The opinion of the court was delivered by: Wood, U.S.D.J.
Plaintiff Arthur N. Abbey brings claims against Defendant 3F Therapeutics, Inc. ("3FTI") based on federal securities fraud law and New York state common law of fraud and negligent misrepresentation. Plaintiff alleges that Theodore Skokos, an agent of 3FTI, fraudulently induced Plaintiff to make a $4 million investment in 3FTI-through a limited partnership, 3F Partners Limited Partnership II ("3F Partners")-by falsely stating that that 3FTI had two "firm offers" for a cash sale of the company that would result in a substantial return on Plaintiff's investment in a short amount of time. (Pl. Opp. at 1.) Plaintiff seeks to impose securities fraud liability upon 3FTI based on those alleged misrepresentations made by Mr. Skokos.
Defendant moves for summary judgment on all of Plaintiff's claims. For the reasons stated below, the Court finds that the disputed facts between Plaintiff and Defendant are not material, because, even when construing the evidence in the light most favorable to Plaintiff, Plaintiff's reliance on Mr. Skokos's alleged misrepresentations was not reasonable as a matter of law. Accordingly, the Court GRANTS summary judgment in favor of Defendant.
Unless otherwise noted, the following facts are derived from the parties' Local Rule 56.1 statements, affidavits, or other submissions, and are undisputed. The Court construes all evidence in the light most favorable to the Plaintiff, and draws all reasonable inferences in the Plaintiff's favor. In re "Agent Orange" Prod. Liab. Litig., 517 F.3d 76, 87 (2d Cir. 2008).
1. The Parties a. Plaintiff
Plaintiff is an individual who resides in the state of New York. (Def. 56.1 Stat. ¶ 1.) He is an attorney who has been practicing securities litigation since 1967. (Def. 56.1 Stat. ¶3.) He is a frequent lecturer on securities law at institutions including Harvard Law School and the Practising Law Institute. (Def. 56.1 Stat. ¶ 4.) Plaintiff describes himself as "a leading practitioner in the field of securities, antitrust and consumer litigation," and as "an authority on class and complex litigation, securities fraud and corporate governance, [and] contests for corporate control." (Def. 56.1 Stat. ¶¶ 5-6.) The website for Plaintiff's law firm, which bears his name, states that "the Firm has prosecuted hundreds of securities class actions and derivative actions and has recovered billions of dollars for its clients and class members." (Def. 56.1 Stat. ¶ 10.) Plaintiff and his two children are sole shareholders of a corporation, Cellular Properties, that employs 100 people. (Def. 56.1 Stat. ¶ 17.)
Plaintiff's adjusted gross income for 2003 was $3,500,000; for 2004 it was $6,600,000; and, for 2005 it was $2,900,000. (Def. 56.1 Stat. ¶ 20.) In 2005, Plaintiff's investment accounts had a total value of $31,446,992.62. (Def. 56.1 Stat. ¶ 21.) Plaintiff had additional investments totaling $18,664,363. (Def. 56.1 Stat. ¶ 22.)
Defendant 3FTI was a privately held Delaware corporation with a principal place of business in California. (Def. 56.1 Stat. ¶¶ 2; 93.) In September of 2006, 3FTI merged with ATS Medical, Inc. ("ATS Medical"). (Def. 56.1 Stat. ¶ 2.)
2. Plaintiff's Communications with Mr. Skokos Regarding an Investment in
Plaintiff's decision to invest in 3FTI was based on a series of conversations he had with Theodore Skokos, a founder and initial director of 3FTI. (Def. 56.1 Stat. ¶¶ 11; 72, 90-91.) Plaintiff knew Mr. Skokos, also a lawyer, because they had been co-counsel in several lawsuits, and because Mr. Skokos had identified an investment opportunity for Plaintiff in the past. (Def. 56.1 Stat. ¶¶ 12, 17.) At the time that Mr. Skokos and Plaintiff spoke about 3FTI, they were communicating "sporadically at best," which Plaintiff described as not "more than one [time] a year, at most two [times] a year." (Def. 56.1 Stat. ¶ 18.)
Plaintiff and Mr. Skokos first discussed 3FTI on February 18, 2005. (Def 56.1 Stat. ¶ 72.) The parties dispute exactly what Mr. Skokos said to Plaintiff during that initial meeting. Plaintiff states that Mr. Skokos told him that 3FTI had "two firm offers that valued the company at a hundred million dollars," and that he was calling Plaintiff "as a friend," with an investment opportunity that would be "very good" for him. (Morrison Aff. Ex. C at 73: 4-10.) Plaintiff alleges that Mr. Skokos described a closing as being "imminent," and that Mr. Skokos stated that the offerors were "seriously interested" parties who were "ready, willing and able" to make the purchase. (Id. at 88: 2-3; 98: 7-18.) Plaintiff alleges that Mr. Skokos told him that he was "fairly certain" that a transaction would close. (Id. at 202: 7-9.) Plaintiff further alleges that the "tenor" of what Mr. Skokos conveyed to him was, "[t]here is a deal that will be done, rather quickly here, and it will produce profit for everyone." (Id. at 99: 9-11.) According to Plaintiff, Mr. Skokos conveyed to him that the "deal was so certain to happen, that [he] should just borrow the money, put it in, and [he] would get it back in short order, and a profit," because "there would be a closing in the very near future." (Id. at 99: 14-16; 87: 23-25.) Plaintiff states that Mr. Skokos told him that his investment in 3FTI would prevent offerors for 3FTI from taking advantage of the company, and would simply be "used for window dressing, to enhance 3F's position, that such an investment would be short term, and that [Plaintiff] would realize a profit on [his] investment." (Id. at 73: 11-17.)
Mr. Skokos, however, states that he told Plaintiff that "we have a letter of interest" and that "it's just a long process, and it takes time . . . [and that the offer] was [for] nine figures." (Morrison Aff. Ex P at 58: 10 - 59: 5.) Mr. Skokos states that he explained to Plaintiff that "the process is beginning . . . what you can draw from this is I think we are in play." (Id. at 59: 6-9.) Mr. Skokos further testifies that he said to Plaintiff, "you know as well as anybody . . . that there are no guarantees here." *fn1 (Id. at 61: 2-6.)
During the course of several conversations following that initial meeting, Mr. Skokos asked Plaintiff to invest $4 million in 3FTI. (Morrison Aff. Ex. B at 3, ¶9.) According to Plaintiff, Mr. Skokos assured him that 3FTI "had enough cash and assets to meet its obligations in the context that there would be a transaction in the short term, and [that] having an additional $4 million in cash . . . would mean that it would have, not 4 million but 8 million." (Morrison Aff. Ex. C at 123: 9-15.) Plaintiff states that he told Mr. Skokos that he was borrowing 100 percent of the money he was using to invest in 3FTI, and that he would need to get that money back in a very short period of time. (Id. at 76: 3-9.) According to Plaintiff, Mr. Skokos assured him that he would get the money back in "a very short amount of time," and that the investment would be "relatively riskless." (Id. at 76: 9-11.)
Plaintiff asked Mr. Skokos for the identity of the offerors, but Mr. Skokos refused to tell him their identities, stating that he was "under a duty of nondisclosure" because the potential offerors were publicly traded companies. (Morrison Aff. P at 57: 12-22; 62: 12-19.) At that point, Plaintiff did not ask to see any non-disclosure agreement between 3FTI and any potential suitor,*fn2 or any of the offer letters that Mr. Skokos allegedly referred to in his conversations with Plaintiff. (Def. 56.1 Stat. ¶¶ 63-64; 66.) Plaintiff states that he never thought about whether an offer to purchase 3FTI would have been made in writing, because he "entirely relied on what [Mr. Skokos] told [him]." (Def. 56.1 Stat. ¶ 65.) Plaintiff "did not ask [Mr. Skokos] anything about the product, or the business, or the FDA status, or timing of the product or market for the product" that was being developed by 3FTI. (Morrison Aff. Ex. C at 76: 12-14.) Rather, Plaintiff "relied completely on [Mr. Skokos] saying that [Plaintiff's] investment was for window dressing and that it would be very helpful to him and the company if [Plaintiff] would make the investment quickly and at that time." (Id. at 76: 14-18.) Plaintiff states that he and Mr. Skokos did not discuss "any other details, other than [the fact that] there were firm offers to buy the company, and that the closing would be forthcoming in the near future." (Id. at 85: 9-16.)
3. Documentation Provided to Plaintiff
In March of 2005, Mr. Skokos provided Plaintiff with three documents containing information relevant to Plaintiff's decision about whether to invest in 3FTI.
First, on March 23, 2005, Mr. Skokos sent Plaintiff the 3F Partners Limited Partnership II Agreement (the "Limited Partnership Agreement"), which provided that investors in 3FTI make their investment through a limited partnership entity, rather than directly purchasing 3FTI securities. (Morrison Aff. Ex. B, at 5, ¶¶ 16; 19.) The Limited Partnership Agreement had been signed by Mr. Skokos, and included investors in addition to Plaintiff. (Morrison Aff. Ex. O; Morrison Aff. Ex. B at 5, ¶ 19.) The Limited Partnership Agreement included a provision that allowed Mr. Skokos to earn 20 percent of the profits earned by Plaintiff and the other investors. (Morrison Aff. Ex. O at 48, ¶ 9.3.) It also included a disclaimer provision stating that the agreement "constitutes the full and complete understanding and entire agreement of the parties and supersedes any and all other agreements, written or oral, with respect to the subject matter contained herein."*fn3 (Morrison Aff. Ex. O at 69, ¶ 17.5 (emphasis added).)
When asked at deposition whether he "had carefully read and [was] . . . familiar with the [Limited Partnership] agreement," Plaintiff responded "no." (Morrison Aff. Ex. C at 106: 21-23.) Plaintiff states: "I'm not sure I even spent more than ten minutes looking at the agreement. Didn't concern me. This was not an arms-length transaction where I needed a lawyer to protect myself. I was dealing with a friend." (Id. at 103: 17-22.) Plaintiff also states that he did not read the provision of the Limited Partnership Agreement disclaiming his reliance on extra-contractual oral representations. (Id. at 109: 2-4.) Plaintiff chose to instead rely ...