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Sedona Corp. v. Ladenburg Thalmann & Co.

May 27, 2009


The opinion of the court was delivered by: Laura Taylor Swain, United States District Judge


In this securities action brought by Plaintiff Sedona Corporation ("Plaintiff" or "Sedona"), the Court previously granted in part the Defendants' motions to dismiss the First Amended Complaint ("FAC"), dismissing some of Plaintiff's claims with leave to replead. Familiarity with that decision, as well as with the Court's decision resolving the parties' motions for reconsideration of that decision, is presumed. See Sedona Corp. v. Ladenburg Thalmann & Co., Inc., No. 03 Civ. 3120 (LTS)(THK), 2005 WL 1902780 (S.D.N.Y. Aug. 9, 2005) (hereinafter "Sedona I"); Sedona Corp. v. Ladenburg Thalmann & Co., Inc., No. 03 Civ. 3120 (LTS)(THK), 2006 WL 2034663 (S.D.N.Y. July 29, 2006) (hereinafter "Sedona II").

Plaintiff thereafter filed a Second Amended Complaint ("SAC"). The SAC asserts largely the same claims for relief, in the same order, against various combinations of the Defendants, with the following exceptions: Plaintiff's Section 20(a) claim is now its Eighth Claim for Relief, Plaintiff sues for rescission of the Settlement Agreement releases as its Ninth Claim for Relief against Amro, Roseworth, Cambois, Rhino and Badian, and Plaintiff raises a claim of fraudulent inducement in the procurement of the releases as its Tenth Claim for Relief against those parties.

Groupings of Defendants Ladenburg, Boris, Vasinkevich, Tohn, Smith, Amro, Roseworth, Cambois, Rhino, Badian, Markham, Hassan, Westminster, Pershing and Frankel (collectively, the "Moving Defendants") have moved separately to dismiss some or all of the claims asserted against them in the SAC (hereinafter "motion(s) to dismiss the SAC"). Defendants Amro, Rhino, Roseworth, Cambois and Badian request that, should the Court deny their motion to dismiss, the Court compel arbitration of any remaining claims asserted against them or, in the alternative, strike Plaintiff's jury demand. After the Second Circuit decided ATSI Commcn's, Inc. v. The Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007), the Moving Defendants submitted a joint memorandum in further support of their motions to dismiss and arguing for dismissal of additional claims on the basis of ATSI, and Plaintiff filed a memorandum in response.*fn2 The Court has considered thoroughly all of the parties' submissions.

For the reasons that follow, the Moving Defendants' motions to dismiss the SAC are granted, and the motion to compel arbitration and to strike Plaintiff's jury demand is denied as moot.


After Sedona I and Sedona II were issued, and after the parties had fully briefed the Moving Defendants' motions to dismiss the SAC, the Supreme Court held in Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1974 (2007), that, in order to survive a motion to dismiss pursuant to Rule 12(b)(6), the complaint must plead "enough facts to state a claim to relief that is plausible on its face." Ruotolo v. City of New York, 514 F.3d 184, 188 (2d Cir. 2008) (quoting Twombly, 127 S.Ct. at 1974). This plausibility standard was recently reaffirmed. See Ashcroft v. Iqbal, --- S.Ct. ---, 2009 WL 1361536, *12 (May 18, 2009).

With respect to the pleading standards of Rule 8, a complaint must have "more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Iqbal, 2009 WL 1361536, at *12.

"A pleading that offers 'labels and conclusions' or 'a formulaic recitation of the elements of a cause of action will not do.' Nor does a complaint suffice if it tenders 'naked assertion[s]' devoid of 'further factual enhancement.'" Id. (citations omitted).

Ninth and Tenth Claims for Relief

Defendants Amro, Roseworth, Cambois, Rhino and Badian (collectively, the "Release Defendants") move to dismiss Plaintiff's Ninth and Tenth Claims for Relief, which concern the releases executed by Plaintiff as to these Defendants. (SAC ¶ 199.) As the Court explained in Sedona II, a party repudiating a release must choose one of the following three options: "(1) he may return the consideration paid for the release, thereby rescinding the transaction; (2) he may sue for a rescission and offer to return the consideration; or (3) he may retain the consideration and sue at law for his damages." Sedona II, 2006 WL 2034663, at *6 (quoting Inman v. Merchants Mut. Cas. Co., 74 N.Y.S.2d 87, 89 (Sup. Ct. 1947)). Plaintiff's Ninth Claim for Relief elects the second option (see SAC ¶ 275 (Plaintiff "hereby offers . . . to restore the consideration allegedly received by it in exchange for rescission of the Releases . . . .")), and seeks rescission on the bases of lack of consideration and fraudulent inducement.*fn3 The Tenth Claim for Relief elects the third option (see SAC ¶ 291 ("SEDONA was harmed because it released the Released Parties for a lesser sum than it would have received if not for the fraud.")), and seeks damages on the basis of fraudulent inducement.*fn4

Plaintiff's attempt to invoke fraudulent inducement as a basis for repudiation of the releases, however, was already rejected by the Court in Sedona I. Plaintiff raises no argument concerning fraudulent inducement that was not raised in its previous submissions in connection with the motions to dismiss the FAC, or that was not already addressed substantively by Sedona I, and the allegations in the FAC that precluded Plaintiff from alleging fraudulent inducement reappear in largely the same form in the SAC. Accordingly, for substantially the reasons articulated in Sedona I, Plaintiff's claims for rescission or damages (as asserted in the Ninth and Tenth Claims for Relief) in connection with the releases are dismissed insofar as they are premised on a theory of fraudulent inducement.

Plaintiff's theory, asserted in the Ninth Claim for Relief, that the releases should be voided for lack of consideration, is also invalid as a matter of law. Under New York law, which governs the releases, see Sedona I, 2005 WL 1902780, at *5, a release is enforceable even in the absence of consideration so long as it is given in writing. See N.Y. Gen. Oblig. Law § 15-303 (West 2001) ("A written instrument which purports to be a total or partial release of all claims, debts, demands or obligations, or a total or partial release of any particular claim, debt, demand or obligation, . . . shall not be invalid because of the absence of consideration or of a seal."). Plaintiff's reliance on Chaput v. Unisys Corp., 964 F.2d 1299, 1301 (2d Cir. 1992), is misplaced, as that case dealt with a release solely in the context of an antidiscrimination claim arising under federal law. See Shain v. Center for Jewish History, Inc., No. 04 Civ. 1762 (NRB), 2006 WL 3549318, *5 n.9 (S.D.N.Y. Dec. 6, 2006) (applying Chaput to require consideration in order for release to be enforceable but only as to plaintiff's federal antidiscrimination claim, while noting plaintiff's concession that, with respect to her New York state law claim, the New York General Obligations Law precluded her from arguing that the release was unenforceable for lack of consideration). Neither Chaput nor the New York case upon which it relied addressed Section 15-303, and the New York case relied upon did not address releases at all. See Weiner v. McGraw-Hill, 57 N.Y.2d 458 (N.Y. 1982). Accordingly, Plaintiff's effort to rescind the releases for lack of consideration must fail.

The Ninth and Tenth Claims for Relief are, accordingly, dismissed in their entirety as against the Moving Defendants.

The Releases Preclude Plaintiff's Claims Against Amro, Roseworth, Cambois, Rhino and Badian

In Sedona I, the Court stated in clear terms that Plaintiff could seek rescission of the releases on a theory of duress and, in Sedona II, the Court provided Plaintiff an opportunity to articulate such a theory in the form of a cause of action. The SAC does not, however, assert any rescission claim premised on duress. As the Ninth and Tenth Claims for Relief are dismissed and Plaintiff has asserted no other viable cause of action for rescission or invalidation of the releases, the Court concludes that the releases bar Plaintiff's claims against the Release Defendants.*fn5

As explained in Sedona I, the releases covered, inter alia, all claims that could have been asserted and all controversies that may have occurred prior to the date of the releases, which were executed in February 2002. (SAC ¶ 194.) For the reasons explained in the Court's earlier decisions and in the discussion that follows, the SAC's generalized allegations of stock-related misbehavior, even where premised on post-February 2002 conduct, are plainly insufficient to state valid claims under any of the statutes and legal principles Plaintiff has invoked. Accordingly, Plaintiff's claims against Defendants Amro, Roseworth, Cambois, Rhino and Badian are dismissed in their entirety.*fn6

The ATSI Case

In the same year that its Twombly decision was issued, the Supreme Court decided Tellabs, Inc. v. Makor Issues & Rights, Ltd., 127 S.Ct. 2499 (2007), in which the Court held, with respect to the pleading standard in PSLRA cases, that "in determining whether the pleaded facts give rise to a 'strong' inference of scienter, the court must take into account plausible opposing inferences." Id. at 2509. For an inference of scienter to be strong, "a reasonable person [must] ...

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