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Kortright Capital Partners LP v. Investcorp Investment Advisers Ltd.

United States District Court, S.D. New York

June 27, 2017


          OPINION & ORDER


         Plaintiffs Kortright Capital Partners LP and its co-founders, Matthew Taylor and Ty Popplewell (collectively, “Kortright”), bring this action against Defendant Investcorp Investment Advisers Limited (“Investcorp”) for negligent misrepresentation, negligence, breach of contract, breach of the implied covenant of good faith and fair dealing, and promissory estoppel. Investcorp moves to dismiss the Complaint. Investcorp's motion is granted in part and denied in part.


         The allegations in the Complaint are presumed to be true for purposes of this motion. Kortright Capital Partners was an SEC-registered investment adviser that managed capital for high net worth individuals and institutional investors. (Compl. ¶ 31.) In November 2013, Investcorp, another SEC-registered investment adviser, entered into a “Project Agreement” with Kortright. (Compl. ¶¶ 27, 35; Compl. Ex. A.) The Project Agreement required Investcorp to invest $50 million of its proprietary capital in Kortright for a minimum of two years. (Compl. ¶ 39.) At the start of the Project Agreement, Investcorp also invested $40 million of its clients' capital in the Kortright funds. (Compl. ¶ 39.) The Project Agreement also contemplated that Investcorp would help market the Kortright funds. (Compl. ¶¶ 38, 42.)

         In exchange for its seed capital and marketing assistance, Kortright granted Investcorp a share of its operating revenue (Compl. ¶ 46), veto power over certain corporate actions (Compl. ¶ 44), and access to Kortright's confidential information (Compl. ¶ 44, 48).

         In January 2015, Man Group plc, an independent alternative asset management company and competitor of Investcorp, approached Kortright to discuss a possible acquisition of Kortright. (Compl. ¶¶ 55-57.) Their discussions spanned fourteen months and were not disclosed to Investcorp. Ultimately, Man Group and Kortright focused on either bringing the Kortright funds under the Man Group umbrella or winding down the Kortright funds and having Kortright's employees join the Man Group. (Compl. ¶ 58.)

         In April 2016, Kortright disclosed to Investcorp that it had been exploring a new business relationship with Man Group. (Compl. ¶ 61.) Investcorp indicated its preference for an absorption of the Kortright funds into Man Group, provided that Investcorp was able to redeem its proprietary capital prior to the acquisition. (Compl. ¶ 63.) Investcorp proposed to leave its clients' capital with Kortright. (Compl. ¶ 63.) Kortright discussed with Investcorp “the length of time that such client capital would need to remain invested to satisfy [Kortright and the Man Group]” and the benefits Investcorp would receive “in return for maintaining its [clients' investment] for a period of time.” (Compl. ¶ 63.) Following these discussions, Kortright outlined the basic terms of its new relationship with Investcorp in an email. (Compl. ¶ 64.) Specifically, (1) the Kortright funds would become part of the Man Group, (2) Investcorp would redeem its proprietary capital and permit its clients' capital to continue to be invested in Kortright, and (3) Investcorp would maintain at least 80% of its account balance at closing for six quarters in order to continue to receive its revenue sharing benefits. (Compl. ¶ 64.) Subsequent conversations focused on the minimum investment threshold for Investcorp to maintain its revenue sharing benefits. (Compl. ¶ 64.)

         Following those discussions with Investcorp, Kortright and Man Group structured their transaction to transfer the Kortright funds to the Man Group. (Compl. ¶ 65.) In May 2016, Investcorp withdrew its proprietary capital. (Compl. ¶ 118.)

         On June 16, 2016, Kortright and the Man Group entered into their agreement (“the Man Transaction Agreement”). (Compl. ¶ 67.) Under the Man Transaction Agreement, the Man Group committed to invest at least $300 million of its clients' capital in Kortright funds, which would be managed by Taylor and Popplewell as employees of Man Group. (Compl. ¶¶ 67-68.) A condition of closing in the Man Transaction Agreement required Kortright to bring a minimum level of investment from Investcorp to the Man Group. (Compl. ¶¶ 70, 89.)

         Simultaneously, Kortright and Investcorp entered into two new agreements: a “Termination Agreement” and a “Revenue Sharing Agreement.” (Compl. ¶ 74; Compl. Exs. B and C.) The Termination Agreement ended the parties' relationship under the Project Agreement (Compl. ¶¶ 72-73; Compl. Ex. C), while the Revenue Sharing Agreement set new terms for the parties' relationship in view of the Man Transaction Agreement (Compl. ¶¶ 74-79; Compl. Ex. B). Under the Revenue Sharing Agreement, Investcorp would continue to receive revenue sharing benefits. (Compl. ¶ 74.) The Revenue Sharing Agreement also contained a termination provision in the event Investcorp redeemed capital in excess of a threshold amount. (Compl. ¶¶ 75-76.) Importantly, the Revenue Sharing Agreement did not set a fixed term for Investcorp to maintain its investment. (Compl. ¶¶ 74-79.)

         The day after the Man Transaction Agreement was executed, Kortright notified its investors and sought consent to transfer their investments to the Man Group. (Compl. ¶ 83.) The letters to investors also indicated that Investcorp planned to continue its partnership with Kortright. (Compl. ¶ 83.) The Election Form included with the letters provided, among other things, that the investor was making an independent decision to invest in the fund and that the investor had all requisite power and authority to make the investment. (Compl. ¶ 85.)

         Investcorp, as a client of Kortright, returned its consent forms within a week, and Kortright began to wind down its funds. (Compl. ¶¶ 84, 89.) However, two business days later, Investcorp revoked that consent on the basis that it was required to obtain its own clients' consents to the transfer of investments. (Compl. ¶¶ 86-88.) Because Investcorp's clients declined to consent, the client capital was subject to mandatory redemption. (Compl. ¶ 87.)

         As a result, a condition of the Man Transaction Agreement was not satisfied and Man Group was relieved of its obligation to close the transaction. (Compl. ¶ 89.) Thereafter, the Man Group informed Kortright that it would not proceed with the Man Transaction or the employment of Taylor or Popplewell. (Compl. ¶ 90.)


         On a motion to dismiss, the factual allegations in a complaint are accepted as true and all reasonable inferences are drawn in the plaintiff's favor. Gonzalez v. Hasty, 802 F.3d 212, 219 (2d Cir. 2015). To withstand dismissal, a pleading “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 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). On such motions, courts “may consider only the complaint, any written instrument attached to the complaint as an exhibit, any statements or documents incorporated in it by reference, and any document upon which the complaint heavily relies.” ASARCO LLC v. Goodwin, 756 F.3d 191, 198 (2d Cir. 2014) (quoting In re Thelen LLP, 736 F.3d 213, 219 (2d Cir. 2013)).[1]


         I. Negligent Misrepresentation

         To state a claim for negligent misrepresentation under New York law, the Complaint must allege:

(1) the defendant had a duty, as a result of a special relationship, to give correct information; (2) the defendant made a false representation that he or she should have known was incorrect; (3) the information supplied in the representation was known by the defendant to be desired by the plaintiff for a serious purpose; (4) the plaintiff intended to ...

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