280 F. Supp. 3d 524
S.D.N.Y.2017Background
- Plaintiffs (a group of individual investors and affiliated entities) invested $550,000 initially and additional sums in two "Side Pocket" investments after solicited by TriPoint personnel to buy and resell event tickets (Broadway and concert tours).
- TriPoint Global Equities (broker-dealer), Nathan (Specialty Finance Director), Elenowitz (CEO), and Boswell (COO/CCO) allegedly represented the investments were low-risk, backed by ticket purchase agreements and insurance, and that TriPoint had vetted the deals.
- Plaintiffs contend the representations were false: no ticket purchase agreements, no tickets purchased, no insurance, and no returns — and that the scheme was a Ponzi operation; related criminal and SEC actions were filed against the deal principals.
- Plaintiffs asserted federal securities claims (Sections 10(b), 9(a)(4), 9(f), 20(a)), state-law claims (breach of fiduciary duty, negligent misrepresentation, negligence, fraud, NY Gen. Bus. Law § 349, unjust enrichment and constructive trust), and sought to rely on a related complaint (Exhibit B).
- Defendants moved to dismiss under Rule 12(b)(6) and to strike Exhibit B under Rule 12(f).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Section 10(b)/Rule 10b-5 claim is sufficiently pleaded (misstatement, scienter, reliance, loss causation) | Plaintiffs alleged specific affirmative misrepresentations (agreements, insurance, due diligence), motive (commissions), and reliance by investors | Defendants argued allegations are conclusory, lack particularity, scienter, and reasonable reliance | Denied dismissal: complaint pleads material misstatements, strong inference of scienter, and reasonable reliance under PSLRA/Rule 9(b) |
| Whether Sections 9(a)(4) and 9(f) claim survives | Plaintiffs asserted misrepresentations by broker-dealer induced purchases | Defendants argued misrepresentations did not affect price of a fixed-price private placement | Granted dismissal: plaintiffs abandoned or failed to allege any effect on price |
| Whether Section 20(a) controlling-person claim against Elenowitz and Boswell stands | Plaintiffs alleged primary violation by TriPoint, control by executives, and culpable participation (false vetting, compliance representations) | Defendants argued lack of underlying violation or culpability | Denied dismissal: pleaded control and culpable participation approximating recklessness |
| Whether state-law claims (fiduciary duty, negligent misrepresentation, negligence, fraud, GBL § 349, unjust enrichment, constructive trust) survive | Plaintiffs alleged TriPoint undertook advisory role, induced reliance, and unjustly received commissions | Defendants argued no fiduciary or special duty, negligence seeks only economic loss, § 349 not consumer-oriented, and constructive trust is a remedy | Mixed: breach of fiduciary duty, negligent misrepresentation, and fraud denied dismissal; negligence and § 349 dismissed; constructive trust claim dismissed (remedy) but unjust enrichment claim survives |
| Whether Exhibit B (related complaint) should be stricken under Rule 12(f) | Plaintiffs: related complaint shows parallel allegations and supports claims | Defendants: preliminary pleadings irrelevant and immaterial | Denied: Exhibit B is relevant and not so immaterial or prejudicial to warrant striking |
Key Cases Cited
- McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184 (2d Cir. 2007) (12(b)(6) standard and inference-drawing rule)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for complaints)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (legal conclusions not entitled to assumption of truth)
- ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (Rule 9(b) particularity in securities fraud)
- Basic Inc. v. Levinson, 485 U.S. 224 (1988) (materiality standard for securities misstatements)
- Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (standard for pleading scienter under PSLRA)
- Rolf v. Blyth, Eastman Dillon & Co., 570 F.2d 38 (2d Cir. 1978) (scienter/recklessness where broker assures without investigation)
- EBC I, Inc. v. Goldman, Sachs & Co., 5 N.Y.3d 11 (N.Y. 2005) (when an advisory relationship can create fiduciary duties beyond arm’s-length underwriting)
- Georgia Malone & Co. v. Rieder, 19 N.Y.3d 511 (N.Y. 2012) (elements for unjust enrichment)
- Ossining Union Free Sch. Dist. v. Anderson LaRocca Anderson, 73 N.Y.2d 417 (N.Y. 1989) (near-privity requirement for negligent misrepresentation)