B. "Assumed Agency" Claim
Plaintiffs next assert a cause of action for "assumed agency," alleging
that defendants' knowledge of the Pledged Shares gave rise to an implied
contract to "sell [the Pledged Shares] only in accordance with the
interests" of plaintiffs and Keystone, and that, as a result of this
"implied contract," defendants "assumed the duty to act as [p]laintiffs'
agent for purposes of matters relating to the protection and security of
the Pledged Shares." (Am. Compl. ¶¶ 58-60). Plaintiffs further allege
that following the assumption of this duty, defendants were obligated to
"disclose [to plaintiffs] all material information . . . concerning the
security of the Pledged Shares," and that defendants breached this
obligation by, inter alia, failing to tell Thermal the shares had been
sold. This claim is also dismissed. (Id. ¶¶ 60-62).
Plaintiffs cite no authority for their novel "assumed agency" claim.
This is not surprising, for "agency" is not itself a cause of action, but
a means of imputing liability. To establish the existence of an agency
relationship, a party must demonstrate (1) a manifestation by the
principal that the agent shall act for him; (2) acceptance by the agent of
the undertaking; and (3) an understanding between the parties that the
principal will control the undertaking. See Maung Ng We v. Merrill Lynch &
Co., No. 99 Civ. 9687 (CSH), 2000 U.S. Dist. LEXIS 11660, at *11-12
(S.D.N Y Aug. 14, 2000) (citation omitted). In this case, there was
neither a manifestation by the "principal" Thermal nor an acceptance of
the undertaking by the "agent" Sandgrain. Thermal never informed
Sandgrain or its representatives of the putative "agency" relationship,
nor did Sandgrain ever indicate its assent. Because no reasonable jury
could find that defendants "assumed" the role of agent, this claim must
C. Fraud Claim
Plaintiffs' next cause of action, alleging fraud, is based upon
defendants' purported failure to disclose material facts relating
to the wrongful sales of the Pledged Shares. For the reasons that
follow, this claim must also be dismissed.
Although presented as a claim for fraud, plaintiffs' fourth cause of
action is more properly considered a claim for fraudulent concealment. A
plaintiff asserting a claim for fraudulent concealment under New York law
must establish: (1) the defendant's failure to disclose material
information that he had a duty to disclose; (2) the defendant's intention
to defraud plaintiff thereby; (3) plaintiff's reasonable reliance upon
the representation; and (4) plaintiff's damages resulting from such
reliance. See Bermuda Container Line Ltd. v. International Longshoremen's
Ass'n, 192 F.3d 250, 258 (2d Cir. 1999) (internal citations and quotation
marks omitted); see also All Am. Adjusters v. Acceleration Nat'l Ins.
Co., No. 96 Civ. 9344 (MBM), 1997 U.S. Dist. LEXIS 18685, at *22
(S.D.N.Y. Nov. 24, 1997). With respect to the first element, a party's
duty to speak may arise between parties to a business transaction in
where the party has made a partial or ambiguous
statement[;] . . . when the parties stand in a
fiduciary or confidential relationship with each
other; and . . . where one party possesses superior
knowledge, not readily available to the other, and
knows that the other is acting on the basis of
Brass v. American Film Techs., Inc., 987 F.2d 142, 150 (2d Cir. 1993)
(internal citations and quotation marks omitted).
In this case, defendants did not have any duty to disclose information
about the Pledged Shares to Thermal or Holt. As indicated above, the
parties did not share a direct business relationship, much less a
fiduciary relationship. Nor is there any indication that defendants made
a partial or ambiguous statement to plaintiffs. More importantly, the
parties were not engaged in or negotiating for any business transaction.
Plaintiffs' reliance on Sandgrain's "superior knowledge" is thus
misplaced: such a scenario only gives rise to a duty to speak among
parties engaged in some type of transaction. See, e.g., id. Because the
parties in this case were not engaged in any business transaction,
defendants had no duty to disclose information about the Keystone Account
to plaintiffs. Indeed, Sandgrain and its brokers had a duty not to
disclose this information to unauthorized persons such as plaintiffs.
(Chinchar Aff. ¶¶ 18-19).
The cause of action also fails because plaintiffs did not rely on the
purported fraudulent concealment. The crux of plaintiffs' fraud claim is
that, based on defendants' failure to speak, plaintiffs took no action
with respect to the Pledged Shares and suffered damages as a result. This
contention, however, is belied by the testimony of Jim Forbes. At his
deposition, Forbes stated that his conversation with Marchant on
September 8, 1995 "led him to believe that [sales of the Pledged Shares]
were, in fact, taking place." (Forbes Dep. at 165). Forbes further stated
that the conversation enhanced his suspicions and that, after speaking
with Marchant, he felt "confident that [he] had to do something." (Id. at
166). When questioned as to why he waited three weeks to take further
action, Forbes attributed the delay to his reluctance to "make slanderous
allegations." (Declaration of James Forbes ¶ 5).
Based upon this testimony, it is clear that plaintiffs did not rely on
Marchant's alleged omissions. Marchant's failure to confirm Forbes's
accusation did not lull Forbes into inaction; it actually confirmed his
suspicions. The decision of Forbes (and Thermal) to wait did not result
from any act or omission of defendants, but a general reluctance to take
immediate action. While perhaps understandable, this decision cannot be
attributed to defendants' purported fraudulent concealment. The fraud
claim must therefore be dismissed.
D. Breach of Implied Contract Claim
As their final cause of action, plaintiffs assert a claim for breach of
implied or quasi-contract. Plaintiffs allege that defendants' knowledge
of the Pledged Shares "gave rise to an implied, constructive or
quasi-contract to sell and/or transfer [the] Pledged Shares only in
accordance with . . . Plaintiff[s'] Security and Pledge Agreement with
[Keystone]." (Am. Compl. ¶ 83). This claim, too, is dismissed.
Under New York law, a plaintiff seeking to recover under a theory of
quasi-contract "must demonstrate that services were performed for the
defendant resulting in [the defendant's] unjust enrichment." Kagan v.
K-Tel Entertainment, Inc., 172 A.D.2d 375, 376 (1st Dep't 1991).
Significantly, "[i]t is not enough that the defendant received a benefit
from the activities of the plaintiff; if the services were performed at
the behest of someone other than the defendant, the plaintiff must look
to that person for recovery." Id. (internal citation omitted).
The circumstances in this case do not give rise to a claim for
quasi-contract. Thermal did not perform services for the benefit of
Sandgrain; its transfer of the Pledged Shares into the Keystone Account
took place pursuant to the Security and Loan Agreement with Keystone. If
Thermal did perform any services here, it did goat the behest of
Keystone, and it may not look to Sandgrain for recovery. Accordingly, the
final cause of action must be dismissed as well.
For the foregoing reasons, defendants' motion for summary judgment is
granted, and the amended complaint is dismissed with prejudice and
without costs. The Clerk of the Court is directed to enter judgment
accordingly and to close this case.