The opinion of the court was delivered by: Honorable Paul A. Crotty, United States District Judge:
Plaintiffs Mario Frati, Stacy Frati (the "Fratis") and Banco Popolare (Luxembourg) S.A. ("BPL") (together, "Plaintiffs"), bring this action against Defendants Stephen Saltzstein ("Saltzstein"), Michael Fein ("Fein"), RAM Capital Resources, LLC ("RAM"), Shelter Island Opportunity Fund, LLC ("Shelter Fund" or "Shelter"), Shelter Island GP, LLC, Midway Management Partners, LLC ("Midway"), Truk International Fund, LP ("Truk Fund" or "Truk"), Truk Opportunity Fund, LLC, and Atoll Asset Management, LLC (together, "Defendants"), alleging violations of the Securities Exchange Act of 1934 ("'34 Act"), common law fraud, breach of fiduciary duty, unjust enrichment, and breach of contract. In addition, Plaintiffs request rescission under § 29(b) of the '34 Act and a declaratory judgment that Defendants cannot use investor funds to indemnify themselves for the costs of litigating this suit. Plaintiffs claim that Saltzstein and Fein fraudulently induced them to make investments in hedge funds by misrepresenting certain facts and omitting others. Defendants now move to dismiss the Amended Complaint in its entirety, asserting that certain clauses in the Subscription Agreements that Plaintiffs signed preclude Plaintiffs' claims as a matter of law. Defendants also argue that Plaintiffs' have not stated a federal claim and that Plaintiffs' cannot establish diversity jurisdiction.
Defendants' motion to dismiss is GRANTED with respect to Plaintiffs' federal claims. As to the state law claims, Defendants' motion is deferred subject to renewal upon completion of limited, expedited discovery of the membership of the Defendant Limited Liability Companies ("LLCs") and Limited Partnerships ("LPs").
According to the facts alleged in the Amended Complaint, in late 2006, Saltzstein phoned Mario Frati in an attempt to secure an investment in the Shelter Fund, which he and Fein managed through their company, RAM. (Am. Compl. ¶ 27.) Following this phone call and again in 2007, Saltzstein traveled to meet with the Fratis in Florida to obtain their investment. (Id. ¶ 28.) During a late 2007 meeting, Mario Frati asked Saltzstein if his sister, a childhood friend of Stacy Frati, was an investor in Shelter. (Id.) Saltzstein replied that she was. (Id.) Saltzstein also allegedly told the Fratis that most of Saltzstein's and Fein's own net worth was invested in the funds and that any investment that they might make could be redeemed after a six-month lockup period. (Id.) These representations are said to be untrue. (Id.) In addition, Saltzstein and Fein never informed the Fratis that Saltzstein, Fein, and RAM were, at the time of the Fratis' investment, under investigation by the SEC for violation of the federal securities laws. (Id.)
Eventually, the Fratis agreed to invest $2 million in Shelter. (Id. ¶ 29.) On January 3, 2008, the Fratis signed their Subscription Agreement and wired the $2 million investment. (Id. ¶ 32, Ex. C.) They were not provided with the private placement memorandum ("PPM") prior to signing. (Id.) By Signing the Subscription Agreement, Mario Frati affirmed that he was an "Accredited Investor" with a net worth that exceeded $1 million, and "that he ha[d] carefully read, underst[ood], and agree[d] to abide by the terms set forth in the Memorandum, and the Amended and Restated Limited Liability Company Agreement of the Fund." (Def. Mem. 6.; Brennan Aff. Ex. A, at 1 ¶ 2, 3 ¶ 8, 8.) In addition, the Shelter Subscription Agreement stated that "[i]in deciding to invest in the Fund, Subscriber has relied solely upon the information in the Memorandum and has not relied on oral representations or warranties." (Brennan Aff. Ex. A, at 2 ¶ 3.)
Based on the representations made to the Fratis, BPL made a $1.5 million investment in the Truk Fund, on behalf of its client, Mirella Siroli, Mario Frati's mother. (Am. Compl. ¶ 34-35.) Neither BPL nor Siroli were provided with the Truk PPM before signing the Subscription Agreement. (Id.) By signing the Subscription Agreement, however, BPL affirmed that it had "prior experience in investing in the private placement of restricted securities involving the payment of performance based compensation," and that it had "carefully read, underst[ood], and agree[d] to abide by the terms set forth in the Memorandum and Partnership Agreement." (Brennan Aff. Ex. B 1 ¶ 2, 18 ¶ 7.) In addition, the Truk Subscription Agreement stated that "[i]n deciding to invest in the Fund, Subscriber has relied solely upon the information in the Memorandum and has not relied on oral representations or warranties." (Brennan Aff. Ex. B, at 2 ¶ 3.)
When considering a motion to dismiss made pursuant to Federal Rule of Civil Procedure 12(b)(6), "the court is to accept as true all facts alleged in the complaint" and "draw all reasonable inferences in favor of the plaintiff." Kassner v. 2nd Ave. Delicatessen, Inc., 496 F.3d 229, 237 (2d Cir. 2007). But "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice. . . . While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations." Ashcroft v. Iqbal, __ U.S. __, 129 S.Ct. 1937, 1949-50 (2009). To avoid dismissal, the complaint must contain "enough facts to state a claim to relief that is plausible on its face," i.e. facts that "nudge [the plaintiff's] claims across the line from conceivable to plausible . . . ." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007).
In considering a motion to dismiss, a court may consider "any written instrument attached to [the complaint] as an exhibit or any statements or documents incorporated in it by reference." Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 47 (2d Cir. 1991). Additionally, a court may also consider a particular document, which is integral to the claims at issue, of which the plaintiff has notice. Yak v. Bank Brussels Lambert, 252 F.3d 127, 130-31 (2d Cir. 2001); see Cortec, 949 F.2d at 47 ("[W]hen a plaintiff chooses not to attach to the complaint or incorporate by reference a prospectus upon which it solely relies and which is integral to the complaint, the defendant may produce the prospectus when attacking the complaint for its failure to state a claim, because plaintiff should not so easily be allowed to escape the consequences of its own failure.")
Plaintiffs' claims sounding in fraud must meet the pleading requirements of Fed. R. Civ. P. 9(b) and the Private Securities Litigation Reform Act ("PSLRA"). Rule 9(b) provides that "in 4 averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other conditions of mind of a person may be averred generally." Fed. R. Civ. P. 9(b). Rule 9(b) requires that a complaint alleging fraud "(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent." Rombach v. Chang, 355 F3d 164, 170 (2d Cir. 2004). Under the PSLRA, "where misleading statements or omissions under § 10(b) are alleged, a plaintiff must 'specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed.'" Thomas H. Lee Equity Fund V, L.P. v. Mayer Brown, Rowe & Maw LLP, 612 F. Supp. 2d 267, 275 (S.D.N.Y. 2009) (quoting 15 U.S.C. § 78u-4(b)(1)).
I. Plaintiffs' Federal Securities ...