Small Ventures USA, L.P. v. Rizvi Traverse Management, LLC et al

Filing 58

MEMORANDUM AND ORDER denying 41 MOTION to Dismiss for Lack of Personal Jurisdiction, and Defendants' Motion to Dismiss pursuant to Rule 12(b)(6) is GRANTED in part as to Small Ventures's breach of fiduciary duty claim, which is DISMISSED, and the Motion to Dismiss is otherwise DENIED. (Signed by Judge Ewing Werlein, Jr) Parties notified.(chorace)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
SMALL VENTURES USA, L.P.,

§

Plaintiff,

§
§

§
§

v.

CIVIL ACTION NO. H-11-3072

§

RIZVI TRAVERSE MANAGEMENT, LLC, §
MLRT FILM HOLDINGS, LLC,
§
SUHAIL RIZVI, JOHN
§
GIAMPETRONI, DIANE STIDHAM,
§
DANNY MANDEL, and BEN KOHN,
fi
Defendants.

§
§

MEMORANDUM AND ORDER
Pending is Defendants Rizvi Traverse Management, LLC1s, MLRT
Film Holdings, LLC1s, Suhail Rizvi's, John Giampetronils, Diane
Stidham's, and Danny Mandel's Motion to Dismiss for Lack of
Personal Jurisdiction (Document No. 41). After carefully reviewing
the motion, response, replies, and the applicable law, the Court
concludes as follows.
I. Backsround
Plaintiff Small Ventures USA, LP ("Small Ventures"), a venture
capital and private equity investment firm based in Houston,
Texas,' brings this action to recover damages for alleged tortious
conduct surrounding the solicitation, sale, and management of Small
Venture's

$10 million

Document No. 40

1

investment

in RT Newbridge, 111, LLC

5 (1st Am. Complt . )

.

("Newbridge"), a company that provides gap financing to producers
of independent films.2

Small Ventures asserts fraud, fraud by

nondisclosure, negligent and grossly negligent misrepresentation,
negligence and gross negligence, Texas Securities Act ("TSA") , and
breach of fiduciary duty claims against Defendants Rizvi Traverse
Management, LLC
(

("Rizvi Traverse"), MLRT

Film Holdings, LLC

"MLRTu) , Suhail Rizvi ( "Rizvi") , John Giampetroni ( "Giampetroni") ,

Diane Stidham ("Stidham"), and Danny Mandel ("Mandel") (together,
"Defendants"). 4
After William 0. Perkins, I11 ('Perkins") , Founder and Manager
of Small Ventures, had inquired about investing in the film
industry in the spring of 2008, Rizvi contacted Perkins on his
Houston-based cell phone number on September 6, 2008 to ask him to

See Document No. 42, ex. A 71 3-4 (Perkins Decl.).
RT
Newbridge, 111, LLC ("Newbridge") is "in the business of making
production loans to independent producers . . . to fund a portion
of the production costs to complete a picture." Document No. 40
7 16.

TEX.REV. CIV. STAT.ANN.

§

581-33 (West 2010).

Diane Stidham ("Stidham") and Danny Mandel ("Mandel") are
Managing Directors of Newbridge and are allegedly employed by Rizvi
d
Traverse and MLRT. I . ff 10-11. Newbridge is managed by MLRT
which, in turn, is 100% held and controlled by Rizvi Traverse.
Id.
- 7 7 . Suhail Rizvi is the co-founder and Chief Investment
Officer of Rizvi Traverse, and John Giampetroni is co-founder and
Chief Operating Officer of Rizvi Traverse and Managing Director of
MLRT. See id. 17 8-9; see a l s o Document No. 41, exs. C 7 1 (Giampetroni Decl . ) , D f 1 (Rizvi Decl . ) . Ben Kohn was dismissed from
this case without prejudice. See Document No. 24. Small Ventures
also dismissed its claims under the Racketeer Influenced and
Corrupt Organizations Act ("RICO1') 18 U.S.C. § 1962 (c), (d). See
,
Document No. 42 at vii.

consider making an indirect investment in films through Newbridge.'
Rizvi allegedly made several misrepresentations to Perkins "for the
purposes of

inducing Perkins and [Small Ventures] to agree to

invest in Newbridge," including representations that "the loans
Newbridge made for film production were not risky because they were
over-collateralized with foreign pre-sales or tax credits," and
that "the only risk was that the film would be delivered late and
that risk was insured by completion guaranty

bond^."^

Rizvi

allegedly failed to disclose that Tekken, a film accounting for
more than one-third of Newbridge's portfolio, received negative
reviews and was regarded as 'really bad" by its own p r ~ d u c e r . ~
Over the course of the following weeks, Perkins and Kayla
Bruzzese

( "Bruzzese")

, Small Ventures' s Chief Financial Officer,

talked to Rizvi Traverse representatives Giampetroni, Rizvi, and
Todd Knowles and Newbridge managers Stidham and Mandel about the
Newbridge portfolio.

Perkins met with Stidham and Mandel in

Newbridge's office in California while on a business trip in
September 2008,8 and Bruzzese met with Rizvi Traverse employees at
Rizvi Traverse's office in New York on October 23, 2008 .' At those

Document No. 40

7

17.

I.
d
Id.
Document No. 41, ex. E '(1 7 (Stidham Decl.).

'

Document No. 42, ex. B '(1 5 (Bruzzese Decl.).

meetings, the Small Ventures representatives each were given
spreadsheets representing that the loans in the Newbridge portfolio
were in good financial health.lo

The spreadsheet and an Investment

Presentation were also emailed to Bruzzese's and Perkins's Small
Ventures Texas-based company email accounts.''
Throughout October, 2008, there were repeated and regular
emails directed to Small Ventures's representatives in Houston and
phone

calls between

Based on

the parties.l2

the meetings,

conversations, investment materials, and correspondence with Rivzi,
Stidham, Mandel, and Giampetroni, Small Ventures ultimately decided
to invest $10 million in exchange for a membership interest in
Newbridge, in two payments: (1) $7 million on October 31, 2008 and
After Small Ventures made

(2) $3 million on December 31, 2008.l3

its initial capital investment on October 31, 2008, and continuing
until 2011, Stidham and Mandel initiated regular weekly or biweekly
conference calls with Small Ventures representatives Perkins and
Bruzzese to discuss Newbridge's investments.14 These were allegedly
organized by Rizvi Traverse employee Karen Blanchard, who sent

I . Document No. 41, ex. E 7
d;
l1 See Document No. 42, exs. B
A-2; A-3.

I . ex. B 7 2.
d,
l3

Document No. 40 1 41.

l4

I . ex. B 7 15.
d,

9.

11

3, 6; B-2; B-3; A

11

7, 10;

calendar invitations and call-in instructions to Bruzzese and
Perkins at their Houston-based Small Ventures email accounts.15
Small Ventures alleges that Defendants, by delivering through
email to Plaintiff in Texas, accounting spreadsheets and an
investment presentation, and through multiple phone conversations
to Small Ventures in Texas, reporting the health of the investment,
falsely represented to Small Ventures that

the majority

of

Newbridge's investments, including an independent film entitled
Tekken, 'were

sound and financially healthy."I6

The Tekken film

alone--with an $11 million loan from Newbridge--accounted for more
than one-third of Newbridge's total investment portfolio.17 Small
Ventures claims that Defendants repeatedly misrepresented the true
value of Newbridge's investments, knowing that the representations
were false, or made the representations recklessly as positive
assertions, without knowledge of their truth.

Small Ventures

alleges that Defendants concealed or failed to disclose material
facts, including that Tekken was not commercially viable although
Defendants knew that Tekken's producer had defaulted on the loan on
July 31, 2008, more than a month before Rizvi asked Small Ventures
to invest and fully three months before Small Ventures paid the

Id.
l6

I . 7 35.
d

first installment of its $10 million investment in Newbridge.''
Small Ventures further contends that before it made its investment
Defendants knew that Tekken was beset with serious problems, that
it had received poor reviews at the Cannes Film Festival, and that
it was woefully behind on its production schedule, but Defendants
concealed and failed to disclose these material facts to Small
Ventures. Instead, Defendants furnished to Plaintiff a spreadsheet
in which "Tekken was listed as financially sound and healthy with
a note ' in sales mode-no reason for concern at present time."'lg

In all of their conversations about the Newbridge portfolio-whether by phone, email, or letter--Defendants never disclosed to
Small Ventures the problems with the Tekken loan.
For example, during their phone

conferences, Defendants

Stidham, Mandel, Rizvi, and Giampetroni allegedly discussed the
status of the various investments in the Newbridge portfolio and
the prospects of specific films.20 But when asked about Tekken
during the October 29, 2008 conference call, Stidham stated only
that they "expected more in Cannes," and did not disclose that
Tekken was not meeting its schedule or that there was any cause for

I . 7 27-35.
d
Document No. 42, ex. 5
20

I . ex. B 7 1 12,
d,

15.

y

5.

concern, nor did any of the other Defendants on the phone reveal
the problems with Tekken.21
Small Ventures

additionally claims that Defendants were

negligent in managing the Tekken loan because they failed to comply
with the terms required for collection of the completion guaranty
bond and thereby lost the opportunity to recoup the investment, and
incurred liability for the bond company's costs and attorney's fees
for defending the arbitration.
22
alleges,

"Newbridge

failed

and

Ultimately, Small Ventures
[Small

Ventures]

lost

its

investment" because "Defendants failed to collect on the Tekken
loan."23
Small Ventures further contends that, after it had entered
into the Subscription Agreement:
Had [Small Ventures] known the truth about Newbridge,
Tekken and the Tekken Loan, it would have sold its
interest and mitigated its damages as soon as possible.
Defendants continued to make their misrepresentations and
omissions, the material portion of which are set out
above, and induced [Small Ventures] to retain its
ownership interest, and [Small Ventures] relied upon
Defendants1 continued Value Misrepresentations and
Material Omissions, to its detriment.
Defendants'
tortious conduct in Texas as described above, was the
cause of [Small Venturesls] loss and inability to
mitigate its damages.24

7

21

I . ex.
d,

22

Document No. 40

23

-1
Id.

3 4 .

24

-1
Id.

26.

B

9.

7

61-65.

Defendants move for dismissal pursuant to Federal Rules of
Civil Procedure 9 (b), 12 (b)(2) and, in part, 12 (b)(6), contending
,
that the First Amended Complaint "fails to state a claim for any
intentional

tort

and

this

Court

therefore

lacks

personal

jurisdiction over defendant^."'^
11.

A.

Motion to Dismiss Pursuant to Rule 12(b) (2)

Rule 12(b)(2) Leqal Standard

A federal court may exercise personal jurisdiction over a
nonresident defendant if:

(1) the long-arm statute of the forum

state confers personal jurisdiction over that defendant; and
(2) the exercise of such jurisdiction comports with due process
under the United States Constitution.

See Electrosource, Inc. v.

Horizon Battery Techs., Ltd., 176 F.3d 867, 871 (5th Cir. 1999) .
Because the Texas long-arm statute has been interpreted to extend
as far as due process permits, the sole inquiry is whether the
exercise of personal jurisdiction over a nonresident defendant
comports with federal constitutional due process requirements.

I.
d

This due process inquiry focuses upon whether the nonresident
defendant has "certain minimum contacts with [the forum] such that
the maintenance of the suit does not offend 'traditional notions of

25 Document No. 41 at 1.
In its Order dated March 22, 2012,
Document No. 38, the Court granted Small Ventures's request to
replead its fraud claims with the particularity required by Rule
9(b), which Small Ventures has done.

fair play and substantial justice.

Int11 Shoe Co. v. Washinston,

66 S. Ct. 154, 158 (1945). Two types of personal jurisdiction are

recognized: (1) specific and (2) general.

Specific jurisdiction

exists when the cause of action relates to or arises out of the
defendant's contacts with the forum.

See

Helico~terosNacionales

de Colombia, S.A. v. Hall, 104 S. Ct. 1868, 1872 n.8 (1984).
Alternatively, general

jurisdiction may

be

exercised over a

defendant who has systematic and continuous contacts with the
forum.

See

id. at 1872-73.

"For the purposes of personal

jurisdiction, the actions of one defendant cannot be attributed to
another; instead, plaintiff must satisfy its prima facie showing
with regard to each defendant."

ADO Finance, AG v. McDonnell

Douqlas Corp., 931 F. Supp. 711, 714 (C.D.Cal. 1996) (citing Rush
v. Savchuk, 100 S. Ct. 571, 579 (1980)).
When an evidentiary hearing on the question of personal
jurisdiction is not conducted, the party seeking to establish
jurisdiction bears the burden of presenting a prima facie case of
personal jurisdiction. See Alpine View Co. Ltd. v. Atlas Copco AB,
205 F.3d 208, 215 (5th Cir. 2000); Wien Air Alaska, Inc. v. Brandt,
195 F.3d 208, 211 (5th Cir. 1999) .
evidence is not required.

Proof by a preponderance of the

Kelly v. Syria Shell Petro. Dev. B.V.,

213 F.3d 841, 854 (5th Cir. 2000) . A plaintiff may present a prima
facie case by producing admissible evidence which, if believed,
would suffice to establish the existence of personal jurisdiction.

See WNS, Inc. v. Farrow, 884 F.2d 200, 203-04 (5th Cir. 1989).

Uncontroverted allegations in the plaintiff's complaint must be
taken as true, and conflicts between the facts contained in the
parties' affidavits and other documentation must be construed in
the plaintiff's favor.

B.

See Alpine View, 205 F.3d at 215.

Discussion
1.

Minimum Contacts and Due Process

Small Ventures
specific personal

contends that Defendants are

jurisdiction because

subject to

each Defendant

either

directed misrepresentations, or failed to correct representations
previously made when they knew they were false, to Small Ventures
in Te~as.'~
Defendants submit affidavits in which they claim that
they do not have any offices in Texas, do not do business in Texas,
and did not \\step foot in Texas" in connection with the Small
Ventures investment deal.27

However, ' [i]t is well settled that

specific jurisdiction may arise without the nonresident defendant's
ever stepping foot upon the forum state's

soil or may arise

incident to the commission of a single act directed at the forum."

'' Document Nos.

40
13-14; 42 at 6-10. Small Ventures does
not contend that any of the Defendants is subject to general
jurisdiction in Texas.
27 See Document No. 41, exs. C yq 2, 4 (Giampetroni Decl.) ; D
2, 8-9 (Rizvi Decl.); E
2 (Stidham Decl.); F T[ 6 (Mandel
Decl . ) .

Bullion v. GillesDie, 895 F.2d 213, 216 (5th Cir. 1990) (citing
v.
'e
Burser Kinq C o r ~ . Rudzewicz, 105 S. Ct. 2174, 2184 (1985) (w
have consistently rejected the notion that an absence of physical
contacts can defeat personal jurisdiction

Air, 195 F.3d at 213

( I t \

. .

.")) ;

see a l s o Wien

[Ilt is an inescapable fact of modern

commercial life that a substantial amount of business is transacted
solely by mail and wire communications across state lines, thus
obviating the need for physical presence within a State in which
business is conducted." (quoting Diamond Mortsase C o r ~ . Susar,
v.
913 F.2d 1233, 1247 (7th Cir. 1990))). Moreover, "[a] single act
by a defendant can be enough to confer personal jurisdiction if
that act gives rise to the claim being asserted." Lewis v. Fresne,
252 F.3d 352, 358-59 (5th Cir. 2001) (citing Brown v. Flowers
Indus., 688 F.2d 328, 332-33 (5th Cir. 1982))

.

For example, in

Brown, the Fifth Circuit held that a single phone call initiated by
the out-of-state defendant, and which was alleged to constitute a
tort, was sufficient to confer personal jurisdiction. 688 F.2d at
331-33; see a l s o Wien Air, 195 F.3d at 213 ("When the actual
content of communications with a forum gives rise to intentional
tort

causes

availment . " )

of

action,

this

alone

constitutes

purposeful

.

Here, Small Ventures alleges that each Defendant initiated
contacts with it in Texas through email, phone calls, and/or
letters.

It is uncontroverted that employees of Rizvi Traverse,

including Giampetroni, Stidham, and Mandel, emailed Bruzzese and
Perkins at their Houston-based email accounts, attaching investment
information and representations upon which Small Ventures was
expected to rely in deciding whether to invest in Newbridge.
Further, Stidham admits that Small Ventures "participated in semiregular conference calls with certain Defendants to receive an
update on its in~estment."~' Small Ventures alleges that its
representatives Bruzzese and Perkins participated in numerous,
regular conference calls attended by each Defendant, in which
Defendants discussed the investment portfolio and the Tekken loan
specifically while concealing material facts such as the film was
not meeting deadlines and that its producer was in default on the
loan.
and

Defendants allegedly initiated and invited Small Ventures

its

representatives to

participate

in

these

telephonic

conferences in which Stidham, Mandel, Rizvi, and Giampetroni,
knowing that Small Ventures is a Texas company and that its
representatives would likely be in Texas when participating in the
calls, made the false representations and concealed material
factsq2' Moreover, Plaintiff alleges that each Defendant delivered
by email to Small Ventures in Houston the schedules for the phone

Document No. 41, ex. E

7

11.

Indeed, Bruzzese testified that both she and Perkins were
in Houston during the key October 29, 2008 call, and that they were
in Houston on other calls as well. See Document No. 42, exs . A 7 9
and B 77 9, 12-13.
29

conference^.^^

Plaintiff further alleges that Defendants called

Small Ventures's executives on phone numbers beginning with the
Houston "713" area code, and knew that Bruzzese and Perkins both
resided in Houston and worked for Small Ventures in H o ~ s t o n .As~
~
Small Ventures points out, Defendants repeatedly dialed the phone
numbers of Plaintiff's representatives and directed emails to
the email accounts of the Houston company.

Defendants in these

communications made their false representations and concealed from
Plaintiff material facts.

See e.g., Phoenix Mininq

&

Mineral LLC

v. Treasury Oil Corp., No. 5:06-cv-58,2007 WL 951866, at *5 (S.D.
Tex. Mar. 28, 2007) (Alvarez, J.) (finding that emails sent to
plaintiff's
fraudulent

representatives
statements were

in

Texas

sufficient

containing
to

allegedly

establish

personal

jurisdiction).
Defendants argue that they should not be haled into court for
failing to disclose material information about the investment
portfolio,

but

"the

fact

that

the

[defendant]

continually

communicated with the forum while steadfastly failing to disclose
material information shows the purposeful direction of material

30 Small Ventures produces evidence that Rizvi knew that Small
Ventures's offices are located in Texas and that Perkins resides in
Texas. See Document No. 42, ex. A 7 2 (Perkins Decl . ) . Defendants
do not deny knowledge that Small Ventures's office is located in
Texas or that Perkins and Bruzzese are both resident citizens of
Texas.

31

Document No. 42 at 13.

omissions to the forum state." Wien Air, 195 F.3d at 213; see also
Lewis, 252 F.3d at 359 (defendant's failure to correct another's
allegedly false statements in phone call with plaintiff conferred
personal jurisdiction where plaintiff claimed that defendants
intentionally defrauded him based upon the contents of that phone
call) .
2.

Fair Play and Substantial Justice

Given Defendants' alleged tortious actions directed toward the
state of Texas, which are sufficient to establish jurisdiction over
them, the remaining question is whether requiring Defendants to
litigate in Texas would of fend traditional notions of fair play and
substantial justice. In considering the fairness issue, the Court
examines: "(1) the defendant's burden;

(2) the forum state's

interests; (3) the plaintiff's interest in convenient and effective
relief; (4) the judicial system's interest in efficient resolution
of controversies; and (5) the shared interest of the several states
in furthering fundamental substantive social policies."

Guidrv

v. U.S. Tobacco Co., Inc., 188 F.3d 619, 630 (5th Cir. 1999)
(citations omitted). "To show that an exercise of jurisdiction is
unreasonable once minimum contacts are established, the defendant
must make a 'compelling case' against it." Wien Air, 195 F.3d at
215 (quoting Burser Kinq, 105 S. Ct. at 2185)

.

Defendants have not

done so.32 A Defendant's burden in answering this suit in Texas is
no greater than Plaintiff's countervailing burden would be in
prosecuting the case in a foreign state.
strong

interest

in

protecting

its

violations of its securities laws.
&

Moreover, Texas has a

citizens

from

fraud

and

See, e . g . , GRM v. Eauine Inv.

Msmt. Grp., 596 F. Supp. 307, 318-19 (S.D. Tex. 1984) (finding

that Texas's extensive state regulation manifested its strong
interest in protecting victims of securities fraud); Walk Havdel

&

Assocs., Inc. v. Coastal Power Prod. Co., 517 F.3d 235, 245 (5th
Cir. 2008) ("We have held that in a case like this, where a cause
of action for fraud committed against a resident of the forum is
directly related to the tortious activities giving rise to personal
jurisdiction, the exercise of that jurisdiction will be considered
fair." (citing Wien Air, 195 F.3d at 215) )

.

Defendants have not

demonstrated that this Court's exercise of jurisdiction raises any
fairness issues of Constitutional proportions.
111.

A.

Motion to Dismiss Pursuant to Rule 12(b) ( 6 )

Leqal Standard
Rule 12(b) (6) provides for dismissal of an action for "failure

to state a claim upon which relief can be granted." FED. R. CIV. P.

32
Defendants allege in their Motion to Dismiss that a
mandatory arbitration clause governs this dispute and provides that
it must be arbitrated in Oakland County, Michigan.
Document
No. 41-1 at 24. That question presently is not before the Court.

12 (b)(6).

When a district court reviews the sufficiency of a

complaint before it receives any evidence either by affidavit or
admission, its task is inevitably a limited one.

See Scheuer v.

Rhodes, 94 S. Ct. 1683, 1686 (1974). The issue is not whether the
plaintiff ultimately will prevail, but whether the plaintiff is
entitled to offer evidence to support the claims.

I.
d

In considering a motion to dismiss under Rule 12 (b)( 6 ) , the
district court must construe the allegations in the complaint
favorably to the pleader and must accept as true all well-pleaded
facts in the complaint.
117 F.3d 242, 247

See Lowrev v. Tex. A&M

(5th Cir. 1997).

Univ. Sys . ,

To survive dismissal, a

complaint must plead "enough facts to state a claim to relief that
is plausible on its face." Bell Atl. C o r ~ . Twombly, 127 S. Ct.
v.
1955, 1974 (2007).

"A claim has facial plausibility when the

plaintiff pleads factual content that allows the court to draw the
reasonable

inference

misconduct alleged."
(2009).

that

the

. . .

is

liable

for

the

Ashcroft v. Iabal, 129 S. Ct. 1937, 1949

While a complaint

allegations

defendant

"does not need detailed factual

[the] allegations must be enough to raise a right

to relief above the speculative level, on the assumption that all
the allegations in the complaint are true (even if doubtful in
fact) . "

Twombly, 127 S. Ct. at 1964-65 (citations and internal

footnote omitted) .

B.

Discussion
1.

Fraud Claims

To state a claim for fraud under Delaware law, a plaintiff
must plead facts to show:

I
'

(1) the defendant falsely represented or

omitted facts that the defendant had a duty to disclose; (2) the
defendant knew or believed that the representation was false or
made the representation with a reckless indifference to the truth;
(3) the defendant intended to induce the plaintiff to act or
refrain from acting;

(4) the

plaintiff acted in justifiable

reliance on the representation; and (5) the plaintiff was injured
by its reliance.,
I

DCV Holdinqs, Inc. v. ConAqra, Inc., 889 A.2d

954, 958 (Del. 2005); Abrv Partners V, L.P. v. F

&

W Acauisition

LLC,
- 891 A.2d 1032, 1050 (Del. Ch. 2006) . 3 3
Defendants argue that Small Ventures fails to state a claim
for fraud because

(1) there are "no reliance" and "no other

representations" clauses in the Subscription Agreement; (2) the
relevant agreements disclosed the specific risks on which Small
Ventures's fraud claims depend; and (3) any representations that

3 3 Delaware law governs Small Ventures's fraudulent inducement
claim because the Subscription Agreement contains a Delaware
choice-of-law clause. See Lockheed Martin C o r ~ .v. Gordon, 16
S.W.3d 127, 133 (Tex. App.--Houston [l Dist.1 2000, pet. denied)
("Provided the law of the chosen state bears some reasonable
relationship to the parties and the transaction, Texas will apply
the law specified in the contract." (citing DeSantis v. Wackenhut
Corp., 793 S.W.2d 670, 678-79 (Tex. 1990)).

are forward-looking statements, puffery, or statements of opinion
cannot support a claim for fraud.
Defendants cite Abrv Partners for the proposition that a "no
reliance" clause in a contract negates the element of reliance in
Small Ventures's fraud claims.

891 A.2d at 1056.

The Delaware

Chancery Court in Abrv Partners qualified its general rule that a
"no reliance" clause negates a subsequent fraud claim:
At the same time, a concern for commercial efficiency
does not lead ineluctably to the conclusion that there
ought to be no public policy limitations on the
contractual exculpation of misrepresented facts. Even
commentators who recognize that there are aspects of
bargaining in which it is often expected that parties
will lie--such as when agents refuse to disclose or
misrepresent their principals' reservation price--there
is little support for the notion that it is efficient to
exculpate parties when they lie about the material facts
on which a contract is premised.
891 A.2d at 1062 (internal citations and footnotes omitted).

In

fact, Abry Partners held that the "no reliance" clause in that case
was unenforceable as against public policy to the extent that
it

restricted

the

plaintiff's

claims

based

on

intentional

misrepresentations made by the seller i n the agreement i t s e l f .

I.
d

Like the plaintiff in Abry Partners, Small Ventures alleges
that the subscription agreement and other offering documents
themselves contained the fraudulent information, and that the
Defendants knewit contained fraudulent information at the time it

was signed and made the misrepresentations intentionally. A number
of specific instances are pled.
that

Moreover, Small Ventures alleges

the misrepresentations and omissions of

material

facts

continued well after it signed the Subscription Agreement, and that
it relied to its detriment on Defendants1 assurances that all was
well with the investment, which prevented Small Ventures from
mitigating its damages.

Given the specific allegations pled in

Plaintiff's First Amended Complaint, which are not copied here at
length, at this stage in the proceedings the Court is unable to
hold as a matter of law that the "no reliance" and "no other
misrepresentations"

clauses negate as a matter of

law Small

Ventures's fraud claims.
Further, even though some alleged misrepresentations may
rightly be considered 'opinions, " "puffing, or 'f orward-looking
"
statements," Small Ventures also alleges that Defendants sent to
it, on multiple occasions, spreadsheets representing Tekken being
carried at full value when, allegedly, Tekken should have been
discounted or otherwise written down. Considering this allegation
in the light most favorable to Small Ventures, Small Ventures
alleges that Defendants falsely made material representations of
the present value of the most significant investment in their
portfolio and concealed material facts regarding the same, which,
if true, would be actionable misrepresentations.

In sum, Small Ventures alleges that each Defendant made
several material representations that they knew were false when
made, and/or intentionally concealed and
material

failed

to disclose

facts, that Defendants failed to correct the false

statements and omissions when given opportunities to do so, that
Small Ventures relied on the misrepresentations and material
omissions, and that it suffered economic injury as a result.
Defendants are not entitled to dismissal of the fraud claim at this
pleading stage.
2.

Texas Securities Act

Accepting the facts pled as true for the purposes of this
motion, Small Ventures has also stated a claim under the Texas
Securities Act.

See TEX. REV. CIV. STAT.ANN. 5 581-33(A)(2) (West

2010) . Moreover, as discussed previously, the "no reliance" clause
does not operate automatically to negate all of Small Ventures's
fraud claims. Defendants' motion to dismiss Small Ventures's Texas
Securities Act claim will be denied.
Breach of Fiduciary Duty
To state a valid claim for breach of fiduciary duty, a
plaintiff must state facts to show: "(1) a fiduciary relationship
existed between the plaintiff and defendant; ( 2 ) the defendant
breached

its

fiduciary duty

to

the plaintiff; and

(3) the

defendant's breach resulted in injury to the plaintiff or benefit
to the defendant." Anderton v. Cawlev, - - - S.W.3d - - - - , 2012 WL
1606665, at *9 (Tex. App.--DallasMay 8, 2012, no pet. h.) (citing
Jones v. Blume, 196 S.W.3d 440, 447 (Tex. App.--Dallas 2006, pet.
denied))

.

Defendants correctly state that none of them owes a fiduciary
duty to Small Ventures. Small Ventures argues that the individual
Defendants owe it fiduciary duties because the relationships
between the individual Defendants and Small Ventures involved a
"high degree of trust, influence, and ~onfidence."~~
[A] fiduciary or confidential relationship may arise from
circumstances of the particular case, but it must exist prior to,
and apart from, the agreement made the basis of the suit."
Trans~ortIns. Co. v. Faircloth, 898 S.W.2d 269, 280 (Tex. 1995);
accord Forsythe v. ESC Fund Msmt. Co.

(U.S.), Inc., 2007 WL

2982247, at *10 (Del. Ch. Oct. 9, 2007) ("[A] straightforward,
arm's-length commercial relationship arising from contract does not
give rise to fiduciary duties." (citing Wal-Mart Stores, Inc. v.
AIG Life Ins. Co., 901 A.2d 106, 114 (Del. 2006) ( [ ] t is vitally
'I
important that the exacting standards of fiduciary duties not be
extended to quotidian commercial relationships."))). Because Small
Ventures does not plead facts to show that the parties had any
relationship of trust and confidence between them before the

34

Document No. 40

7

151.

transaction made the basis of this lawsuit, its breach of fiduciary
duty claim will be dismissed.
IV. Order
Based on the foregoing, it is
ORDERED that Defendants Rizvi Traverse Management, LLCts,MLRT
Holdings,

LLCts t Suhail

Rizvi s t John

Giampetroni I s t Diane

Stidhamt and Danny Mandelts ("Defendants") Motion to Dismiss for
s,
Lack of Personal Jurisdiction (Document No. 41) pursuant to Rule
12 (b)(2) is DENIED, and Defendants1 Motion to Dismiss pursuant to
Rule 12(b)(6) is GRANTED in part as to Small Ventures's breach of
fiduciary duty claim, which is DISMISSED, and the Motion to Dismiss
is otherwise DENIED.
The clerk shall notify all parties and provide them with a

UNITE~ATES
DISTRICT JUDGE