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Sarafianos v. Shandong Tada Auto-Parking Co., Ltd.

United States District Court, S.D. New York

December 19, 2014

GEORGE SARAFIANOS, et al., Plaintiffs,
CORINTHIAN PARTNERS, L.L.C. and K&L GATES LLP, Third-Party Defendants.

Robert S. Bernstein, Esq., Bernstein-Burkley, P.C., Pittsburgh, Pennsylvania, for Plaintiffs.

Yi Lin, Esq., Law Office of Yi Lin, New York, NY, for Third-Party Plaintiff.

Peter R. Silverman, Esq., Donald F. Schneider, Esq., Silverman Shin Byrne & Gilchrest PLLC, New York, NY, for Third-Party Defendant Corinthian Partners LLC.

Frederick B. Warder, III, Esq., Melissa R. Ginsberg, Esq., Patterson, Belknap, Webb & Tyler LLP, New York, NY, for Third-Party Defendant K&L Gates LLP.


SHIRA A. SCHEINDLIN, District Judge.

Third-Party Plaintiff Shandong Tada Auto-Parking Co., Ltd. ("Shandong") has filed a Third-Party Complaint ("Complaint") against Corinthian Partners, LLC ("Corinthian") and K&L Gates LLP ("K&L Gates") (together, "defendants"), alleging securities fraud, [1] common law fraud, and negligent misrepresentation. Defendants now seek dismissal of the Complaint for failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. For the following reasons, defendants' motions are GRANTED and the Complaint is DISMISSED in its entirety.


A. The Investors's Complaint

Shandong is the defendant in a pending action brought by a group of investors (the "Investors") asserting a claim for breach of contract relating to a Purchase Agreement entered into in January 2011. An understanding of the Investors's allegations helps place Shandong's third-party action in context.[2] The Investors allege that in 2010 in Beijing, Shandong signed a non-binding Term Sheet with Corinthian, which summarized the proposed terms of a bridge loan Shandong intended to obtain through Corinthian. The Term Sheet states that it "is not intended to be and should not be construed as a commitment to lend.... The final documentation... will be subject to approval by [Shandong], Corinthian, and the Lenders."[3]

The Investors allege that Shandong sold and issued to them debentures pursuant to the Purchase Agreement. The Purchase Agreement provided the Investors with the option of converting all or part of the debentures into shares of a holding company to be created by Shandong for the purpose of a reverse merger. Each of the Investors transferred funds to Shandong through Shandong's Escrow Agent, K&L Gates. The loan was to mature on September 30, 2011 or on a later negotiated financing date. No new financing date was negotiated and Shandong has not repaid the Investors. The Investors seek the return of their initial investment plus interest. They do no seek shares of the holding company.

B. Facts[4]

While the Investors's breach of contract claim may seem straightforward, Shandong contends that it never entered into the Purchase Agreement, and did not know it existed until after the Investors brought suit.[5] Shandong admits that it entered into the Term Sheet with Corinthian, acting as agent, but claims that it never heard from Corinthian again after execution of the Term Sheet.[6]

The Purchase Agreement was signed by David Dodge, allegedly acting in the capacity of Shandong's Chief Financial Officer. Dodge also signed the debentures, an Escrow Agreement designating K&L Gates Escrow Agent, and a Form D Notice of Exempt Offering of Securities with the United States Securities and Exchange Commission. All of these documents were prepared by K&L Gates. However, Shandong disavows having had any relationship with David Dodge and K&L Gates or authorizing its entry into the Purchase Agreement or any of the other transaction documents.[7] The Complaint states that while "Shandong Tada Auto-Parking Co., Ltd." is written in English in the Purchase Agreement and other deal documents, the corresponding Chinese characters refer to "Beijing Xuanyixing Bio-Technology Co., Ltd." or "Tianjin City Tianyi Seamless Steel Tube Manufacturing Co., Ltd."[8]

The Complaint alleges that Corinthian, acting either directly or through David Dodge, improperly and without Shandong's knowledge or consent signed the transaction documents.[9] The Complaint states that Corinthian controlled Dodge who it retained "to sign [documentation], in pretense as a representative of Shandong."[10] The Complaint also alleges that K&L Gates authored the deal documents without Shandong's authorization or knowledge.[11]

The Complaint states that defendants "misrepresented the non-binding nature and effect of the Term Sheet in the process of procuring Plaintiffs' investments."[12] And the Complaint alleges that defendants had motive and opportunity to commit fraud because they were compensated for their work on the transaction, and that defendants "committed fraud with the intent to decei[ve] the [Investors.]"[13]


A. Rule 12(b)(6) Motion to Dismiss

In deciding a motion to dismiss pursuant to Rule 12(b)(6), the court "must accept all non-conclusory factual allegations as true and draw all reasonable inferences in the plaintiff's favor."[14] "When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief."[15] A claim is plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is ...

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