
Documents”); UCFW ¶ 112 (same); BCBS ¶¶ 193-194 (citing Multi Beta I LLC
Agreement § 11.2)). 26 Defendant argues that no such “change in strategy
occurred,” and as such the notice provision was never triggered. (Def. Br. 37).
However, Plaintiffs have plausibly alleged changes in investment strategy, for
example, that Defendant abandoned its strategy of maintaining the risk profile

25

ATRS’s Side Letters are governed by Arkansas law. (See Giuffra Decl., Ex. 43 at 12; id.,
Ex. 45 at 13). The CMERS and UFCW Side Letters are governed by Delaware law. (See
id., Ex. 57 at 8 (CMERS); id., Ex. 109 at 8 (UFCW)). The MTA Side Letters do not
include a choice of law provision. The LLC Agreement at issue in the BCBS action has a
Delaware choice of law provision. (Giuffra Decl., Ex. 31 (the “Multi Beta I LLC
Agreement”) at § 14.1(b)).

26

Section 11.2 of the Multi Beta I LLC Agreement provides that Defendant may not amend
the LLC Agreement without “giving Notification to the Members, at least thirty (30) days
prior to the implementation of such amendment, setting forth all material facts relating
to such amendment and ... obtaining the Consent of the Fund to such amendment prior
to the implementation thereof.” (Multi Beta I LLC Agreement § 11.2). However, nothing
in the LLC Agreement or in any other document indicates that a change in investment
strategy is akin to an amendment to the LLC Agreement, and accordingly, BCBS fails to
establish a contractual right to be notified under Section 11.2 of the Multi Beta I LLC
Agreement of a change in investment strategy. Nor does BCBS’s Side Agreement
impose a reporting requirement on Defendant in the event of a change of investment
strategy. (See generally Giuffra Decl., Ex. 47).

37

of the Funds, left positions unhedged, and placed outsized directional bets
against volatility. (See, e.g., CMERS ¶ 89; UFCW ¶ 66; MTA FAC ¶¶ 73-77).
Defendant next argues that Plaintiffs’ claims are speculative because
they fail to “specify when their alleged rights to notice purportedly arose, as
well as some concrete action that Plaintiffs could have taken at that point to
avoid their claimed losses” (Def. Reply 10), or “how a supposed failure to give
notice caused their claimed damages” (Def. Br. 37). But UFCW, as one
example, alleges changes in investment strategy “by 2019” (UFCW ¶ 66).
ATRS, CMERS, and MTA similarly allege a change in strategy in February 2020
(see, e.g., ATRS ¶ 78; CMERS ¶ 89; MTA FAC ¶¶ 73-74, 76-77). And while no
Plaintiff specifically enumerates potential actions it would have taken upon
receiving notice, such counter-factual pleading is unnecessary to survive a
motion to dismiss. See McBeth v. Porges, 171 F. Supp. 3d 216, 230 (S.D.N.Y.
2016) (“But it is not implausible to infer that, had Defendants complied with
their reporting obligations, Plaintiff could have, and would have, taken steps to
mitigate, if not prevent, the loss of his investment.”). While Defendant argues
that by February 2020, Plaintiffs would have been unable to take any action to
respond to the change in strategy and would have incurred losses even with
notice (see Def. Br. 38), the Court cannot draw that inference in Defendant’s
favor on a motion to dismiss. Accordingly, Defendant’s motion to dismiss
Plaintiffs’ breach of contract claims for failure to notify is denied, except as to
BCBS.

38

d.

Plaintiffs Adequately Plead Certain Breach of Implied
Covenant of Good Faith and Fair Dealing Claims

Plaintiffs in the FFLD/NEHC, IBEW, Lehigh, MTA, and TMRT/BLYR
actions allege claims for breach of the implied covenant of good faith and fair
dealing in the alternative to their contract claims. Defendant argues that such
claims must be dismissed for a failure to “[i]dentify [a]ny [g]aps” in the
Governing Documents. (Def. Br. 39). But Plaintiffs in three of the five
actions — IBEW, Lehigh, and MTA — advance this claim under a different
theory. Because the allegations of those three Plaintiffs are plausible and their
theory is viable under Delaware law, the Court denies Defendant’s motion as to
those actions. However, the Court grants Defendant’s motion as to the
FFLD/NEHC and TMRT/BLYR actions.
“In all contracts, there is an implied covenant of good faith and fair
dealing.” Enrique v. State Farm Mut. Auto. Ins. Co., 142 A.3d 506, 511 (Del.
2016). Under Delaware law, the implied covenant often arises in two
situations. Oxbow Carbon & Mins. Holdings, Inc. v. Crestview-Oxbow
Acquisition, LLC, 202 A.3d 482, 504 n.93 (Del. 2019). One is when an
agreement’s express terms do not address what should happen in an
unforeseen situation, which situation is “best understood as a way of implying
terms in the agreement, whether employed to analyze unanticipated
developments or to fill gaps in the contract’s provisions.” Dunlap v. State Farm
Fire & Cas. Co., 878 A.2d 434, 441 (Del. 2005) (internal quotation marks and
footnotes omitted). Defendant focuses its motion to dismiss on the first
situation, which addresses Plaintiffs’ allegations in the FFLD/NEHC and
39

TMRT/BLYR actions. On this point, Defendant is correct: Plaintiffs in these
two actions do not adequately allege a breach of the implied covenant because
they fail to identify any specific gaps in the Governing Documents or allege that
the parties could not have anticipated the issues they now allege are not
covered by the Governing Documents. (See FFLD/NEHC SAC ¶¶ 126-130;
TMRT/BLYR SAC ¶¶ 146-150). See Oxbow Carbon, 202 A.3d at 507. As such,
these Plaintiffs’ claims for breach of the implied covenant of good faith and fair
dealing must be dismissed.
But a second context in which an implied covenant arises is when an
agreement confers discretion on a party, as the Plaintiffs in IBEW, Lehigh, and
MTA allege here. See Oxbow Carbon, 202 A.3d at 504 n.93; see also Glaxo Grp.
Ltd. v. DRIT LP, 248 A.3d 911, 920 (Del. 2021) (“The implied covenant imposes
a good faith and fair dealing obligation when a contract confers discretion on a
party.”); accord Miller v. HCP Trumpet Invs., LLC, 194 A.3d 908, 2018 WL
4600818, at *1 (Del. Sept. 20, 2018) (unpublished table decision) (“[T]he mere
vesting of ‘sole discretion’ did not relieve the Board of its obligation to use that
discretion consistently with the implied covenant of good faith and fair
dealing.”). (See also LLC Agreement § 2.01; PPM 2, 19, 22 (discussing
Defendant’s discretion)).
Under Delaware law, the implied covenant imposes a duty “to deal ‘fairly’
in the sense of consistently with the terms of the parties’ agreement and its
purpose.” Gerber v. Enter. Prods. Holdings, 67 A.3d 400, 419 (Del. 2013)
(internal quotation marks omitted), overruled on other grounds by Winshall v.
40

Viacom Int’l, Inc., 76 A.3d 808 (Del. 2013). And “‘good faith’ [means]
faithfulness to the scope, purpose, and terms of the parties’ contract.” Id.
(emphasis omitted). “Both necessarily turn on the contract itself and what the
parties would have agreed upon had the issue arisen when they were
bargaining originally.” Id. (internal quotation marks and emphasis omitted).
Here, for example, the Subscription Agreement provides that the investor
must “rel[y] solely upon the [PPM], the [LLC] Agreement, and [the investor’s]
independent investigation” regarding “the organization and investment
objectives and policies of, and the risks and expenses of an investment in, the
Fund” (SA § II(E)), thereby explicitly requiring investors to rely on the
“investment objectives and policies” laid out in the PPM when deciding to invest
in the Funds. IBEW, Lehigh, and MTA allege that Defendant abused its
discretion and acted contrary to the purpose of the parties’ agreements in
abandoning the investment strategy set forth in the PPMs and in Defendant’s
communications with Plaintiffs. (IBEW FAC ¶¶ 122-123; Lehigh FAC ¶¶ 293295; MTA ¶¶ 142-144). Therefore, to the extent that Plaintiffs fail to plead a
viable breach of contract claim arising out of Defendant’s alleged departure
from the investment strategy articulated in the PPMs and Defendant’s
communications, Plaintiffs sufficiently plead a violation of the duty of good
faith to act consistently with the purpose of that element of the parties’
agreement. See Manbro Energy Corp. v. Chatterjee Advisors, LLC, No. 20 Civ.
3773 (LGS), 2021 WL 2037552, at *6 (S.D.N.Y. May 21, 2021) (denying motion
to dismiss implied covenant claim under Delaware law where plaintiff pleaded
41

breach arising out of defendants’ abuse of discretion in carrying out the
purpose of the contract). 27
In sum, the Court dismisses claims for a breach of the implied covenant
of good faith and fair dealing in the FFLD/NEHC and TMRT/BLYR actions, but
denies the motion to dismiss as to the IBEW, Lehigh, and MTA actions.
4.

Defendant’s Motion to Dismiss Plaintiffs’ Tort Claims Is
Granted in Part and Denied in Part

Plaintiffs assert state-law claims for negligence and breach of fiduciary
duty that exist separately from their claims of breach of the Contractual
Standard of Care. Defendants move to dismiss these claims on myriad
grounds, arguing that: (i) the claims are not “direct” and belong to the Funds,
not Plaintiffs; (ii) the claims are duplicative of Plaintiffs’ breach of contract
claims; and (iii) the economic loss doctrine bars Plaintiffs’ tort claims. For the
reasons that follow, the Court agrees in part, and:
•

•

27

grants Defendant’s motion to dismiss as to Plaintiffs’
tort
claims
to
the
extent
premised
on
mismanagement as impermissibly duplicative;
denies Defendant’s motion to dismiss as to Plaintiffs’
negligence claims to the extent premised on a duty
imposed
by
Defendant’s
extracontractual
representations; and

The parties dispute that Defendant was obligated to implement the investment strategy
described in the PPM. While the Court determines that Defendant had some
contractual obligations to abide by the strategy described in the PPM, as discussed
supra, the extent to which those obligations overlap with or track Plaintiffs’ allegations
of the breach of implied covenant of good faith and fair dealing remains to be seen.
Therefore, the Court declines to dismiss this claim as duplicative. See SerVaas v. Ford
Smart Mobility LLC, No. 909 (LWW), 2021 WL 3779559, at *9-10 (Del. Ch. Aug. 25,
2021) (denying motion to dismiss implied covenant claim where record did not yet
establish it was duplicative of breach of contract claim).

42

•

a.

grants Defendant’s motion to dismiss as to Plaintiffs’
breach of fiduciary duty claims in part as duplicative
and in part as derivative.
Certain of Plaintiffs’ Tort Claims Are Derivative

Defendant argues that Plaintiffs’ tort claims are, at base, allegations of
mismanagement of the Funds that only the Funds would have standing to
pursue. (Def. Br. 26-30; Def. Reply 23-26). Because the Funds are Delaware
LLCs, the Court applies Delaware law to determine whether Plaintiffs’ claims
are direct or derivative. See AHW Inv. P’ship v. Citigroup, Inc., 806 F.3d 695,
699 (2d Cir. 2015), certified question answered, 140 A.3d 1125 (Del. 2016).
Under Delaware law, to determine whether a breach of fiduciary claim is
derivative or direct, courts engage in a two-step inquiry that considers:
(i) “[w]ho suffered the alleged harm (the corporation or the suing stockholders
individually)”; and (ii) “who would receive the benefit of the recovery or other
remedy.” Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1035
(Del. 2004); see also Citigroup Inc. v. AHW Inv. P’ship, 140 A.3d 1125, 1138
(Del. 2016) (explaining that “Tooley ... and its progeny deal with the distinct
question of when a cause of action for breach of fiduciary duty or to enforce
rights belonging to the corporation itself must be asserted derivatively.”
(quotation omitted)); McBeth, 171 F. Supp. 3d at 232 (applying Tooley in the
LLC context). The Tooley court further explained that:
a court should look to the nature of the wrong and to
whom the relief should go. The stockholder’s claimed
direct injury must be independent of any alleged injury
to the corporation. The stockholder must demonstrate
that the duty breached was owed to the stockholder and
43

that he or she can prevail without showing an injury to
the corporation.
845 A.2d at 1039 (emphasis added).
But when a plaintiff asserts a claim based on the plaintiff’s own right,
such as a claim for breach of contract or for fraud, Tooley does not apply. See,
e.g., NAF Holdings, LLC v. Li & Fung (Trading) Ltd., 118 A.3d 175, 179 (Del.
2015) (“Tooley and its progeny do not, and were never intended to, subject
commercial contract actions to a derivative suit requirement.”); In re Activision
Blizzard, Inc. S’holder Litig., 124 A.3d 1025, 1056 (Del. Ch. 2015)
(“Quintessential examples of personal claims would include ... a tort claim for
fraud in connection with the purchase or sale of shares.”). But see El Paso
Pipeline GP Co., L.L.C. v. Brinckerhoff, 152 A.3d 1248, 1260 (Del. 2016)
(explaining that when a claim “sounds in breach of a contractual duty” owed to
the company, the Tooley analysis still applies).
To the extent Plaintiffs’ breach of fiduciary duty and negligence claims
sound in mismanagement, those claims must be dismissed because “Delaware
law is clear that fiduciary duty claims alleging fund mismanagement are
derivative.” In re Harbinger Cap. Partners Funds Inv. Litig., No. 12 Civ. 1244
(AJN), 2013 WL 5441754, at *9 (S.D.N.Y. Sept. 30, 2013) (collecting cases),
vacated on other grounds in part on reconsideration, 2013 WL 7121186
(S.D.N.Y. Dec. 16, 2013). Here, Plaintiffs’ breach of fiduciary claims arise from
Defendant’s purported mismanagement of the Funds. (See, e.g., ATRS ¶ 121;
CLPF ¶ 190; CMERS ¶ 143; CPPT FAC ¶ 15; CTWW ¶ 153; FFLD/NEHC SAC
¶ 77; IBEW FAC ¶ 100; Lehigh FAC ¶ 272; MTA FAC ¶ 107; TMRT/BLYR SAC
44

¶¶ 156-157; UFCW ¶ 108). Mismanagement of the Funds necessarily harms
the Funds directly, and the members only indirectly. It follows that Plaintiffs
cannot “prevail without showing an injury to the corporation,” Tooley, 845 A.2d
at 1039, and thus Plaintiffs’ mismanagement-based claims fail at Tooley’s first
prong, see El Paso Pipeline, 152 A.3d at 1261 (“In Tooley terms, the harm is to
the corporation, because such claims naturally assert that the corporation’s
funds have been wrongfully depleted, which, though harming the corporation
directly, harms the stockholders only derivatively so far as their stock loses
value.” (internal quotation omitted)). 28
To avoid the well-established principle that mismanagement claims are
derivative, Plaintiffs seek to identify bases for an independent duty that
Defendant purportedly owed to them individually. They find success with their
argument that Defendant undertook independent duties pursuant to
representations made directly to Plaintiffs regarding: (i) the manner in which
the Funds would be invested and (ii) the risk management practices Defendant
represented it would employ. (See, e.g., ATRS ¶¶ 62-70; BCBS ¶¶ 102-107;
CMERS ¶¶ 10, 44, 46, 60, 69, 72, 81-82; CPLF ¶ 69; Lehigh FAC ¶¶ 117-129).
See Bayerische Landesbank, N.Y. Branch v. Aladdin Cap. Mgmt. LLC, 692 F.3d

28

In their opposition, Plaintiffs argue that their breach of fiduciary duty and negligence
claims arise from Defendant’s nondisclosure of material information. (Pl. Opp. 36-38 &
n.25-26). Plaintiffs are correct that mismanagement claims premised on fraud or nondisclosure are sufficiently personal so as to constitute direct claims. See, e.g., McBeth
v. Porges, 171 F. Supp. 3d 216, 232-33 (S.D.N.Y. 2016); Anwar v. Fairfield Greenwich
Ltd., 728 F. Supp. 2d 372, 401 n.9 (S.D.N.Y. 2010). However, while Plaintiffs raise this
argument in their briefing (and several Plaintiffs plead nondisclosure as a breach of
contract claim), with the exception of Lehigh (Lehigh FAC ¶ 259), they did not plead
negligence or breach of fiduciary claims arising out of fraud or nondisclosure. Lehigh’s
claim is discussed infra.

45

42, 58-59 (2d Cir. 2012) (holding plaintiff adequately pleaded negligence claims
premised on representations made by fund manager to fund investors arising
out of, but separate from, contract between the parties). The duty created by
Defendant’s representations to Plaintiffs individually is unique to each Plaintiff
and therefore is not derivative under Tooley. The adequacy of Plaintiffs’
allegations regarding negligence and breach of fiduciary claims arising out of
those representations is discussed in greater detail infra. At this stage of this
analysis, it is sufficient to note that they are direct claims, not derivative, and
accordingly dismissal on this ground is inappropriate. 29
b.

Plaintiffs’ Negligence Claims

Defendant moves to dismiss Plaintiffs’ negligence claims as duplicative of
their claims for breach of contract. “To establish a negligence claim under New
York law, a plaintiff must demonstrate that: [i] the defendant owed the plaintiff
a cognizable duty of care as a matter of law; [ii] the defendant breached that
duty; and [iii] plaintiff suffered damage as a proximate result of that breach.”
Millennium Partners, L.P. v. U.S. Bank Nat’l Ass’n, No. 12 Civ. 7581 (HB), 2013
WL 1655990, at *4 (S.D.N.Y. Apr. 17, 2013) (citing McCarthy v. Olin Corp., 119

29

Plaintiff ATRS plausibly alleges an independent fiduciary duty owed to it by Defendant
arising out of a Side Letter, wherein Defendant “confirms and acknowledges that it owes
a fiduciary duty to the Investor [i.e., to ATRS] in connection with the Investor’s
investment in the Fund[.]” (Giuffra Decl., Ex. 43 at 10 (emphasis added)). As such,
ATRS’s breach of fiduciary claim is direct, not derivative, and Defendant’s motion to
dismiss it on these grounds is denied. To the extent the fiduciary duty articulated in
this side letter was intended to be coextensive with the Contractual Standard of Care,
as Defendant argues (Def. Br. 52), that issue is more properly resolved at summary
judgment.

46

F.3d 148, 156 (2d Cir. 1997)), aff’d sub nom. Millennium Partners, L.P. v. Wells
Fargo Bank, N.A., 654 F. App’x 507 (2d Cir. 2016) (summary order).
However, “[a] tort claim cannot be sustained if it ‘do[es] no more than
assert violations of a duty which is identical to and indivisible from the
contract obligations which have allegedly been breached.’” Millennium
Partners, 2013 WL 1655990, at *4 (second alteration in original) (quoting Metro.
W. Asset Mgmt., LLC v. Magnus Funding, Ltd., No. 03 Civ. 5539 (NRB), 2004 WL
1444868, at *9 (S.D.N.Y. June 25, 2004)). In other words, “‘a breach of
contract will not give rise to a tort claim unless a legal duty independent of the
contract itself has been violated.’” Royal Park Invs. SA/NV v. Bank of N.Y.
Mellon, No. 14 Civ. 6502 (GHW), 2016 WL 899320, at *7 (S.D.N.Y. Mar. 2,
2016) (quoting Bayerische, 692 F.3d at 58). However, the duty “may be
connected with and dependent on the contract,” Clark-Fitzpatrick v. Long Island
R.R. Co., 70 N.Y.2d 382, 389 (1987), and “[w]here an independent tort duty is
present, a plaintiff may maintain both tort and contract claims arising out of
the same allegedly wrongful conduct,” Bayerische, 692 F.3d at 58.
Thus, to prevail on a negligence claim, Plaintiffs must demonstrate that
Defendants breached a duty independent of their obligations under the
Governing Documents. See Carvel Corp. v. Noonan, 350 F.3d 6, 16 (2d Cir.
2003). Taking all of Plaintiffs’ allegations together and drawing all reasonable
inferences in their favor, as the Court must, see, e.g., Cont’l Ore Co. v. Union
Carbide & Carbon Corp., 370 U.S. 690, 696 (1962), Plaintiffs plausibly establish
a legal duty independent of contractual obligation “assessed largely on the
47

standard of care and the other obligations set forth in the contract,” but arising
out of extracontractual representations Defendant made to Plaintiffs in the
context of their contractual relationship. Bayerische, 692 F.3d at 59.
Plaintiffs cite the Second Circuit’s opinion in Bayerische as factually
analogous to their negligence claims here. In Bayerische, the plaintiff invested
in a collateralized debt obligation (“CDO”) and defendant was the CDO’s
portfolio manager. Bayerische, 692 F.3d at 45. In concluding that the
plaintiff’s negligence claim was not duplicative of its contract claim, the Second
Circuit found that the plaintiff had plausibly alleged that it had “detrimentally
relied on [the defendant’s] representations,” which representations were “made
in marketing materials and at a face-to-face meeting,” that the defendant would
“manage the [CDOs] in a conservative and defensive manner to avoid Credit
Events and tranche losses.” Id. at 59. The Second Circuit concluded that
plaintiff’s allegations of detrimental reliance were sufficient to establish “‘[a]
legal duty independent of contractual obligations ... imposed by law as an
incident to the parties’ relationship’” in this case. Id. (quoting Sommer v. Fed.
Signal Corp., 79 N.Y.2d 540, 551 (1992)).
Here, Plaintiffs allege a duty based on a series of extracontractual
representations made directly to Plaintiffs in presentations, meetings, and
other communications, largely regarding the investment and risk management
practices that Defendant would deploy to ensure Plaintiffs’ investments were
adequately protected, including that:

48

•

Defendant would “never make a forecast on the
direction of equities or volatility” (BCBS ¶ 22;
CMERS ¶ 7; see also CLPF ¶ 5; CTWW ¶ 5);

•

the risk protections Defendant purportedly utilized
“combine[d] both long- and short-volatility positions
at all times” (BCBS ¶ 23);

•

the funds were “non-directional,” in that they were
“not predicated on correctly taking a view on the
direction of equities, interest rates or any other
fundamental factor” (BCBS ¶ 22; UFCW ¶ 30);

•

“long puts [we]re in place at all times” and were
deployed
“exclusively
for
risk-management
purposes” (BCBS ¶ 28);

•

Defendant would deploy hedges to prevent against
the risk of an “ill-timed margin call” (BCBS ¶ 58;
CLPF ¶ 71; CMERS ¶ 62; CTWW ¶ 72); and

•

Defendant would utilize portfolio- and firm-level
monitoring and stress testing (see, e.g., ATRS ¶ 70;
BCBS ¶ 59; CMERS ¶ 77; FFLD/NEHC SAC ¶¶ 2728).

As in Bayerische, Plaintiffs argue that as a result of these representations,
which arose out of their contractual relationship with Defendant, they “placed
trust in [Defendant] based on the numerous representations committing
[Defendant] to manage the Structured Alpha portfolios conservatively and
prudently.” (Pl. Opp. 41; see also, e.g., CMERS ¶¶ 145, 148-149; CPPT FAC
¶¶ 98, 100-102). Plaintiffs further allege that they “detrimentally relied on
[Defendant’s] representations of how it would manage the fund.” (IBEW FAC
¶¶ 108-109; MTA FAC ¶¶ 116-117; see also Lehigh ¶ 270; UFCW ¶¶ 104-105).
Thus on this motion, to the extent Defendant’s extracontractual
representations regarding its risk management and investment strategies are
49

not incorporated directly into the terms of Defendant’s obligations under the
PPM, see supra Section B.3.b, these Plaintiffs have adequately pleaded an
independent duty arising out of Defendant’s individual representations to
them. 30
To the extent Defendant argues that the terms of the Governing
Documents explicitly replace all tort liability with the Contractual Standard of
Care, that argument is unsupported by the plain text of the LLC Agreement.
Specifically, as noted above, the LLC Agreement expressly provides that
Defendant may be liable for acts made “in bad faith or [that] constitute[] willful
misconduct or negligence,” explicitly allowing for Defendant’s liability in tort for
“negligence” in provisions otherwise purporting to limit Defendant’s liability
and scope of indemnification as Manager. (LLC Agreement §§ 2.06-2.07). On
30

Defendant argues that Bayerische is distinguishable because here Defendant included
disclaimers in its marketing materials. (Def. Reply 21). Specifically, Defendant
contends that the Subscription Agreement and later marketing material required
Plaintiffs to “evaluat[e] investment risks independently.” (Id. (quoting Giuffra Decl.,
Ex. 6 (“BCBS Presentation”) (emphasis omitted))). However, a boilerplate disclaimer
requiring investors to independently evaluate risk is inapposite where the investors
were explicitly led to rely on Defendant’s representations regarding its risk management
practices as part of that very independent evaluation. Cf. Caiola v. Citibank, N.A., N.Y.,
295 F.3d 312, 330-31 (2d Cir. 2002) (holding that, in the securities fraud context,
general disclaimers are insufficient to defeat reasonable reliance on material
misrepresentations).
Defendant also argues that Plaintiffs did not sufficiently allege detrimental reliance (see
Def. Reply 21), but the Court disagrees. First, several Plaintiffs explicitly allege
detrimental reliance. (See IBEW FAC ¶ 108; MTA FAC ¶ 116; Lehigh ¶ 270; UFCW
¶ 104). Second, the remaining Plaintiffs include extensive allegations reciting
Defendant’s many representations to them regarding the Funds’ investment strategy
and risk management practices. Plaintiffs’ allegations regarding those representations
make clear that Plaintiffs considered those representations material to their decisions to
invest. “[A]ccepting all factual allegations in the complaint as true, and drawing all
reasonable inferences in [Plaintiffs’] favor,” Holmes v. Grubman, 568 F.3d 329, 335 (2d
Cir. 2009), this is sufficient to state a claim for negligence arising out of Defendant’s
representations to individual Plaintiffs, though “[a]fter discovery, the facts that come to
light may show a different story,” Bayerische Landesbank, N.Y. Branch v. Aladdin Cap.
Mgmt. LLC, 692 F.3d 42, 65 (2d Cir. 2012).

50

this plain reading, the LLC Agreement expressly anticipates that Plaintiffs may
seek to hold Defendant liable for negligence. 31
c.

Plaintiffs’ Breach of Fiduciary Duty Claims 32

Plaintiffs advance several arguments seeking to establish Defendant’s
liability for breach of a fiduciary duty owed directly to Plaintiffs rather than to
the Funds, including that: (i) Defendant served as an independent investment
advisor to Plaintiffs; (ii) Defendant retained discretionary control over Plaintiffs’
investment assets; (iii) Defendant’s representations to Plaintiffs in meetings,
marketing materials, and presentations created an independent fiduciary duty;
and (iv) the duty was created by contractual obligations under the Governing
Documents. (See Pl. Opp. 42-54). However, Plaintiffs’ search for an
independent fiduciary duty at common law fails for three reasons.

31

Defendant argues that the economic loss doctrine bars Plaintiffs’ tort claims. “The
economic-loss rule provides that ‘a contracting party seeking only a benefit of the
bargain recovery may not sue in tort notwithstanding the use of familiar tort language
in its pleadings.’” BlackRock Allocation Target Shares: Series S. Portfolio v. Wells Fargo
Bank, Nat’l Ass’n (“BlackRock ATS”), 247 F. Supp. 3d 377, 399 (S.D.N.Y. 2017) (quoting
Phoenix Light SF Ltd. v. U.S. Bank Nat’l Ass’n, No. 14 Civ. 10116 (KBF), 2016 WL
1169515, at *9 (S.D.N.Y. Mar. 22, 2016)). The Court draws the same line as in
BlackRock ATS: to the extent Plaintiffs have pleaded that Defendant breached
extracontractual duties, for which Plaintiffs are owed damages that do not lie simply in
the enforcement of Defendant’s contractual obligations, those claims will not be
dismissed. See id. Here, the potential overlap is unclear as the parties have not briefed
the scope of obligations imposed by the PPM. See supra Section B.3.b. Accordingly, it
is premature to dismiss Plaintiffs’ negligence claims on these grounds. Fed. Ins. Co. v.
Gander & White Shipping, Inc., No. 19 Civ. 7209 (ALC), 2020 WL 3833408, at *3
(S.D.N.Y. July 8, 2020). However, should discovery reveal that the duties imposed by
Defendant’s representations to Plaintiffs are contractual duties, dismissal pursuant to
the economic loss doctrine would be appropriate.

32

The Court reiterates its conclusion that New York law applies to Plaintiffs’ breach of
fiduciary duty claims that are premised on duties Defendant allegedly owed as an
investment advisor or pursuant to public policy; and that Delaware law applies to the
breach of fiduciary duty claims arising out of duties Defendant owed as Managing
Member of the Funds. See Section B.1.

51

First, the Court rejects Plaintiffs argument that Defendant owed each of
them a personal fiduciary duty directly under the LLC Agreement. (Pl.
Opp. 33-35). 33 Plaintiffs cite Section 2.12, which imposes on Defendant the
Contractual Standard of Care, and does not contemplate any additional or
independent duty on Defendant. Under Delaware law, “where a dispute arises
from obligations that are expressly addressed by contract, that dispute will be
treated as a breach of contract claim[,] [and] any fiduciary claims arising out of
the same facts that underlie the contract obligations would be foreclosed as
superfluous.” Nemec v. Shrader, 991 A.2d 1120, 1129 (Del. 2010). The same
is true under New York law. See GPIF-I Equity Co. v. HDG Mansur Inv. Servs.,
Inc., No. 13 Civ. 547 (CM), 2014 WL 1612004, at *4 (S.D.N.Y. Apr. 21, 2014)
(“Under New York law, claims of fraud and breach of fiduciary duty that merely
duplicate contract claims must be dismissed.” (citations omitted)). As
discussed briefly above, Plaintiffs’ claims for Defendant’s breach of the
Contractual Standard of Care (whether ERISA or Non-ERISA) are properly
brought as breaches of contract, not breaches of fiduciary duty. This does not
mean Plaintiffs are without recourse for Defendant’s purported
mismanagement, but rather, as noted supra, those claims arise out of their
contracts with Defendant.

33

To the extent Plaintiffs argue that Defendant owed Plaintiffs a direct fiduciary duty
under ERISA when the ERISA 25% Threshold was satisfied (see Pl. Opp. 52-53), those
claims would be duplicative of breach of contract claims under the Contractual ERISA
Standard of Care, brought pursuant to Section 2.12 of the LLC Agreement, which
“acknowledges that [Defendant] will be a[n] [ERISA] fiduciary with respect to such
assets.” (LLC Agreement § 2.12).

52

Second, the Court agrees with Defendant that Section 2.07 of the LLC
Agreement explicitly replaced any common-law fiduciary duties owed to
Plaintiffs with the Contractual Standard of Care in Section 2.12, as permitted
under Delaware law. (Def. Br. 44-46; Def. Reply 18-19). Pursuant to 6 Del.
Code § 18-1101(c), the parties to an LLC agreement may modify or eliminate an
LLC managing member’s common-law fiduciary duties. Section 2.07 of the
LLC Agreement does exactly that, by providing that “to the extent that” the
provisions of the LLC Agreement “modify, restrict[,] or eliminate” fiduciary
duties — as does Section 2.12 — the terms of the LLC Agreement “replace such
other duties or liabilities[.]” (LLC Agreement § 2.07). Thus, the plain language
of Section 2.07 expressly replaces “any other duties or liabilities” with those
specified in the LLC Agreement, namely the Contractual Standard of Care at
Section 2.12. 34 And courts have consistently held that agreements with
substantially the same or similar language as that in Section 2.07 serve to
replace common-law fiduciary duties with those expressly provided for in the
agreement. See, e.g., Gerber, 67 A.3d at 411 (upholding determination that
substantially similar provision replaced common-law fiduciary duties with
contractual duties); MHS Cap. LLC v. Goggin, No. 2017-449 (SG), 2018 WL
2149718, at *1, 3, 8 (Del. Ch. May 10, 2018) (interpreting operation agreement
to replace common-law fiduciary duties with contractual duties); Kagan v.

34

In addition to implementing the Contractual Standard of Care, the LLC Agreement
provides that Defendant may be liable “for any acts or omissions arising out of or in
connection with the [Funds], any investment made or held by the [Funds] or this
Agreement [if] such action or inaction was made in bad faith or constitutes willful
misconduct or negligence.” (LLC Agreement § 2.06).

53

HMC-N.Y., Inc., 939 N.Y.S.2d 384, 384 (1st Dep’t 2012) (interpreting nearly
identical provision of LLC agreement to replace common-law fiduciary duties). 35
Third, several Plaintiffs argue that an independent duty arose because
Defendant served as their personal “investment advisor registered with the
SEC.” (Lehigh FAC ¶ 269; see also CLPF ¶ 172; CMERS ¶ 159; CTWW ¶ 178).
But, as Defendant notes, it served as investment advisor to the Funds, not to
any individual investor. (See LLC Agreement ¶ 2.03). 36 Plaintiffs argue that
Defendant “commit[ted] to actually serving as an investment adviser to
Plaintiffs” through “present[ations] at numerous investment committee
meetings for Plaintiffs, as well as in other interactions with Plaintiffs
throughout the course of its monitoring and reporting on the Funds.” (Pl.
Opp. 51 (emphasis omitted)). It is unclear how Plaintiffs believe meeting with
Defendant established a formal investment advisory relationship, and the two
cases Plaintiffs cite to establish that relationship are inapposite. In SEC v.

35

Plaintiffs’ citation to Ross Holding & Management Co. v. Advance Realty Group, LLC,
No. 4113 (VCN), 2014 WL 4374261, at *13 (Del. Ch. Sept. 4, 2014), judgment entered
sub nom. Holdings v. Advance Realty Grp., LLC, 2014 WL 5477523 (Del. Ch. Oct. 29,
2014), does not convince the Court otherwise. (Pl. Opp. 46-48). Unlike here, the
provision at issue in Ross did not purport to replace or eliminate any of the parties’
duties, much less their fiduciary duties. See Ross, 2014 WL 4374261, at *13
(interpreting provision stating “[i]t is understood that the Managing Board shall act
reasonably and in good faith in its management of the Company.”). In fact, Ross
supports Defendant’s position here, because the Ross court noted that elimination of
default fiduciary duties must be “plain and unambiguous.” Id. Section 2.07
accomplishes that task where the agreement in Ross failed. (See LLC Agreement
§ 2.07).

36

For this same reason, the Court rejects Plaintiffs’ arguments that Defendant’s provision
of its Form ADV brochure to Plaintiffs (Pl. Opp. 52), or its representations in certain
Side Letters (id. at 53), signaled a personal investment advisory relationship. The ADV
suggests only that Defendant provided advisory services to the Funds. With the
exception of the ATRS Side Letter, discussed supra, the Side Letters similarly
acknowledge Defendant’s duty with respect to the Fund. (See, e.g., Giuffra Decl., Ex. 59
(CMERS Side Letter); id., Ex. 102 (MTA Side Letter); id., Ex. 53, 55 (CLPF Side Letters)).

54

Haligiannis, one defendant conceded his status, while the other two defendants
were found to be advisors to a limited partnership investment fund, not to the
investors in that fund. 470 F. Supp. 2d 373, 383 (S.D.N.Y. 2007). And the
Court agrees with the D.C. Circuit’s explanation of the continued relevance of
Abrahamson v. Fleschner, 568 F.2d 862 (2d Cir. 1977), namely that given the
sweep of Section 206 of the Investment Advisers Act (which Abrahamson
interpreted), the case “can only be read for the proposition that investors in a
hedge fund may sustain an action for fraud against the fund’s adviser.”
Goldstein v. SEC, 451 F.3d 873, 881 n.6 (D.C. Cir. 2006) (citing Abrahamson,
568 F.2d at 869-71). Additionally, as Defendants note, their presentations and
marketing material explicitly disclaimed the creation of a formal investment
advisory relationship. (See, e.g., Lehigh Pitchbook 5, 37; Giuffra Decl., Ex 6 at
57; see also SA § II(E) (disclaiming reliance on investment advice from
Defendant when deciding to invest in the Funds)). 37 Thus, Plaintiffs have not
adequately pleaded the existence of any independent, direct investment
advisory relationship with Defendant.
In sum, Plaintiffs’ breach of fiduciary duty claims fail for several reasons.
To the extent premised on allegations of mismanagement, they are dismissed
as impermissibly derivative. To the extent Plaintiffs allege breach arising out of
the Contractual Standard of Care, they must be dismissed as duplicative under

37

The Court notes that Defendant’s repeated disclaimers renouncing an investment
advisory relationship are much more explicit, and more directly address Plaintiffs’
specific allegations here, than the disclaimers Defendant offers to defeat Plaintiffs’
negligence claims. Cf. Caiola, 295 F.3d at 330 (explaining that “[a] disclaimer is
generally enforceable only if it tracks the substance of the alleged misrepresentation”).

55

both New York and Delaware law. Finally, Plaintiffs’ attempt to establish a
direct fiduciary duty outside of their contractual claims is unsuccessful
because (i) Section 2.07 of the LLC Agreement replaces common-law fiduciary
duties with the Contractual Standard of Care and (ii) they fail to establish that
Defendant served as an investment advisor to individual Plaintiffs rather than
to the Funds.
5.

Defendant’s Motion to Dismiss Plaintiffs’ Self-Dealing Claims
Is Granted in Part and Denied in Part

Plaintiffs allege that Defendant engaged in self-dealing, asserting claims
for (i) common-law breach of the fiduciary duty of loyalty, (ii) breach of the
fiduciary duty of loyalty under ERISA, and (iii) liability for prohibited
transactions under ERISA. As noted above, the LLC Agreement sources the
fiduciary duties Defendant owed to Plaintiffs to the Contractual ERISA
Standard of Care or the Contractual Non-ERISA Standard of Care, depending
on whether the ERISA 25% Threshold was met. ERISA’s fiduciary duty of
loyalty is codified at 29 U.S.C. § 1104(a)(1)(A), but under Section 2.12,
Defendant only owed a fiduciary duty of loyalty when the ERISA 25% Threshold
was met. (See LLC Agreement § 2.12 (agreeing to abide by “Section 404(a)(1)(B)
of ERISA [29 U.S.C. § 1104(a)(1)(B)],” but “not any other provisions of ERISA”
when the ERISA 25% Threshold is not met)). As such, any claims for breach of
the fiduciary duty of loyalty must be dismissed to the extent the ERISA 25%
Threshold was not met. 38

38

However, the Court will not dismiss ATRS’s claims sounding in breach of loyalty (ATRS
¶ 138), because, as noted supra, it entered into a Side Letter with Defendant that

56

Defendants argue that even if the threshold was met and the duty of
loyalty applied (either under ERISA, or by extension to non-ERISA Plaintiffs
because the ERISA 25% Threshold was met), Plaintiffs still fail to allege a
breach because “Plaintiffs impermissibly ‘recast purported breaches of the duty
of prudence as disloyal acts.’” (Def. Br. 57 (quoting Sacerdote v. N.Y. Univ.,
No. 16 Civ. 6284 (KBF), 2017 WL 3701482, at *5 (S.D.N.Y. Aug. 25, 2017)). As
explained below, the Court disagrees with Defendant’s characterization of
Plaintiffs’ allegations.
“Loyalty has been called ‘the most fundamental duty of a trustee’ and the
onus it places on fiduciaries has been described as ‘stricter than the morals of
the marketplace.’” Falberg v. Goldman Sachs Grp., Inc., No. 19 Civ. 9910 (ER),
2020 WL 3893285, at *11 (S.D.N.Y. July 9, 2020) (quoting Pegram v. Herdich,
530 U.S. 211, 224-25 (2000)). To state a claim of disloyalty, “a plaintiff must
allege plausible facts supporting an inference that the defendant acted for the
purpose of providing benefits to itself or someone else.” Ferguson v. Ruane
Cunniff & Goldfarb Inc., No. 17 Civ. 6685 (ALC), 2019 WL 4466714, at *4
(S.D.N.Y. Sept. 18, 2019) (emphasis omitted) (collecting cases).
Here, Plaintiffs allege that Defendant violated this duty by, for example:
(i) abandoning its risk management strategy “in the hopes of chasing additional
return” (BCBS ¶ 82); (ii) failing to disclose material facts (id. at ¶ 147); and
(iii) further repudiating its risk management strategy in late February and early

plausibly imposes a fiduciary duty on Defendant additional to or separate from that
imposed under Section 2.12 of the LLC Agreement. (See Giuffra Decl., Ex. 43 at 10).

57

March 2020 precisely because the Funds’ compensation structure would
prevent Defendant from earning compensation unless it gambled with
Plaintiffs’ investments (see, e.g., ATRS ¶ 145; BCBS ¶¶ 105-106; Lehigh FAC
¶ 263). These allegations suffice to plead that Defendant acted against the
Funds’ interest with the purpose of benefiting itself. See Moreno v. Deutsche
Bank Ams. Holding Corp., No. 15 Civ. 9936 (LGS), 2016 WL 5957307, at *6
(S.D.N.Y. Oct. 13, 2016) (denying motion to dismiss where implementation of
fiduciary’s compensation scheme demonstrated self-interested purpose); see
also Devlin v. Empire Blue Cross & Blue Shield, 274 F.3d 76, 88 (2d Cir. 2001)
(“When a plan administrator ... fails to provide information when it knows that
its failure to do so might cause harm, the plan administrator has breached its
fiduciary duty[.]” (alteration omitted)).
Similarly, Plaintiffs adequately allege that Defendant violated Section 406
of ERISA, 29 U.S.C. § 1106(b), which prohibits a plan fiduciary from engaging
in certain prohibited transactions, including by “deal[ing] with the assets of the
plan in his own interest or for his own account,” id. § 1106(b)(1). Section 406
“supplements the fiduciary’s general duty of loyalty to the plan’s
beneficiaries ... by categorically barring certain transactions deemed ‘likely to
injure the pension plan.’” Harris Tr. & Sav. Bank v. Salomon Smith Barney,
Inc., 530 U.S. 238, 241 (2000) (quoting Comm’r v. Keystone Consol. Indus., Inc.,
508 U.S. 152, 160 (1993)). For example, Plaintiffs allege that because the
Funds had experienced major losses, Defendant was unlikely to earn
compensation for the foreseeable future and therefore “gambled (with investors’
58

money) that markets would soon enter a V-shaped recovery” so it could earn its
performance fee. (Pl. Opp. 19 (citing BCBS ¶¶ 105-106); see also, e.g., CPPT
FAC ¶¶ 81, 87; Lehigh FAC ¶ 263; TMRT/BLYR SAC ¶¶ 100, 134). Plaintiffs’
contention that Defendant managed the Funds against Plaintiffs’ interests in
order to preserve its own ability to profit from managing the Funds adequately
pleads a prohibited transaction, and Defendant’s motion to dismiss Plaintiffs’
Section 406 claims is denied. See Bd. of Trs. of Operating Eng’rs Pension Tr. v.
JPMorgan Chase Bank, Nat. Ass’n, No. 09 Civ. 9333 (KBF), 2013 WL 1234818,
at *12 (S.D.N.Y. Mar. 27, 2013). 39
6.

Defendant’s Motion to Dismiss Lehigh’s Fraud Claims Is
Denied

Defendant separately moves to dismiss claims brought by Lehigh for
securities fraud pursuant to Section 10(b) of the Securities Exchange Act,
common-law fraud, and negligent misrepresentation. In brief, Lehigh alleges
that Defendant wrongfully concealed material changes to its investment
strategy at least as early as March 2019, inducing Lehigh to make additional
investments in the Funds and denying Lehigh the opportunity to exit the
Funds. Defendant argues that dismissal is warranted because: (i) Lehigh’s

39

Defendant argues that Plaintiffs’ Section 406 claims must be dismissed because they
are based on a “permissible fee structure” for compensating Defendant for managing
the Funds, and “performance-based incentive compensation is not a per se prohibited
transaction under ERISA § 406(b).” (Def. Br. 60). But Plaintiffs do not argue that a
performance-based compensation model is a per se violation of Section 406, and
instead allege that Defendant managed the Funds in its own interest in this particular
instance by “abandon[ing] its stated investment strategy and assum[ing] unreasonably
risky positions in an effort to recoup losses that the [Funds] had already sustained and
in the process generate revenue for itself.” (IBEW FAC ¶ 149; see also, e.g., BCBS
¶ 149; CPPT FAC ¶¶ 81, 88, 124; FFLD/NEHC SAC ¶ 147).

59

additional investment in the Funds took place before Defendant’s purported
misconduct occurred; (ii) Lehigh’s holder claims are barred by New York law;
and Lehigh fails to adequately plead: (iii) material misrepresentation,
(iv) scienter, and (v) reliance. For the reasons that follow, the Court denies
Defendant’s supplemental motion.
a.

Overview of Lehigh’s Complaint

The Court included certain of Lehigh’s allegations in its earlier summary
of Plaintiffs’ complaints, but here focuses on Lehigh’s FAC. According to its
First Amended Complaint (or “FAC”), Lehigh began investing in one of the
Funds in 2011. (Lehigh FAC ¶ 42). It transferred its investment to a different
Fund in 2013; increased its investments in that Fund in 2015 and 2016; and
then transferred $35 million into a third Fund over the course of four
transactions in March, April, May, and November 2019. (Id. at ¶¶ 42-45).
Defendant’s offering documents and marketing materials informed
Lehigh that the Structured Alpha trading strategy embodied a “‘three-pronged
objective’: (1) ‘to profit during normal (up/down/flat) market conditions’; (2) to
‘[p]rotect against a market crash’; and (3) to ‘[n]avigate as wide a range of
equity-market outcomes as possible.’” (Lehigh FAC ¶¶ 74-75 (emphasis
omitted)). To that end, Defendant employed a combination of long, short, and
long-short volatility positions, in which long puts — which are designed to
provide protection against a tail event or market crash — “‘[we]re a cornerstone
of Structured Alpha’s investment process.’” (Id. at ¶¶ 82-83 (internal citation
omitted); see also id. at ¶¶ 85-88 (discussing similar representations in
60

Defendant’s pitchbooks); id. at ¶¶ 89-95 (discussing Quarterly Updates that,
inter alia, “echoed [Defendant’s] representations in the pitchbooks and the
Strategy Overview that it would construct an options portfolio designed to
benefit from a range of market scenarios and that the Funds would always be
simultaneously long and short volatility, protecting them from directional
movements in the market”); id. at ¶¶ 117-129 (outlining oral representations by
Defendant, including statements that Funds were “uncorrelated” and “nondirectional)).
In point of fact, no later than April 2019, Defendant “deliberately
changed its investment strategy to increase the options portfolio’s directionality
and sensitivity to market swings, and hence, downside risk.” (Lehigh FAC
¶ 130). Among other things, Defendant became a net seller of short options
(including short puts), but then failed to hedge these options properly; in so
doing, according to Lehigh, Defendant “gambled that the financial markets
would remain relatively static and not decline[.]” (Id. at ¶¶ 130-136). And
while Defendant did disclose to Lehigh in late 2018 that “it was reallocating a
large number of its long puts into its sealed range-bound spread positions” (id.
at ¶ 145), it did not disclose the directional bet it had taken concerning market
volatility and, indeed, “continued to falsely represent to Lehigh that the Funds’
options strategy was market-agnostic and designed to profit in the face of
market declines” (id. at ¶ 148; see also id. at ¶¶ 150-161 (discussing
purportedly false or misleading statements in 2019 Quarterly Updates)).

61

The market downturn in February 2020 prompted concern on Lehigh’s
part about its investments in the Funds. Though the market decline overall
was 9%, the funds in which Lehigh invested were down nearly 19%. (Lehigh
FAC ¶¶ 177-178). When Lehigh initially reached out to Defendant to
“troubleshoot the portfolio’s decline” (id. at ¶ 207), it was told that “the damage
to the Funds was ‘well-contained,’” and that losses would not be expected to
exceed 10% (id. at ¶¶ 208-209). Unbeknownst to Lehigh, however, Defendant
had reacted to the market event by “structur[ing] the Funds’ options portfolio
to recoup those losses by simultaneously selling the Funds’ long put
protections and buying short puts” — thereby “gambl[ing] that the market
would rebound by positioning the portfolio to generate returns if the market
stabilized and volatility levels declined.” (Id. at ¶¶ 200-201). The market did
not stabilize, and Lehigh’s investments in the Funds lost approximately 75% of
their value. (Id. at ¶ 220).
In March 2020, Defendant “disclosed for the first time the significant
negative gamma increase in 2019 and that the Funds were much more exposed
to directionality than previously represented.” 40 (Lehigh FAC ¶ 182; see also
id. at ¶ 184 (admission by Trevor Taylor, the Funds’ Co-Lead Portfolio Manager,
during conference call that the Funds were overall “clearly a short volatility
strategy”); id. at ¶¶ 185-186 (admission by Defendant that “it had purchased
an inadequate number of put options, and that the strike prices of the put

40

Gamma is a calculation for options trading, widely employed by options traders to help
assess risk in a portfolio. (Lehigh FAC ¶ 163).

62

options it did purchase were far below the price range that it had previously
represented to Lehigh”); id. at ¶¶ 191-194 (purported deficiencies in
Defendant’s stress-testing and risk management programs)). Lehigh states
that “[h]ad Lehigh known that the information they received from [Defendant]
contained material misrepresentations and omissions ... Lehigh would not have
made investments in the Global Fund on April 1, 2019, May 1, 2019 and
November 1, 2019, in the aggregate amount of $25,000,000.” (Id. at ¶ 238).
Lehigh also alleges that Defendant’s misrepresentations and omissions induced
it to retain its existing investments in the Funds, and had it known the truth,
Lehigh “would have redeemed” its entire existing investment. (Id. at ¶¶ 243,
245).
b.

Applicable Law

Plaintiffs’ fraud and misrepresentation claims are subject to the
heightened pleading requirements of Rule 9(b) of the Federal Rules of Civil
Procedure, and its securities fraud claims are also subject to the Private
Securities Litigation Reform Act of 1995 (the “PSLRA”), 15 U.S.C. § 78u-4(b).
See Ong v. Chipotle Mexican Grill, Inc., No. 16 Civ. 141 (KPF), 2017 WL 933108,
at *7 (S.D.N.Y. Mar. 8, 2017) (citing ATSI Commc’ns, Inc. v. Shaar Fund, Ltd.,
493 F.3d 87, 108 (2d Cir. 2007)). Under Rule 9(b), a plaintiff must “state with
particularity the circumstances constituting [a] fraud.” Fed. R. Civ. P. 9(b). 41
The Second Circuit has held that Rule 9(b) and the PSLRA require a securities

41

“[N]egligent misrepresentation claims must be pled with particularity under Rule 9(b)
where ... they are based on the same set of facts as the fraud claims.” Trahan v. Lazar,
457 F. Supp. 3d 323, 354 n.11 (S.D.N.Y. 2020) (citation omitted).

63

fraud complaint to: “[i] specify the statements that the plaintiff contends were
fraudulent, [ii] identify the speaker, [iii] state where and when the statements
were made, and [iv] explain why the statements were fraudulent.” Gamm v.
Sanderson Farms, Inc., 944 F.3d 455, 462-63 (2d Cir. 2019)) (quoting Mills v.
Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir. 1993)). In contrast, “intent,
knowledge, and other conditions of mind … may be averred generally.” Kalnit
v. Eichler, 264 F.3d 131, 138 (2d Cir. 2001) (quoting Fed. R. Civ. P. 9(b)).
c.

Lehigh’s 2019 Investment Does Not Post-Date
Defendant’s Purported Fraud or Misrepresentations

First, Defendant contends that Lehigh cannot assert claims with respect
to investments totaling $25-$35 million made in 2019 in the AllianzGI
Structured Alpha Global Equity 500 LLC (the “Global Fund”), because “Lehigh
invested, or committed to invest, in the Funds well before any of the challenged
statements were made to Lehigh beginning on April 29, 2019.” (Def. Supp.
Br. 2). Defendant contends that Lehigh “committed to execute” the
investments in February 2019, even though the actual investments closed on
three dates in March, April, and May of 2019. (Id. at 3, 11).
Defendant’s argument fails because Lehigh does not simply allege that
misrepresentations were made beginning on April 29, 2019. Rather, Lehigh
alleges that Defendant began providing false and misleading information
beginning whenever Defendant materially altered the Funds’ investment and
risk management strategy, “from at least March 2019” (Lehigh FAC ¶ 238), and
argues that the exact date when Defendant altered its strategies is an issue of
fact to be determined in discovery (Lehigh Opp. 10). Even accepting
64

Defendant’s factual proffer that the investments became irrevocable on
February 19, 2019 (see Def. Supp. Reply 11 (citing Wheeler Decl., Ex. 4)) —
which proffer would require the Court to consider materials that it may not on
this motion, see Goel v. Bunge, Ltd., 820 F.3d 554, 559 (2d Cir. 2016), and to
impermissibly draw inferences in Defendant’s favor on a motion to dismiss —
Lehigh alleges that Defendant consistently represented it maintained a marketneutral investment strategy, and as such made material misrepresentations or
omissions in monthly risk reports and other communications starting
whenever Defendant changed its strategy (see Lehigh FAC ¶¶ 9, 100, 102-103,
173). Thus, the Court declines to limit Lehigh’s claims arising out of its 2019
investments in the Global Fund.
d.

Lehigh’s “Holder” Claim Is Not Barred by New York Law

Second, Lehigh alleges that it would have redeemed its earlier
investments had Defendant disclosed its change in investment and risk
management strategy at some point prior to March 2019. (Lehigh FAC ¶¶ 243,
245). Defendant argues these claims must be dismissed because they are
“holder” claims that violate New York’s “out-of-pocket” rule. (Def. Supp.
Br. 11). “A ‘holder’ claim is one ‘in which the plaintiffs allege that material
misrepresentations or omissions caused them to retain ownership of securities
that they acquired prior to the alleged wrongdoing.’” Matana v. Merkin
(“Matana I”), 957 F. Supp. 2d 473, 490 (S.D.N.Y. 2013) (emphasis omitted)
(quoting In re WorldCom, Inc. Sec. Litig., 336 F. Supp. 2d. 310, 318-23 (S.D.N.Y.
2004)).
65

Under New York law, the out-of-pocket rule limits recovery for fraud and
misrepresentation to “the actual pecuniary loss sustained as the direct result
of the wrong.” Starr Found. v. Am. Int’l Grp., Inc., 901 N.Y.S.2d 246, 249 (2010)
(alternations omitted). After Starr, however, the status of holder claims under
New York law is unclear. This Court finds persuasive Judge Engelmayer’s
thorough analysis of Starr and its progeny in his decision in Matana v. Merkin
(“Matana II”), wherein he concluded that:
On the present state of the case law, therefore, this
Court cannot predict that the New York Court of
Appeals would preclude holder claims altogether. No
New York state court has so held, or even so stated in
dicta. The Court instead is compelled to predict,
consistent with Starr, that the New York Court of
Appeals today would still recognize a limited set of
holder claims, specifically, those in which plaintiffs seek
to recover out-of-pocket losses, and perhaps, but not
necessarily, further limited to those in which there is a
non-conjectural evidentiary basis for asserting
causation and tabulating damages.
989 F. Supp. 2d 313, 323-24 (S.D.N.Y. 2013).
Here, Lehigh does not plead speculative lost profits, but pleads out-ofpocket losses by alleging that it would have redeemed its entire investment
upon learning the truth about Defendant’s new investment and risk
management practices. (Lehigh FAC ¶ 245). At the very least, Lehigh’s
damages are capable of being calculated and proven, as its investment will
have a certain, verifiable value as of the date where discovery establishes that
Defendant’s misrepresentations or fraud began (assuming discovery reveals
such misconduct at all). See Beach v. Citigroup Alt. Invs. LLC, No. 12 Civ. 7717
(PKC), 2014 WL 904650 (S.D.N.Y. Mar. 7, 2014) (noting that a valid holder
66

claim, post-Starr, may be established by “alleging [i] the loss of substantially
the entire investment, [ii] whether the plaintiff would have sought to rescind
the investment, had there been an accurate disclosure of the relevant
information, [iii] the time frame within which the rescission would have
occurred, [iv] the portion of the investment that would have been sold, and
[v] the effect truthful disclosure would have had on the value of the
investment”); see also AHW Inv. P’ship, MFS, Inc., 661 F. App’x at 6 (“[W]e take
no position on whether other types of holder claims, such as those seeking
damages other than lost profits, may be cognizable under New York law”). 42
Thus, because Lehigh alleges specific, verifiable out-of-pocket losses associated
with Defendant’s purported fraud and misrepresentation, dismissal for
violation of New York’s out-of-pocket rule is inappropriate.
e.

Lehigh Adequately Pleads Actionable Misrepresentations

Third, Defendant argues that Lehigh failed to allege any material
misrepresentation because Defendant did disclose changes in its investment
strategy to Lehigh, and because any failure to disclose changes to its
investment or risk management strategies were not sufficiently material as to
be actionable. (Def. Supp. Br. 15-19; Def. Reply 2-7). The Court disagrees.

42

The cases Defendant cites for the proposition that holder claims are barred under New
York law are distinguishable, as those cases involve claims seeking speculative lost
profits or alleging vague and unverifiable losses. See Feinberg v. Marathon Patent Grp.
Inc., 148 N.Y.S.3d 51, 54 (1st Dep’t 2021) (affirming dismissal where plaintiffs failed to
provide any specificity as to the amount of shares to be sold or the timing of those sales,
alleging only general inducement to hold shares); Varga v. McGraw Hill Fin., Inc., 48
N.Y.S.3d 24, 26 (1st Dep’t 2017) (affirming dismissal where plaintiffs sought to recover
lost revenue from holding securities).

67

Defendant first argues that Lehigh concedes that it was informed of a
change in investment strategy and that therefore Defendant cannot be liable for
Lehigh’s failure to investigate the downside risks of that strategy. (Def. Supp.
Br. 16; Def. Supp. Reply 4-6). However, that argument misconstrues Lehigh’s
allegations. Lehigh pleads that although Defendant disclosed that it modified
its investment strategy by buying a much larger percentage of the Funds’ long
puts closer to the money (Lehigh FAC ¶ 145), it failed to disclose that at some
point prior to March 2019, it changed the entire investment strategy to become
a net seller of short options (id. at ¶¶ 131, 238), staking the entire investment
strategy on a “directional bet,” while simultaneously telling Lehigh that the
Funds remained “market-agnostic” (id. at ¶ 148). Lehigh contends that this
was an entirely separate change than the one Defendant disclosed to it. (Pl.
Opp. 7; see also Lehigh FAC ¶¶ 147-148).
On the current record the Court declines to hold that Defendant’s
disclosure that it would implement a reduced ratio of long to short puts (see
Def. Supp. Reply 5-6; see also Lehigh FAC ¶¶ 145-146), sufficiently disclosed
its purported wholesale abandonment of a market-neutral strategy or the
extent of its “directional bet” (Lehigh FAC ¶ 148). The crux of Lehigh’s
allegations is that Defendant continued to represent to Lehigh that, as a result
of Defendant’s modified investment strategy — which involved more than
simply a change to one element of the alpha component — “the Funds
possessed de minimis directional exposure,” despite implementing changes
directly to the contrary. (Id. at ¶ 160). Thus, at least at the motion to dismiss
68

stage, Defendant’s claim that Lehigh should have understood from this limited
disclosure regarding the reduced ratio of long puts that Defendant had actually
undertaken a massive directional bet, while simultaneously telling Lehigh the
exact opposite, is unavailing.
Lehigh’s allegations regarding the gamma metric and the inversion of the
put ratio are similarly best understood in the context of the entirety of the FAC,
rather than as stand-alone misrepresentations. Defendant argues it had no
duty to disclose the former, and that its representations as to the latter were
merely unactionable “illustrative example[s.]” (Def. Supp. Reply 6-7). The
Court understands these allegations as offered by Lehigh to support its
underlying claim that Defendant undertook major changes to its investment
strategy; knew such changes materially altered the Funds’ exposure to market
volatility; and knowingly, willfully, or recklessly failed to disclose that
information to Plaintiffs. (See Lehigh FAC ¶¶ 160, 164-165, 221, 231-232).
Lehigh claims that these particular developments were material because
disclosure of either fact would have provided Lehigh with notice of the change
that it alleges Defendant fraudulently concealed, and would have altered its
investment decisions. (See, e.g., id. at ¶¶ 144, 238). 43

43

Defendant also argues that it had no duty to disclose any changes to its investment
strategy due to disclaimers in the PPM that Defendant could change the investment
strategy as will. (Def. Supp. B. 15). That argument fails here for the same reason as
discussed supra in Section B.3.b, namely that a change in investment strategy is
different than complete repudiation of an investment strategy, as Lehigh and other
Plaintiffs allege here.

69

Defendant next argues that Lehigh’s claims must be dismissed because
Lehigh advances a theory of “fraud by hindsight.” (Def. Supp. Br. 13, 18-19).
However, Defendant again mischaracterizes Lehigh’s allegations. Lehigh
alleges not that Defendant mismanaged the Funds by, for example, buying
insufficient put options or failing to adequately assess risk (Def. Supp. Br. 1215, 17-19), but rather that Defendant affirmatively represented that it was
implementing certain risk assessment and investment strategies while
simultaneously failing to do so. (See Lehigh FAC ¶¶ 76, 94-95, 114-115, 118,
131, 151, 155, 192-193). See Novak v. Kasaks, 216 F.3d 300, 315 (2d Cir.
2000) (vacating dismissal of fraud claim where complaint alleged that
defendants “did more than just offer rosy predictions; the defendants stated
that the inventory situation was ‘in good shape’ or ‘under control’ while they
allegedly knew that the contrary was true”).
f.

Lehigh Adequately Pleads Scienter

Fourth, Defendant argues that Plaintiff fails to adequately plead scienter.
(Def. Supp. Br. 20-25; Def. Supp. Reply 7-9). The standard to plead scienter
under Section 10(b) is higher than the familiar plausibility standard. “To
adequately plead scienter under [Section] 10(b) and Rule 10b-5, a plaintiff
must ‘plead the factual basis which gives rise to a strong inference of
fraudulent intent.’” In re BioScrip, Inc. Sec. Litig., 95 F. Supp. 3d 711, 732
(S.D.N.Y. 2015) (quoting IKB Int’l S.A. v. Bank of Am. Corp., 584 F. App’x 26, 27
(2d Cir. 2014) (summary order)). This strong inference of fraudulent intent can
be established by alleging with sufficient particularity (i) “that defendants had
70

the motive and opportunity to commit fraud” or (ii) “strong circumstantial
evidence of conscious misbehavior or recklessness.” ECA, Loc. 134 IBEW Joint
Pension Tr. of Chi. v. JP Morgan Chase Co., 553 F.3d 187, 198 (2d Cir. 2009).
This requires a “comparative evaluation,” in which a court “must consider not
only inferences urged by the plaintiff ... but also competing inferences
rationally drawn from the facts alleged.” Tellabs, Inc. v. Makor Issues & Rights,
Ltd., 551 U.S. 308, 314 (2007). Accordingly, “an inference of scienter must be
more than merely plausible or reasonable — it must be cogent and at least as
compelling as any opposing inference of nonfraudulent intent.” Id. This
inquiry is to be conducted holistically, looking to “all of the facts alleged, taken
collectively.” Id. at 323.
Here, “accepting the facts alleged in the [FAC] as true, and drawing all
reasonable inferences in [Lehigh’s] favor,” Set Cap. LLC v. Credit Suisse Grp.
AG, 996 F.3d 64, 78 (2d Cir. 2021), the Court need only analyze the second
prong to determine that Lehigh has adequately plead scienter via “strong
circumstantial evidence of ... recklessness,” ECA, Local 134, 553 F.3d at 198.
Under this prong, a plaintiff must plead conscious misbehavior or
recklessness, “‘though the strength of the circumstantial allegations must be
correspondingly greater’ if there is no motive.” Id. at 199 (quoting Kalnit, 264
F.3d at 142). 44 “To plead conscious recklessness adequately, a plaintiff must

44

Throughout the FAC, Lehigh suggests that Defendant’s investment decisions vis-à-vis
the Funds were motivated by the Funds’ unusual compensation structure, in which fees
were based exclusively on performance and not the amount of assets under
management. (See, e.g., Lehigh FAC ¶¶ 51-56, 136, 169, 204-206, 234). Because the
Court finds that Lehigh adequately pleads at least conscious recklessness, it does not

71

allege facts showing ‘conduct which is highly unreasonable and which
represents an extreme departure from the standards of ordinary care to the
extent that the danger was either known to the defendants or so obvious that
the defendant must have been aware of it.’” Ong, 2017 WL 933108, at *14
(citing In re Carter-Wallace, Inc. Sec. Litig., 220 F.3d 36, 39 (2d Cir. 2000)). A
plaintiff may allege that a defendant “engaged in deliberately illegal behavior,
knew facts or had access to information suggesting his public statements were
not accurate, or failed to check information that he had a duty to monitor.”
Nathel v. Siegal, 592 F. Supp. 2d 452, 464 (S.D.N.Y. 2008) (emphasis added)
(citing Novak, 216 F.3d at 311); accord ECA, Local 134, 553 F.3d at 199.
Opinions or predictions can be the basis for scienter “if they are worded as
guarantees or are supported by specific statements of fact, or if the speaker
does not genuinely or reasonably believe them.” In re Int’l Bus. Machs. Corp.
Sec. Litig., 163 F.3d 102, 107 (2d Cir. 1998) (internal citations omitted).
Here, Lehigh has plausibly alleged circumstantial evidence of conscious
recklessness, particularly that Defendant knew facts or had access to
information suggesting that its public statements were inaccurate, which when
viewed in the holistic context of Lehigh’s allegations, supports a strong
inference of scienter. On the facts alleged in the FAC, the Court is able to draw
the inference that Defendant’s public statements to Lehigh throughout 2019 (if
not before) regarding its investment strategy and risk management approach

determine whether Lehigh satisfies the first prong by pleading motive. Accordingly, this
Opinion should not be read to foreclose that possibility at a later stage in this litigation.

72

were false when made, and that Defendant knew or should have known as
such. (See, e.g., Lehigh FAC ¶¶ 162-168). Specifically, Lehigh alleges that
certain of the Funds’ principal managers and key employees knew the reality of
the Funds’ composition throughout 2019:
Trevor Taylor, the Chief Investment Officer for
AllianzGI’s US Structured Products, Greg Tournant, the
Funds’ Co-Lead Portfolio Manager, and Jeff Sheran,
Product Specialist — knew that its representations in
the 2019 Quarterly Updates that the Funds were wellhedged for a potential market decline were materially
false, because AllianzGI had intentionally restructured
its investment strategy in or around April 2019 so that
the Funds would generate higher profits in lower
volatility environments and incur losses if the market
declined and volatility increased.
(Id. at ¶ 162). 45 This claim that specific employees with management
responsibility over the Funds (see id. at ¶ 167) knew of the falsity of
Defendant’s public representations regarding the composition of the Funds’
portfolio lends support to a strong inference of scienter. See In re Complete
Mgmt. Inc. Sec. Litig., 153 F. Supp. 2d 314, 325-26 (S.D.N.Y. 2001) (“[O]ther
courts facing similar issues have held that on a motion to dismiss, making all
reasonable assumptions in favor of the plaintiff includes assuming that
principal managers of a corporation are aware of matters central to that
business’s operation.”).

45

Defendant notes that Plaintiff reversed Taylor’s and Tournant’s proper roles in this
paragraph of the FAC. (See Def. Supp. Br. 23 n.10). Elsewhere in the Amended
Complaint, Plaintiff correctly states Taylor’s role as Co-Lead Portfolio Manager. (See
Lehigh FAC ¶ 184).

73

Lehigh also alleges that Defendant repeatedly represented that it would
monitor the Funds’ directional risk (Lehigh FAC ¶ 163), and that as such,
Defendant knew or should have known that as a result of its furtive strategy
change, the Funds developed significant downside exposure (id. at ¶¶ 164-165,
168). Lehigh contends that Defendant made these changes while
simultaneously telling Lehigh the precise opposite, that the Funds remained
directionally neutral. (See id. at ¶¶ 127-128 (alleging material misstatements
at November 2019 meeting), 150-161 (alleging material misrepresentations in
Quarterly Reports throughout 2019)). Lehigh also points to Defendant’s false
or misleading representations regarding its risk management approach,
particularly that despite Defendant’s repeated claims that “it had in place
robust risk management procedures by which it would, among other things,
model the Funds’ performance in different market scenarios” (id. at ¶ 192),
Defendant’s agents, including Tournant, Taylor, and Sheran, knew that no
such modelling or testing occurred under “the new undisclosed options
strategy for a market decline with high volatility” (id. at ¶ 167). In short,
despite allegedly implementing an investment strategy diametrically opposed to
that which it publicly disclosed, Defendant nevertheless claimed to have
maintained its protocols for safeguarding the Funds against the risks of a
market downturn, without ever following through on these protocols. On these
facts, the Court finds that Lehigh adequately alleges that Defendant’s
statements as to the Funds’ market directionality and risk management were
made with the requisite conscious recklessness, as they were “materially
74

misleading in that the disclosed polic[ies] no longer reflected actual practice.”
Novak, 216 F.3d at 311; accord In re Nielsen Holdings PLC Sec. Litig., 510 F.
Supp. 3d 217, 229 (S.D.N.Y. 2021) (finding plaintiffs adequately alleged
scienter where defendants publicly misrepresented the strength and growth of
business despite their awareness of trend to the contrary).
Moreover, Taylor’s admission in March 2020 that the Funds were overall
“clearly a short volatility strategy” (Lehigh FAC ¶ 166), as well as Defendant’s
ex post disclosures to Lehigh relaying the modifications to the Funds’ options
strategy (see id. at ¶¶ 181-194), adds to the inference of scienter by
demonstrating that key employees involved in the Funds’ management had
access to information about the Fund’s true strategy, all the while making
misleading representations to the public. See Set Cap. LLC, 996 F.3d at 79
(finding CEO’s potentially false or misleading statement “to support a culpable
inference [of scienter] because the complaint plausibly alleges that [defendants]
‘knew facts or had access to information suggesting that their public
statements were not accurate’” (quoting Emps.’ Ret. Sys. of Gov’t of the Virgin
Islands v. Blanford, 794 F.3d 297, 306 (2d Cir. 2015))). The materials
Defendants distributed to Lehigh in March 2020 buttress this inference that
contemporaneous materials existed showing the Funds’ true investment
strategy, which materials include: (i) a document titled “Historical Greeks
Exposure,” which reflected “the [Funds’] significant negative gamma increase in
2019” (Lehigh FAC ¶ 182); (ii) a March 9, 2020 email from Defendant’s senior
relationship manager confirming that the “Funds’ options gamma profile
75

increased as of April 2019 due to a ‘new directional call program’ and an
‘increase in VIX option positions’ (id. at ¶ 183); and (iii) a document titled
“AllianzGI US Equity 500 Holdings and Deltas 1/31/2020,” which reflected
“that many of the strike prices for the long puts options it purchased were well
below the -10% to -30% range that [Defendant] had previously represented …
and purchased in insufficient quantities to provide the meaningful downside
protections promised to Lehigh” (id. at ¶ 186). Although Taylor’s retrospective
admission of the Funds’ true strategy and the revelation of documentation
supporting the same post-date Lehigh’s 2019 investments in the Funds, the
Court finds that, when viewed holistically, they support the inference that in
2019, Defendant either knew about or was reckless in not knowing the false
nature of its repeated reassurances that the Funds were pursuing a strategy
geared toward “uncorrelated investment returns with robust protections from a
market crash[.]” (Id. at ¶¶ 169-170).
Finally, Defendant’s argument that the Funds’ collapse was caused by
the unanticipated effects of COVID-19 and that “market events overwhelmed
the strategy” (Def. Supp. Reply 9), is largely irrelevant to the issue of fraudulent
intent, and is thus not more compelling than Lehigh’s claim that Defendants
implemented a clandestine reversal of its investment strategy. Defendant’s
failure to predict the COVID-19 pandemic is unrelated to Lehigh’s actual
allegations, which are that Defendant improperly concealed a change in
investment strategy that left the Funds severely exposed to an increase in
volatility — an allegation that is sustained regardless of the materialization of
76

any tail risk. That Defendant failed to predict how that volatility actually
materialized is immaterial to the scienter issue. See Plumbers & Pipefitters
Nat’l Pension Fund v. Davis, No. 16 Civ. 3591 (GHW), 2020 WL 1877821, at *13
(S.D.N.Y. Apr. 14, 2020) (“Although Defendants may have hoped that PSG
would uncover new sources of future revenue and thus that the risk of lower
future sales associated with the rising inventory would not materialize, the
Fund has plausibly alleged facts that give rise to a strong inference that the
decision not to disclose this information was nonetheless reckless.”); see also In
re Scot. Re Grp. Sec. Litig., 524 F. Supp. 2d 370, 394 (S.D.N.Y. 2007) (“It is
simply not a plausible opposing inference that the Company’s officers —
sophisticated executives actively engaged in the planning of these
transactions — were ignorant of the transactions’ consequences[.]”).
This is not a case where the context of the purportedly misleading
statements cuts against an inference of scienter. See, e.g., In re Gen. Elec. Sec.
Litig., 844 F. App’x 385, 389 (2d Cir. 2021) (summary order) (finding that
misleading statements regarding the feasibility of an ultimately doomed turbine
project made in the context of the company’s ongoing disclosures about known
problems with the project, plausibly suggested an inference that the company
believed it was implementing what it believed to be a workable solution). To
the contrary, fora such as the Quarterly Updates or investor presentations were
precisely the contexts in which Defendant would have been expected, if not
obligated, to reveal a dramatic change in the Funds’ investment strategy.
Defendant’s failure to so, and instead persistent pronouncements of an obverse
77

investment approach, supports an inference of conscious wrongdoing.
Assuming the allegations in the FAC to be true and viewing them holistically,
the Court concludes that under these circumstances, the inference of
fraudulent intent is at least as strong as any opposing inference, and thus that
Lehigh has adequately alleged scienter.
g.

Lehigh Adequately Pleads Reasonable Reliance

Defendant argues that any reliance on Defendant’s purported
misstatements is unreasonable given Lehigh’s representations in the
Subscription Agreement and its own sophistication (see Def. Supp. Br. 27), and
Defendant’s “extensive and express disclaimers” (Def. Supp. Reply 10; see also
Def. Supp. Br. 26-27). The Court agrees with Lehigh that Defendant’s
boilerplate disclosures fail to render Lehigh’s reliance on the specific
representations at issue here unreasonable.
Defendant points to statements in the PPM that “[t]he Fund may change
any of its investment strategies without prior consent of, or notice,” to Lehigh
(Wheeler Decl., Ex. 1 (U.S. Fund PPM) at 20; id., Ex. 2 (Global PPM) at 21), to
argue that it was unreasonable for Lehigh to believe Defendant would only
change the investment strategy after first informing Lehigh (Def. Supp.
Reply 10). However, as discussed supra, that argument fails because
Defendant’s warning that it may change the investment strategy is different
than Lehigh’s allegations that Defendant completely repudiated its investment
strategy, as Lehigh and other Plaintiffs allege here. See Caiola v. Citibank, N.A.,
N.Y., 295 F.3d 312, 330 (2d Cir. 2002) (explaining that “[a] disclaimer is
78

generally enforceable only if it tracks the substance of the alleged
misrepresentation,” and finding reliance reasonable where “[t]he disclaimer
provisions contained in the [agreements] fall well short of tracking the
particular misrepresentations alleged” (internal quotation marks and citation
omitted)). Furthermore, Defendant disclosed some information about a change
in strategy, but in so doing made material misrepresentations about the Funds’
directional exposure. See id. Finally, Lehigh’s representations that it
conducted its own “independent investigations” and had the “knowledge and
experience” needed to “evaluat[e] the merits and risks” of the Funds (see
Wheeler Decl., Ex. 3 (Feb. 2019 Subscription Agreement) at § II(E), (H), (K)),
does not give Defendant carte blanche to make fraudulent or material
misrepresentations. Caiola, 295 F.3d at 330-31 (holding that general
disclaimers are insufficient to defeat reasonable reliance on material
misrepresentations as a matter of law, even by a sophisticated party).
In sum, Lehigh has adequately pleaded the requisite elements of its
securities fraud, common-law fraud, and negligent misrepresentation claims.
Therefore, Defendant’s supplemental motion to dismiss those claims must be
denied.
C.

The Court Grants Leave to Amend in Part
Plaintiffs request leave to amend their pleadings to the extent the Court

has concluded that Plaintiffs’ claims are deficient. (Pl. Opp. 60 n.52). Federal
Rule of Civil Procedure 15(a)(2) instructs courts to freely give leave to amend
“when justice so requires.” McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184,
79

200 (2d Cir. 2007); see also Fed. R. Civ. P. 15(a). “This permissive standard is
consistent with [the Second Circuit’s] ‘strong preference for resolving disputes
on the merits.’” Williams v. Citigroup Inc., 659 F.3d 208, 212-13 (2d Cir. 2011)
(per curiam) (quoting New York v. Green, 420 F.3d 99, 104 (2d Cir. 2005)). And
where, as here, a case “combines a complex commercial reality with a long,
multi-prong complaint,” the Circuit has encouraged courts to grant leave to
amend, because “pleading defects may not only be latent, and easily missed or
misperceived without full briefing and judicial resolution; they may also be
borderline, and hence subject to reasonable dispute.” Loreley Fin. (Jersey) No.3
Ltd. v. Wells Fargo Sec., LLC, 797 F.3d 160, 191 (2d Cir. 2015).
Given the opportunities to amend Plaintiffs have already been afforded,
as well as the granularity with which Defendant’s dismissal arguments were
discussed at the pre-motion conference (see generally Dkt. #59), the Court is
reluctant to grant Plaintiffs open-ended leave to amend their pleadings.
However, the Court is cognizant that Plaintiffs may have come into possession
of meaningful information either during the briefing schedule or subsequent to
the completion of their briefing. Indeed, at least one Plaintiff has indicated as
much. (See, e.g., Pl. Opp. 27 n.10). To account for this possibility, the Court
will permit Plaintiffs leave to amend insofar as they have acquired additional
documents that may serve as a basis for amendment, or for other similar good
cause shown. The Court adopts this approach to balance the liberal
amendment standard with the risk of undue prejudice that may flow to
Defendant from permitting Plaintiffs, some of whom have already amended, a
80

chance to do so yet again, irrespective of whether they have come into
possession of additional information. See Parker v. Columbia Pictures Indus.,
204 F.3d 326, 341 (2d Cir. 2000) (affirming district court’s denial of leave to
amend where Plaintiff “had all the information necessary” and “nothing he
learned in discovery or otherwise altered that fact”).
CONCLUSION
For the reasons set forth above, Defendant’s motions to dismiss are
GRANTED IN PART and DENIED IN PART as set forth in this Opinion.
Plaintiffs are hereby ORDERED to notify the Court, on or before
October 30, 2020, regarding whether they will file amended pleadings.
The Clerk of Court is directed to docket this Opinion in case numbers
No. 20 Civ. 5615, No. 20 Civ. 5817, No. 20 Civ. 7061, No. 20 Civ. 7154, No. 20
Civ. 7606, No. 20 Civ. 7842, No. 20 Civ. 7952, No. 20 Civ. 8642, No. 20 Civ.
9478, No. 20 Civ. 9479, No. 20 Civ. 9587, and No. 20 Civ. 10028.
The Clerk of Court is further directed to terminate the motions pending
at No. 20 Civ. 5615, Dkt. #82; No. 20 Civ. 5817, Dkt. #54; No. 20 Civ. 7061,
Dkt. #54; No. 20 Civ. 7154, Dkt. #70; No. 20 Civ. 7606, Dkt. #71; No. 20 Civ.
7842, Dkt. #52; No. 20 Civ. 7952, Dkt. #70; No. 20 Civ. 9478, Dkt. #62; No. 20
Civ. 9479, Dkt. #62; No. 20 Civ. 9587, Dkt. #51; and No. 20 Civ. 10028, Dkt.
#44.
SO ORDERED.
Dated:

September 30, 2021
New York, New York

__________________________________
KATHERINE POLK FAILLA
United States District Judge
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