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Carlos Jimenez, Individually and On Behalf of Brazil Ethanol, Inc v. Brazil Ethanol

November 29, 2011

CARLOS JIMENEZ, INDIVIDUALLY AND ON BEHALF OF BRAZIL ETHANOL, INC., PLAINTIFF,
v.
BRAZIL ETHANOL, INC., ET AL., DEFENDANTS.



The opinion of the court was delivered by: Sand, J.

MEMORANDUM & ORDER

In this action, Plaintiff Carlos Jimenez ("Jimenez") asserts various state and federal claims against Brazil Ethanol, Inc. ("BEI"), a Delaware corporation with its principal place of business in New York, Global Capital Networks LLC ("GCL"), a Delaware limited liability company, and a host of other defendants including three Brazilian companies-JP2 Technologia & Financas Ltda ("JP2"), Grupo EQM, Kelbe Participacoes Ltda-and a number of American and Brazilian nationals.

Defendants BEI and GCL move to dismiss Jimenez's claims against them. BEI also moves this court to disqualify Richard Pu, Jimenez's attorney. For the following reasons, we grant BEI and GCL's motions to dismiss, and deny BEI's motion to disqualify Richard Pu.

I. Background

Jimenez was hired to advise GCL-itself an advisor to various petrochemical and biofuel companies-about potentially profitable acquisitions of energy-related companies in Asia and South America. Second Amended Complaint ("SAC") ¶ 8--19. In early 2007, around the same time that Jimenez was working for GCL in Brazil, GCL and Defendant Frederico Robalinho ("Robalhino"), formerly Brazil's Secretary of Commerce, incorporated BEI in Delaware for the purpose of "acquir[ing] Brazilian companies involved in the production of ethanol and sugar, with a view to selling those commodities in the U.S." SAC ¶ 20. Jimenez was appointed BEI's Managing Director of Strategy and Acquisitions and was made a director of the board. SAC ¶ 23. Jimenez also claims that Jorge Cantonnet ("Cantonnet"), GCL's president, promised Jimenez that he and Jimenez would, eventually, "share equally in the [sic] whatever shares were issued to Cantonnet." SAC ¶ 21.

The essence of Jimenez's complaint centers on an alleged scheme to defraud BEI's investors that was concocted by BEI, Robalinho, Cantonnet, and the remaining Defendants. According to Jimenez, the scheme "consisted of paying JP2 millions of dollars in commissions for purportedly identifying acquisition targets," even though JP2 had done no such work. JP2 would then pay kickbacks to Defendants. SAC ¶ 24. Though Jimenez was on BEI's board and himself responsible for managing BEI's acquisitions, Jimenez claims that he knew nothing of the scheme. SAC ¶¶ 26a, 29e.

After reneging on the alleged agreement to share in BEI's shares equally, Cantonnet eventually offered to sell Jimenez 20% of GLC's shares. SAC ¶¶ 33--42. In purchasing the shares, Jimenez purports to have relied on a prospectus that, by concealing the alleged fraud, was replete with material omissions and misrepresentations. SAC ¶ 31, 37. Specifically, Jimenez claims that the prospectus failed to disclose, inter alia, that BEI had entered into a brokerage agreement with JP2, the nature of the fraudulent scheme, and that members of BEI's board would be receiving consulting fees. SAC ¶ 31. Jimenez claims that he was harmed when BEI engaged in a number of negligent transactions that together have led, or will lead, to BEI's liquidation and the total loss in value of Jimenez's shares. SAC ¶¶ 43--71.

Jimenez alleges, among other things, that Defendants' behavior violated SEC Rule 10b-5, amounted to common law fraud, and resulted in Defendants' unjust enrichment. SAC ¶¶ 84-- 126.

II. Standard of Review

On a motion to dismiss, a court reviewing a complaint will consider all material factual allegations as true and draw all reasonable inferences in favor of the plaintiff. Lee v. Bankers Trust Co., 166 F.3d 540, 543 (2d Cir. 1999). "To survive dismissal, the plaintiff must provide the grounds upon which his claims rests through 'factual allegations sufficient to raise a right to relief above the speculative level.'" ATSI Commc'ns Inc. v. The Shar Fund, Ltd., 493 F.3d 87, 93 (2d Cir. 2007) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). "Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice." Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009). Rather, the plaintiff's complaint must include "enough facts to state a claim of relief that is plausible on its face." Id. at 1940 (citing Twombly, 550 U.S. at 570). Plausibility, in turn, requires that the allegations in the complaint "raise a reasonable expectation that discovery will reveal evidence" in support of the claim. Twombly, 550 U.S. at 556.

Allegations of fraud must, however, meet the heightened pleading standard of Rule 9(b), which requires that the plaintiff "state with particularity the circumstances constituting fraud." Fed. R. Civ. P. 9(b). The complaint must "(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." Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1128 (2d Cir 1994). "[W]hile Rule 9(b) permits scienter to be demonstrated by inference, this must not be mistaken for license to base claims of fraud on speculation and conclusory allegations. An ample factual basis must be supplied to support the charges." O'Brien v. Nat'l Prop. Analysts Partners, 936 F.2d 674, 676 (2d Cir. 1991) (internal citations omitted). As such, "plaintiffs [must] allege facts that give rise to a strong inference of fraudulent intent," Mills v. Polar Molecular Corp., 12 F.3d 1170, 1176 (2d Cir. 1993), which may be shown by "alleging facts to show . motive and opportunity [or] facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness." Shields, 25 F.3d at 1128 (2d Cir. 1994).

On a motion to dismiss, a court is not limited to the four corners of the complaint. A court may also consider "documents attached to the complaint as an exhibit or incorporated in it by reference, . matters of which judicial notice may be taken, or . documents either in the plaintiffs' possession or of which plaintiffs had knowledge and relied on in bringing suit." Brass v. Am. Film Techs., Inc., 987 F.2d 142, 150 (2d Cir. 1993).

III. Discussion

a. Attorney Pu's ...


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