United States District Court, S.D. New York
For Keren Matana, a not-for-profit entity, Plaintiff: David Edgar Bamberger, Brickman & Bamberger, New York, NY.
For J. Ezra Merkin, Gabriel Capital Corporation, Defendants: Andrew J. Levander, Neil A. Steiner, LEAD ATTORNEYS, Daphne T Ha, Diane Nicole Princ, Dechert, LLP (NYC), New York, NY.
OPINION & ORDER
Paul A. Engelmayer, United States District Judge.
Plaintiff Keren Matana (" KM" ), an Israeli charity, brings this action against J. Ezra Merkin and Gabriel Capital Corporation (" GCC" ) (collectively, " defendants" ). KM invested $1.5 million in Ascot Fund Limited (" Ascot Fund" ), an off-shore hedge fund managed by Merkin and GCC. Ascot Fund, in turn, invested substantially all of its assets with Bernard Madoff. KM's investment was wiped out following the revelation that Madoff was operating an epic Ponzi scheme. This Court dismissed KM's original Complaint, but granted KM narrowly limited leave to amend. KM now brings state law claims of fraud and of a breach of the duty of good faith and fair dealing. Defendants move to dismiss. For the reasons that follow, the motion to dismiss is granted.
On July 30, 2013, the Court granted defendants' motion to dismiss the original Complaint See Matana v. Merkin, No. 13 Civ. 1534 (PAE), 957 F.Supp.2d 473, 2013 WL 3940825 (S.D.N.Y. July 30, 2013) (" Matana I " ) reconsideration denied, No. 13 Civ. 1534, 2013 WL 4010280 (S.D.N.Y. Aug. 6, 2013) ( Matana II ). This Opinion assumes familiarity with that decision and provides factual background only as necessary to address the current motion.
A. The Parties and the Investment
On October 1, 2002, KM, an Israeli charity then managed by Benjamin Jesselson, invested $1 million in Ascot Fund. Am. Compl. ¶ 2. On January 1, 2003, Ascot Fund became a limited partner in Ascot Partners, L.P. (" Ascot Partners" ), such that KM's sole investment was in Ascot Partners. Id. ¶ 1. On January 1, 2004, KM invested another $500,000 in Ascot Fund. Id. ¶ 2. In 2008, when Madoff's fraud was exposed, the value of Ascot Partners', and thus Ascot Fund's, investments with Madoff were wiped out; KM lost its $1.5 million investment. Matana I, 2013 WL 3940825, at *2.
B. Procedural Background to the Amended Complaint
On March 7, 2013, KM filed suit, bringing state-law claims of fraud, breach of fiduciary duty, breach of the duty of good faith and fair dealing, gross negligence, and unjust enrichment. Dkt. 1.
On July 30, 2013, the Court granted defendants' motion to dismiss. Matana I, 2013 WL 3940825, at *16. The Court denied KM leave to amend the three claims as to which amendment would be futile: breach of fiduciary duty and gross negligence, which were barred by the statute of limitations; and unjust enrichment, which was precluded as a matter of law by the presence of a contract.
[WL] at *12-16. The Court similarly denied KM leave to amend the main part of its fraud claim, which alleged fraudulent misrepresentations or omissions in defendants' offering documents, because that part of the fraud claim was barred by the statute of limitations.
[WL] at *7-11, 16.
The Court granted KM leave to amend two claims. First, as to the fraud claim, the Court granted KM leave to amend to cure the aspect of that claim that articulated a " holder" theory of fraud, i.e., that alleged defendants had made fraudulent misrepresentations that induced KM to retain, or hold, its investment.
[WL] at *16. A holder claim, as opposed to a claim of fraud at the inception of the investment, was potentially timely. However, the timely holder-claim allegations in the original Complaint were deficient because KM had failed to plead them with particularity, as required by Federal Rule of Civil Procedure 9(b), in that " the only allegations in the Complaint that would form the basis of a timely holder claim [were] three paltry parenthetical references to excerpts of letters allegedly sent to Ascot Fund investors."
[WL] at *12. The Court was doubtful that these statements were material; KM had also failed to adequately allege that it " reasonably relied on these snippets as a basis for retaining its investment in Ascot Fund." Id. But, because it was " conceivable that KM may be able to remedy that deficiency in an amended complaint," the Court granted KM leave to amend.
[WL] at *16. The Court noted that, in moving to dismiss, defendants, while primarily attacking deficiencies specific to KM's complaint, had also argued that New York law no longer recognized any form of holder claim. The Court stated that, were defendants to renew that argument on a new motion to dismiss, it " would expect and invite thorough briefing on that point."
[WL] at *12.
Second, the Court granted KM leave to amend its claim for breach of an implied contractual duty, on one condition. Counsel had been unable " to locate the original subscription agreement executed by KM." [WL] at *16. As a result, KM had argued, see Dkt. 36, and defendants had stipulated, see Dkt. 37, that the documents that governed KM's investments in Ascot Fund were the two subscription applications that KM had executed. Matana I, 2013 WL 3940825, at *14. However, those agreements could not support an implied contractual duty on the part of defendants, because the defendants were not parties to them. Id. They were instead between KM and Ascot Fund. Id. The Court found it " conceivable that KM can identify a contract between it and defendants that would imply such [an implied contractual] duty," and therefore gave KM leave to " include a claim of breach of an implied contractual duty claim if it can locate such a contract."
[WL] at *16 (emphasis in original).
The Court emphasized that " leave to amend applies to these two claims alone. The Court does not invite KM to relitigate the claims that have already been dismissed
with prejudice, or to add new claims." Id.
On August 2, 2013, KM filed a motion for reconsideration of Matana I, on the ground that the Court erred in denying equitable tolling. Dkt. 42-46. On August 5, 2013, KM submitted a letter " seek[ing] guidance" from the Court on the preparation of its amended complaint. On August 6, 2013, the Court denied KM's motion for reconsideration. Matana II, 2013 WL 4010280, at *3. The Court separately responded to KM's August 5, 2013 letter. Dkt. 47. The Court declined to give KM guidance as to its forthcoming Amended Complaint, because " [i]t is not the proper role of the Court to render an advisory opinion with specific outcomes as to the matters raised by plaintiff." Id. The Court, however, reminded counsel that, in granting leave to amend, " the Court did not invite, or intend to invite, plaintiff to bring claims or articulate legal theories that could have been brought earlier in this litigation," but instead had " offered plaintiff an opportunity to correct the specific failings noted by the Court in granting the motion to dismiss those claims." Id.
C. The Amended Complaint
On August 6, 2013, KM filed its Amended Complaint. As to the fraud claim, the Amended Complaint adds allegations that defendants (1) in Ascot Fund's financial statements for fiscal years 2006 and 2007, falsely characterized Merkin's investments advisory fees and Ascot's brokerage agreements, Am. Compl. ¶ ¶ 6, 67-70, (2) in a series of " Quarterly Letters" sent to Jesselson and other investors in Gabriel Capital, L.P. (" Gabriel" ), a separate hedge fund that Merkin managed, misleadingly painted Merkin as " a true portfolio manager," and omitted to mention investments with Madoff, id. ¶ ¶ 7, 72-86; and (3) omitted to report information that Merkin learned, or should have learned, about Madoff in 2007 and 2008, id. ¶ ¶ 90-98. As to the claim of a breach of an implied duty of good faith, the Amended Complaint identifies one written contract and one oral agreement which, it alleges, give rise to such a duty.
On September 12, 2013, defendants moved to dismiss the Amended Complaint. Dkt. 53 (" Merkin Br." ). On October 3, 2013, KM opposed the motion to dismiss, Dkt. 58, and later that day amended its opposition, Dkt. 60 (" KM Br." ). On October 18, 2013, defendants replied. Dkt. 64 (" Merkin Reply Br." ). On November 7, 2013, the Court heard argument.
II. Applicable Legal Standards
In resolving a motion to dismiss, the Court must " construe the Complaint liberally, accepting all factual allegations in the Complaint as true, and drawing all reasonable inferences in plaintiff['s] favor." Galiano v. Fid. Nat'l Title Ins. Co., 684 F.3d 309, 311 (2d Cir. 2012). Nevertheless, the " [f]actual allegations must be enough to raise a right to relief above the speculative level," and the complaint must plead " enough fact[s] to raise a reasonable expectation that discovery will reveal evidence of [plaintiff's claim]." Bell A. Corp. v. Twombly, 550 U.S. 544, 555-56, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).
Put differently, " [t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.'" Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Twombly, 550 U.S. at 570).
" The plausibility standard is not akin to a 'probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 556). " 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. (quoting Twombly, 550 U.S. at 555). " Where a complaint pleads facts that are 'merely consistent with' a defendant's liability, it 'stops ...