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Hughes v. BCI International Holdings

September 14, 2006

PATRICIA G. HUGHES, ET AL., PLAINTIFFS,
v.
BCI INTERNATIONAL HOLDINGS, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Hon. Harold Baer, Jr., District Judge.

OPINION & ORDER

Plaintiff Patricia Hughes ("Hughes"), on behalf of herself and her three minor children, brought this action for, inter alia, fraud in connection with her investment in a privately held start-up company. Defendants are, primarily, the founders, officers, and directors of that venture. All defendants have moved to dismiss plaintiffs' first amended complaint.*fn1 Oral argument on defendants' motions was held on August 21, 2006. For the reasons that follow, defendants' motion are GRANTED in part and DENIED in part.

FACTUAL BACKGROUND

The facts set forth below are taken from plaintiffs' first amended complaint. In 2002 and 2003, defendants Michael Cunningham ("Cunningham"), Marc Bruner ("Bruner") and David Saltman ("Saltman") negotiated the formation of a business venture that would "develop, produce[] and sell natural fiber composites." (Comp.*fn2 ¶¶ 30, 33-34). Cunningham is the chairman and sole officer of The Coach House Group (UK) Ltd. ("CHG"). The Sustainable Projects Development Group, Ltd. ("Sustainable Projects") is a wholly owned subsidiary of CHG. Sustainable Projects, in turn, owned SPDG Fibre International ("SPDG Fibre").

Bruner, "a wealthy individual in the oil and gas industry," (comp. ¶15), is the sole officer of Resource Venture Management AG ("RVM"). Plaintiffs allege that RVM was retained as placement agent to raise money for the new venture. Bruner is also affiliated with Equistar Capital, LLP ("Equistar"), a merchant banking firm. Defendants Carmen Lotito ("Lotito") and Kelly Nelson ("Nelson") are, respectively, a partner and "managing member" of Equistar. Saltman is president and CEO of Bio-Composites International, Inc. ("Bio-Comp").

On November 24, 2003, defendants incorporated BCI International Holdings, Inc. ("BCI") in Delaware. (Comp. ¶ 37). Saltman became president and CEO of BCI, as well as a director. Saltman also received 23.35% of BCI's stock. (Comp. ¶ 43). In addition, Sustainable Projects received 50.04% of BCI's stock, Equistar received 13.34%, and RVM received 6.63%. (Comp. ¶¶ 42, 44-45). Defendant Garry Lavold ("Lavold") received 6.63% of BCI's stock, and became its chief operating officer. (Comp. ¶¶ 41, 46).*fn3 Nelson was named CFO of BCI, and both Nelson and Lotito became directors. (Comp. ¶¶ 18-19). Defendant D. Roger Glenn ("Glenn"), an attorney and partner at Edwards, Angell, Palmer & Dodge, LLP ("EAPD"), was named corporate secretary, chief legal counsel, and a director of BCI. (Comp. ¶¶ 21, 41). Plaintiffs also allege that, on January 15, 2004, Cunningham was named chairman of BCI's board.*fn4 (Comp. ¶ 12, 77-78).

On November 24, 2003, BCI's board of directors approved a Private Placement Memo ("PPM") intended to raise investment dollars for BCI. (Comp. ¶ 50). The PPM was approved by unanimous written consent of the board, and that resolution was signed by Saltman. (Id.) Plaintiffs allege that the PPM was prepared by Glenn and EAPD, "with the knowledge, consent, authority and/or assistance" of each of the defendants. (Comp. ¶ 51). Plaintiffs also allege that the PPM contained various material misrepresentations. Plaintiffs contend that the PPM: 1) misrepresented the ownership status and value of BCI's assets; 2) failed to disclose BCI's dire financial condition; 3) misrepresented the qualifications and expertise of BCI's management team; 4) failed to disclose the "excessiveness of . . . fees, expenses, and other deductions" to be paid from invested funds; and 5) failed to disclose "other intended uses of investor funds" that would not benefit BCI. (Comp. ¶¶ 58-59).

More specifically, plaintiffs allege, inter alia, that the PPM: 1) misrepresented that BCI had acquired SPDG Fibre from Sustainable Projects; 2) misrepresented that BCI, through SPDG Fibre, either owned or intended to acquire interests in valuable assets in Spain and South Africa; 3) misrepresented Bio-Comp's "managerial [and] technical capability" to develop bio-composite projects; 4) failed to disclose that BCI "never intended to use[] investor proceeds for BCI corporate purposes . . . [r]ather, the funds were immediately distributed to . . . CHG, SPDG [Fibre] and Equistar to pay monthly overhead and administrative expenses. . ."; 5) falsely represented that certain individuals with relevant expertise had associated themselves with BCI; and 6) failed to disclose that BCI's acquisition of assets held by CHG, Sustainable Projects and SPDG Fibre was contingent on both BCI's fulfillment of financing obligations to CHG and Equistar's fulfillment of financing obligations to BCI. (Comp. ¶¶ 60-65).

On December 30, 2003, after the PPM was approved but before it was provided to the plaintiffs, Cunningham sent an email to Saltman, Lotito and Nelson in which he stated that CHG was experiencing a severe cash shortfall in connection with SPDG Fibre's Spanish venture. (Comp. ¶¶54-56). Cunningham advised that "this has been kept from the attention of the Authorities and our partner Bank." (Comp. ¶ 54). Cunningham further stated that, "[i]f we are obliged to sell the land to meet commitments . . . [then] the Spanish project will no longer be viable in its present form." (Id.) Cunningham concluded that "BCI has until the end of January to prove to my satisfaction that it can meet its commitments. After that I will . . . follow an alternative strategy. This will entail SPDG*fn5 proceeding alone or with other partners . . . . [T]he BCI project in its present format will no longer exist." (Comp. ¶ 56).

On January 16, 2004, Saltman formally engaged RVM to act as placement agent for BCI. (Comp. ¶ 79). In return, RVM was to receive 2 shares of BCI stock for each dollar raised up to $10 million, and 1.4 shares per dollar raised thereafter. (Id.)*fn6

Plaintiffs allege that Bruner suggested to the other defendants that they approach Hughes to solicit an investment in BCI. (Comp. ¶ 81). According to plaintiffs, there already existed a "lengthy history of failed and/or troubled investments" involving Bruner, Hughes, and Hughes' husband, Brian Hughes. (Comp. ¶ 82). On January 17, 2004 Cunningham met with Hughes in Denver to solicit her investment in BCI. (Comp. ¶ 86). At the meeting, Cunningham provided Hughes with a copy of the PPM and told Hughes that he expected BCI to be "in revenue" by April 2004. (Comp. ¶ 87). In addition, in response to a direct question from Hughes, Cunningham stated that Bruner was not involved in the BCI project. (Comp. ¶ 87, 90).*fn7

Shortly after this meeting, Hughes agreed to invest $2 million in BCI. On January 20, 2004, Hughes executed the first in a series of "Bridge Loan Agreements" by which she received promissory notes payable to her from BCI as well as warrants to purchase BCI stock. (Comp. ¶¶ 95-97). Each Bridge Loan Agreement contained a provision stating that BCI had retained "no finder or broker in connection with the transaction" except Spencer Clarke LLC. (Comp. ¶ 110). However, on January 26, 2004, Saltman sent a letter to RVM on behalf of BCI acknowledging that RVM had been responsible for soliciting Hughes' investment and confirming that BCI's agreement with RVM remained in effect. (Comp. ¶ 112, Ex. I). On that same day, plaintiffs wired their first $1 million installment to defendants. Plaintiffs wired $200,000 directly to Sustainable Projects, and $800,000 to an EAPD trust account. (Comp. ¶¶ 113). The next day, $700,000 from the trust account was transferred to "CHG, Sustainable Projects and/or SPDG [Fibre,]" and $100,000 was transferred to "Bio-Comp and/or Saltman[.]" (Comp. ¶ 114). According to plaintiffs, none of the money was transferred to BCI.

On February 24, 2006, Hughes and BCI executed another series of notes, and Hughes wired another $1 million to the EAPD trust account. (Comp. ¶¶ 116-128). On February 26, 2004, EAPD distributed $800,000 to "CHG, Sustainable Projects and/or SPDG." (Comp. ¶ 129). Plaintiffs allege that the remaining $200,000 "or a substantial portion thereof" was retained by EAPD as payment for legal and other services. (Id.) Plaintiffs also allege that at least $50,000 from plaintiffs' investment was transferred by "one or more" of the other defendants to Equistar. (Id.) Once again, plaintiffs contend that none of their money went to BCI. On February 26, 2004, Cunningham sent an email to Saltman, Lotito and Nelson complaining that $200,000 had been "taken out" of Hughes' second million dollar payment. (Comp. ¶ 131). Cunningham calculated that, of the first $2.4 million raised for the BCI venture, "24% . . . . ha[d] gone to overhead in the U.S." (Id.) Cunningham stated that he considered this amount "excessive." (Id.)

BCI defaulted on its obligations under the notes. On January 17, 2005, after plaintiff demanded payment, Saltman and Nelson wrote to Hughes on behalf of BCI and reassured her that SPDG Fibre and its assets had been properly conveyed to BCI. (Comp. ¶¶ 164-165). Cunningham, Lavold and Glenn were copied on that letter. (Comp. ¶ 167). On January 24, 2005, a CHG agent, Philip Cook ("Cook"),*fn8 wrote to Hughes and outlined a proposal to recoup plaintiffs' investment that, he claimed, had been agreed to by Cunningham, Saltman and Nelson. The proposal contained the following provisions: a CHG subsidiary would "subsume" plaintiffs' investment; title to SPDG Fibre's ventures in Spain and South Africa would "revert" to that CHG subsidiary; CHG would receive a 15% equity interest in a new North American venture to be developed by the BCI participants; and plaintiffs would receive a stake in a new CHG entity in proportion to their original investment. (Comp. ¶ 170). Cook also confirmed that $1.65 million of plaintiffs' funds had been utilized in connection with SPDG Fibre's Spanish and South African ventures. (Id.) Plaintiffs contend that, in reliance on these representations (which continued through July 2005), they refrained from filing suit.

On June 6, 2005, Glenn sent an email to Cunningham claiming that BCI held title to SPDG Fibre's Spanish venture, and threatening to commence an action to quiet title unless Cunningham assumed BCI's obligation to plaintiffs. (Comp. ¶ 175). On August 1, 2005, Cunningham wrote plaintiffs to solicit another $1 million to pay creditors in South Africa in connection with SPDG Fibre's venture there. (Comp. ¶ 176). On September 14, 2005, a new CHG entity, SPDG Technologies, acquired Sustainable Projects, SPDG Fibre and the Spanish and South African ventures. (Comp. ¶ 184). That entity is currently listed on a British stock exchange. To date, plaintiffs have not received any of the principal or interest due on the promissory notes, nor have they acquired an interest in any "substitute" venture.

DISCUSSION

When ruling on a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, the Court must construe all factual allegations in the complaint in favor of the non-moving party. See Krimstock v. Kelly, 306 F.3d 40, 47 - 48 (2d Cir. 2002). The Court's consideration is normally limited to facts alleged in the complaint, documents appended to the complaint or incorporated in the complaint by reference, and to matters of which judicial notice may be taken. See Allen v. WestPoint-Pepperell, Inc., 945 F.2d 40, 44 (2d Cir. 1991). A motion to dismiss should not be granted "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Shakur v. Selsky, 391 F.3d 106, 112 (2d Cir. 2004) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)). When a complaint alleges fraud, "Rule 9(b) requires that allegations of fraud be pleaded with particularity." Harsco Corp. v. Segui, 91 F.3d 337, 347 (2d Cir. 1996). This means that the complaint "must (1) detail the statements (or omissions) that the plaintiff contends are fraudulent, (2) identify the speaker, (3) state where and when the statements (or omissions) were made, and (4) explain why the statements (or omissions) are fraudulent. Id.

A. Cunningham, CHG, Sustainable Projects, SPDG Fibre and SPDG Technologies (the "Cunningham Defendants")

Plaintiffs allege claims against the Cunningham Defendants for: fraud; negligence; negligent misrepresentation; "intentional concealment/ negligent nondisclosure;" unjust enrichment; civil conspiracy; violations of the Colorado Securities Act ("CSA") (against all Cunningham Defendants except SPDG Technologies); successor liability (against all Cunningham Defendants except Cunningham individually); "respondeat superior"*fn9 (same); promissory estoppel and equitable estoppel (same); fraudulent conveyance*fn10 (same); "lack of separate corporate existence/ alter ego" (against all Cunningham Defendants except SPDG Technologies); constructive trust;*fn11 breach of fiduciary duty (against Cunningham individually); and for an accounting. Before addressing the sufficiency of plaintiffs' substantive allegations, I will turn to the Cunningham Defendants' contention that this Court lacks personal jurisdiction over them and that venue is improper.

1. Personal Jurisdiction

The Cunningham Defendants, all UK domiciliaries, argue that plaintiffs have failed to show that they are subject to jurisdiction in New York.*fn12 When subject matter jurisdiction is predicated on diversity, state law governs a federal court's exercise of personal jurisdiction. See Jacobs v. Felix Bloch, 160 F. Supp. 2d 722, 731 (S.D.N.Y. 2001). New York's "long arm" statute provides for personal jurisdiction over a non-resident defendant "where the cause of action arises from the defendant's transaction of business in New York." Id. at 739; see also N.Y. CPLR § 302(a)(1). "A claim arises out of a party's transaction of business when there is a substantial nexus between the transaction of business and the cause of action sued upon." Anderson v. Indiana Black Expo, Inc., 81 F. Supp. 2d 494, 501 (S.D.N.Y. 2000) (internal quotation omitted).

"A non-domiciliary transacts business under section 302(a)(1) when [it] 'purposefully avails [itself] of the privilege of conducting activities within [New York], thus invoking the benefits and protections of [New York's] laws.'" Beatie and Osborn LLP v. Patriot Scientific Corp., 431 F. Supp. 2d 367, 387 (S.D.N.Y. 2006) (quoting CutCo Indus., Inc. v. Naughton, 806 F.2d 361, 365 (2d Cir.1986)). Generally, telephone calls and other communications sent into New York by an out of state defendant, taken alone, are insufficient to establish a transaction of business in New York. See Beatie, 431 F. Supp. 2d at 388. But cf. National Telephone Directory Consultants, Inc. v. Bellsouth Advertising, 25 F. Supp. 2d 192, 196 (S.D.N.Y. 1998) ("Telephone calls and mailings, however, can confer personal jurisdiction only if the defendants conducted these activities in such a manner as to project themselves into New York in order to purposely avail themselves of the benefits of doing business in New York.") (internal quotation omitted). When faced with a motion to dismiss predicated on lack of personal jurisdiction, the plaintiff bears the burden of establishing that jurisdiction exists. See DiStefano v. Carozzi North America, Inc., 286 F.3d 81, 84 (2d Cir. 2001).

Here, plaintiff has adduced evidence that: 1) Cunningham attended several meetings in New York relating to BCI business; 2) these meetings included BCI board and shareholder meetings at which the solicitation of capital for BCI and the financing of the Spanish and South African ventures was discussed; 3) Cunningham also participated in several BCI conference calls which were initiated from New York; 4) Cunningham's son John, who was an officer and director of each of the Cunningham entities, attended BCI meetings in New York both in person and via telephone; 5) both Cunninghams attended these meetings on behalf of the various Cunningham entities; 6) in January 2004, Michael Cunningham met with Hughes' husband, Brian Hughes, in New York to discuss a potential investment by the Hughes family in BCI; 7) Cunningham also met with other potential investors in New York; and 8) Cunningham met with Spencer Clarke LLC, an investment banking firm that BCI retained in connection with the offering, in New York to brief the bankers on Sustainable Project's business.

These contacts are sufficient to constitute a transaction of business in New York both by Michael Cunningham personally and by the entities that he represented, namely, CHG, Sustainable Projects, and SPDG Fibre. Furthermore, there is a "substantial nexus" between this transaction (i.e., the formation of BCI and the solicitation of capital for it) and plaintiffs' claims in this action. Plaintiffs allege that Cunningham and his co-venturers defrauded them in the course of soliciting their investment in BCI, the formation of which necessitated Cunningham's travel to this state.

In addition, plaintiffs have established that jurisdiction exists over SPDG Technologies as a successor in interest to Sustainable Projects and SPDG Fibre. See Linzer v. EMI Blackwood Music, Inc., 904 F. Supp. 207, 213 (S.D.N.Y. 1995). See also Abbacor, Inc. v. Miller, No. 01 Civ. 803, 2001 WL 1006051, *4 (S.D.N.Y. Aug. 31, 2001) ("acts of a predecessor corporation can be attributed to a successor corporation for the purpose of establishing long arm jurisdiction where the predecessor and the successor are one and the same") (internal quotation omitted). Here, according to the testimony of John and Michael Cunningham, SPDG Technologies has acquired all of the assets of CHG, Sustainable Projects and SPDG Fibre. In addition, SPDG Technologies is managed by the same team that previously managed CHG, and operates from the same address as CHG. This is sufficient to establish a "de facto merger" between Sustainable Projects, SPDG Fibre and SPDG Technologies. See International Private Satellite Partners, LP v. Lucky Cat, Ltd., 975 F. Supp. 483, 486-87 (W.D.N.Y. 1997) (listing factors for de facto merger). Thus, plaintiffs have established that personal jurisdiction exists over SPDG Technologies by virtue of its relationship with its predecessor entities.

2. Venue and Forum Non Conveniens

The Cunningham defendants argue that venue is improper in this District and that the doctrine of forum non conveniens dictates dismissal of this action. Venue lies wherever "a substantial part of the events or omissions giving rise to [a] claim occurred. . ." 28 U.S.C. § 1391(a)(2). BCI conducted numerous meetings regarding its financing strategy in New York, and the PPM was prepared here. Furthermore, the Bridge Loan Agreements executed by plaintiffs and BCI contained a New York forum selection clause. (Comp. ¶ 24). Therefore, venue is proper.

A forum non conveniens analysis turns on: 1) the availability of an "adequate alternative forum[;]" 2) the "level of deference" that must be accorded plaintiffs' choice of forum; and 3) the balance of the public and private interest factors that determine which forum is "most convenient and will best serve the ends of justice." USHA (India) Ltd. v. Honeywell Int'l, Inc., 421 F.3d 129, 134 (2d Cir. 2005) (internal quotations omitted). Even assuming that there is an alternative forum in which all of the defendants would be subject to jurisdiction, defendants have not demonstrated that any other forum would be more convenient than this one. The various defendants are domiciled in, inter alia, the UK, California, Utah and Switzerland. Any single forum would necessitate witness travel and the transfer of documents. Furthermore, plaintiffs' breach of contract claim against BCI is subject to the New York forum selection clause. It would be inefficient and inequitable to require plaintiffs to divvy up their claims against the various defendants in different locales. Therefore, the Cunningham defendants have failed to demonstrate that the doctrine of forum non conveniens warrants dismissal of this action.

3. Fraud

Under New York law,*fn13 to plead fraud, plaintiffs must allege: 1) a material false representation or omission of an existing fact; 2) made with knowledge of its falsity; 3) with an intent to defraud; 4) reasonable reliance; 5) and resulting damage to the plaintiff. See JHW Greentree Capital v. Whittier Trust Co., No. 05 Civ. 2985, 2005 WL 3008452, *9 (S.D.N.Y. Nov. 10, 2005) (Baer, J.). The Cunningham Defendants argue that plaintiffs have failed to allege fraud with adequate particularity, that any alleged misrepresentations were not "material," and that at least some of their statements constituted mere promises to perform future acts.

Plaintiffs allege that Cunningham provided the PPM to Hughes during their meeting in Colorado and is therefore responsible for the misrepresentations contained therein. (Comp. ¶¶ 60-65). Plaintiffs further allege that, during that meeting, Cunningham misrepresented Bruner's role in BCI. (Comp. ¶¶ 90-92). In addition, plaintiffs allege that Cunningham told Hughes at that meeting that BCI would be "in revenue" by April 2004.*fn14 Cunningham made these representations on behalf of CHG, Sustainable Projects, and SPDG Fibre, each of which had a significant interest in BCI's efforts.*fn15 Plaintiffs contend that Cunningham knew these representations were false because, prior to his meeting with Hughes in Colorado, he had written to Saltman and others detailing his concerns as to the viability of the BCI venture. (See Comp. ¶¶ 54-56 (warning that, unless financing was secured quickly "the BCI project in its present format will no longer exist").

These allegations are sufficient to plead fraud against Cunningham individually as well as against the other Cunningham Defendants for whom he acted. Plaintiffs have alleged that Cunningham knew that BCI was in dire financial shape and that SPDG Fibre and its assets in Spain and South Africa had not been properly conveyed to BCI. These facts were contradicted by Cunningham's statements to Hughes and by the representations contained in the PPM. (See, e.g., Comp. ¶ 60(c) (reciting PPM's representation that BCI "own[ed] interests in companies in Spain and South Africa that own or intend to acquire land, manufacturing facilities and joint venture interests in those countries . . ."). Furthermore, plaintiffs have alleged that Cunningham knew of the "bad blood" between Bruner and Hughes, but nonetheless misrepresented Bruner's role in the BCI project. Therefore, plaintiffs have adequately alleged fraud against the Cunningham Defendants.

4. Negligence/ Negligent Misrepresentation/ Negligent Nondisclosure/ Fraudulent Concealment

To plead negligent misrepresentation,*fn16 plaintiffs must allege that: "(1) the parties stood in some special relationship imposing a duty of care on the defendant to render accurate information[;] (2) the defendant negligently provided incorrect information[;] and (3) the plaintiff reasonably relied upon the information given." Tomoka Re Holdings, Inc. v. Loughlin, No. 03 Civ. 4904, 2004 WL 1118178, *6 (S.D.N.Y. May 19, 2004) (internal quotation omitted). See also Eternity Global Master Fund Ltd. v. Morgan Gauranty Trust Co. of New York, 375 F.3d 168, 187 (2d Cir. 2004) (plaintiffs' reliance on the misrepresentation must be foreseeable). A duty to disclose is "'imposed only on those persons who possess unique or specialized expertise, or who are in a special position of confidence and trust with the injured party such that reliance on the negligent misrepresentation is justified.'" Id. (quoting Kimmell v. Schaefer, 89 N.Y.2d 257, 263 (1996)). Similarly, in negligent misrepresentation claims based on omissions, 'New York recognizes a duty by a party to a business transaction to speak in three situations: first, where the party has made a partial or ambiguous statement, on the theory that once a party has undertaken to mention a relevant fact to the other party it cannot give only half of the truth; second, when the parties stand in a fiduciary or confidential relationship with each other; and third, where one party possesses superior knowledge, not readily available to the other, and knows that the other is acting on the basis of mistaken knowledge.'

Creative Waste Mgmt, Inc. v. Capitol Environmental Servs., Inc., 429 F. Supp. 2d 582, 609 (S.D.N.Y. 2006) (quoting Brass v. Am. Film Techs, Inc., 987 F.2d 142, 150 (2d Cir. 1993)). A claim for fraudulent concealment requires an additional element, namely, a duty to disclose based on either a fiduciary relationship "or [that] defendant possesses superior knowledge, not readily available to the plaintiff, and [that defendant] knows that plaintiff is acting under a mistaken belief with respect to a material fact." Heineman v. S&S Machinery Corp., 750 F. Supp. 1179, 1186 (E.D.N.Y. 1990) (internal quotation omitted).

The Cunningham Defendants argue that plaintiffs have failed to allege that Cunningham (or the entities that he represented) had a duty to provide plaintiffs with accurate information. I disagree. Plaintiffs have alleged that Cunningham met personally with Hughes to solicit her investment, and that he possessed "unique [and] specialized expertise," Eternity Global, 375 F.3d at 187, with respect to the bio-composite industry in general and the BCI project in particular. Thus, it was reasonable for Hughes to repose trust in Cunningham, and foreseeable to Cunningham that Hughes would rely on his statements. Since, in soliciting Hughes' investment, Cunningham represented CHG, Sustainable Projects, and SPDG Fibre, his statements and omissions are attributable to those entities.

5. Unjust Enrichment

"[A] party may recover under an unjust enrichment theory if that party establishes: (1) that the defendant benefited; (2) at the plaintiff's expense; and (3) that equity and good conscience require restitution." Diversified Carting, Inc. v. City of New York, No. 04 Civ. 9507, 2006 WL 147584, *7 (S.D.N.Y. Jan. 20, 2006) (internal quotations omitted). The Cunningham Defendants argue that plaintiffs' written loan agreements with BCI bar any claim for unjust enrichment. "Generally, the existence of an express agreement bars a quasi contract claim concerning the subject matter covered by that express agreement." Id. at *9 In some circumstances, a valid written agreement may preclude a claim for unjust enrichment even against a non-party to that agreement. Id. (citing Bellino Schwartz Padob Advertising, Inc. v. Solaris Marketing Group, Inc., 635 N.Y.S.2d 587, 588 (1 Dep't 1995)); But see Seiden Assocs., Inc. v. ANC Holdings, Inc., 754 F. Supp. 37, 41 (S.D.N.Y. 1991) ("the mere existence of a written contract governing the same subject matter does not preclude such recovery from non parties so long as the other requirements for quasi contracts are met").

The Bridge Loan Agreements and promissory notes governed plaintiffs' investment in BCI. However, those agreements do not set forth plaintiffs' rights and obligations with respect to the Cunningham Defendants. If in fact the Cunningham Defendants wrongfully obtained assets plaintiffs intended for BCI, thereby depriving plaintiffs of the value of their investment, plaintiffs' binding agreement with BCI should not preclude plaintiffs from proceeding in equity against the Cunningham entities. To hold otherwise would subvert the "logic of [this] equitable doctrine . . . which is designed to prevent unjust enrichment where the absence of an enforceable contract otherwise prevents recovery from [the culpable] parties." Seiden, 754 F. Supp. at 41. Thus, this claim too survives the motion to dismiss.

6. Civil Conspiracy

There is no independent cause of action for conspiracy under New York law. See Briarpatch Ltd., L.P. v. Pate, 81 F. Supp. 2d 509, 516 (S.D.N.Y. 2000). "[H]owever, a conspiracy may be alleged, for the purpose of showing that a wrong was committed jointly by the conspirators and that, because of their common purpose and interest, the acts of one may be imputed to the others." Aetna Cas. & Surety Co. v. Aniero Concrete Co., Inc., 404 F.3d 566, 591 (2d Cir. 2005) (internal quotation omitted). Nonetheless, this doctrine "does not allow a plaintiff to reallege a tort asserted elsewhere in the complaint in the guise of a separate conspiracy claim." Id. Thus, while plaintiffs may allege facts to demonstrate that a conspiracy existed in support of their various substantive claims, they may not allege "conspiracy" as a separate basis for liability. Therefore, plaintiffs' cause of action for "civil conspiracy" must be dismissed.

7. Colorado Securities Act

Plaintiffs also assert a claim against each of the Cunningham Defendants (except SPDG Technologies) for violations of the Colorado Securities Act ("CSA"). See Colo. Rev. Stat. §§ 11-15-501, 11-15-604.*fn17 The Cunningham Defendants argue that: 1) the New York choice of law provision in the Bride Loan Agreements precludes plaintiffs from asserting any claims under the CSA; and 2) plaintiffs have failed to adequately allege that the Cunningham defendants made any material misrepresentations with the requisite scienter.

The Cunningham Defendants rely on the Bridge Loan Agreements' choice of law provision, which states: "[t]his Agreement shall be construed and enforced in accordance with and governed by the laws of the State of New York. . ." (Comp., Ex. A § 11.1). However, "[f]raud claims 'are outside the scope of contractual choice-of-law provisions that specify what law governs. . .'" JHW Greentree Capital, L.P. v. Whittier Trust Co., No. 05 Civ. 2985, 2006 WL 1080395, *6 (S.D.N.Y. April 24, 2006) ("Greentree II") (quoting Finance One Public Co. Ltd. v. Lehman Brothers Spec. Fin., Inc., 414 F.3d 325, 335 (2d Cir.2005)). Thus, in this instance the choice of law clause does not bar plaintiffs' CSA claims. By its terms, the CSA applies to, inter alia, "persons who sell or offer to sell [securities] when an offer ...


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