MEMORANDUM AND ORDER
Pеnding before the Court is a Motion to Dismiss [Doc. # 6] (“Motion”), filed by Defendants CIBC World Markets, Inc. and CIBC World Markets Corp. (collectively, “CIBC”).
1
Plaintiff Ben Floyd (“Floyd”), on behalf of the Estate of Seven Seas Petroleum, Inc. (“Seven Seas”) has responded [Doc. # 19].
2
CIBC has replied [Doc. # 23].
3
Upon review of the parties’ submissions, all pertinent matters of rec
I. FACTUAL BACKGROUND
Seven Seas was an oil and gas exploration company with operations focused in the Guaduas Fields (the “Fields”) in Colombia, South America. Seven Seas lost money on these operations between 1995 and 2000. Plaintiffs Amended Complaint alleges that by early to mid 2001, Seven Seas was insolvent from both a liquidity and balance sheet perspective and that it was evident to the Directors of Seven Seas and other company insiders that, absent additional funding, Seven Seas would have to file bankruptcy by late 2001. Seven Seas accordingly sought to raise additional funds in an effort to continue operations. Plaintiff alleges that Seven Seas hired CIBC 4 to serve as Seven Seas’ exclusive financial advisor, to assist in raising these additional funds, and to render a fairness opinion in connection with any potential financing transaction. Ultimately, Seven Seas reached an agreement with Chesapeake Energy Corporation (“Chesapeake”) to issue $45 million senior, secured notes (the “Secured Facility”), $22.5 million of which would be purсhased by Chesapeake and $22.5 million of which would be purchased by a group of Seven Seas’ insiders. 5 These senior, secured notes were to be secured by substantially all of Seven Seas’ assets. In addition, the senior, secured notes included detachable warrants which, if exercised, gave the purchasers (Chesapeake and the insiders) the right to purchase up to forty percent of Seven Seas’ common stock at a price below Seven Seas’ trading price at the time of the transaction. At a May 17, 2001, meeting, having received a preliminary opinion from CIBC that the Secured Facility was fair from a financial point of view, the Seven Seas’ board of directors authorized Seven Seas to issue the senior, secured notes. On July 28, 2001, CIBC issued a final written fairness opinion regarding the transaction. The Secured Facility closed the following day.
Seven Seas used the $45 million to develop its proven reserves in the shallow portions of the Fields and to drill the Escuela 2 well in the deep Fields. These exploration and development efforts proved unsuccessful. Seven Seas’ reserve engineering firm subsequently reduced Seven Seas’ reserve estimates by sixty-six percent. The combination of poor financial performance and the reserve write-down pushed Seven Seas to announce in November 2002 that it would likely cease operation in late 2002 or early 2003. Seven Seas began implementing a wind-down strategy at Chesapеake’s request, which included a plan to sell Seven Seas’ rights to the shallow Fields. In connection with this process, CIBC was retained to market Seven Seas’ interest in the Fields and to administer the auction process.
On December 20, 2002, a group of senior noteholders filed an involuntary Chapter 7 bankruptcy petition against Seven Seas. Seven Seas subsequently filed its own petition under Chapter 11 and Plaintiff Ben Floyd was appointed as Chapter 11 Trustee on January 14, 2003. In his capacity as Trustee, Floyd filed suit against Chesapeake, the directors of Seven Seas, and CIBC (the “Director Litigation”).
6
Floyd
On August 4, 2003, the United States Bankruptcy Court for the Southern District of Texas confirmed the Chapter 11 Trustee’s Second Amended Plan of Reorganization for Seven Seas. On October 14, 2008, Plaintiff filed a complaint in the present action asserting seven claims against CIBC: aiding and abetting the breach of fiduciary duty by Seven Seas’ directors; breach of CIBC’s fiduciary duties of care and of loyalty to Seven Seas; negligence; gross negligence; fraud; and negligent misrepresentation. CIBC moves to dismiss Plaintiffs сlaims under Federal Rules of Civil Procedure 12(b)(1), 12(b)(2), and 12(b)(6).
II. ANALYSIS
A. Claims Against CIBC World Markets, Inc.
CIBC argues that Plaintiffs Amended Complaint “contains no individualized claims against defendant CIBC World Markets, Inc. [ (“CWM, Inc.”) ],” that “all of [Plaintiffs] claims of liability related to the Fairness Opinion issued by CIBC World Markets Corp. [ (“CWM Corp.”) ],” and that Plaintiff does not and cannot “allege that [CWM, Inc.] participated in any way in the creation of the Fairness Opinion, or that otherwise it should be liable for the actions of [CWM Corp].” 7 The Court analyzes this motion under Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim upon which relief can be granted.
1. Rule 12(b)(6) Legal Standard
Traditionally, courts hold that a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim is viewed with disfavor and is rarely granted.
See Lormand v. U.S. Unwired, Inc.,
“To survive a motion to dismiss, a complaint must contain sufficient factual mat
In considering a motion to dismiss, a court ordinarily must limit itself to the contents of the pleadings and attachments thereto.
Collins v. Morgan Stanley Dean Witter,
2. Rule 12(b)(6) Analysis: Allegations Against CWM, Inc.
Plaintiff argues that its Amended Complaint makes sufficient factual allegations against CWM, Inc. to state a claim upon which relief may be granted. Specifically, Plaintiff argues that its Amended Complaint alleges “significant and severe wrongdoing against [CWM, Inc.]” because CWM Corp. and CWM, Inc. “were referred to collectively” and “[e]very allegation made against [CWM] Corp. was made against [CWM], Inc. and
vice versa.”
10
Merely alleging joint wrongdoing without factual content is insufficient to withstand CIBC’s Rule 12(b)(6) challenge. As explained below, there are no factual allegations in Plaintiffs Amended Complaint about conduct by CWM, Inc. specifically, and thus no facts pleaded to permit the Court to do more than speculate about the mere possibility of misconduct by CWM, Inc.
See Iqbal,
B. Plaintiffs Standing as a Real Party-in-Interest
CIBC next argues that the reorganized Seven Seas is not a party to this case and that Floyd, as the sole executive officer of Seven Seas, lacks standing to bring claims on behalf of Seven Seas in his own name. As discussed more fully in the following section of this Memorandum, a case is properly dismissed under Rule 12(b)(1) for lack of subject matter jurisdiction when a party does not have standing to bring a claim. Under Federal Rule of Civil Procedure 17(a), an action must be prosecuted in the name of the real party in interest. Fed. R. Civ. P. 17(a)(1);
Salazar v. Allstate Texas Lloyd’s, Inc.,
CIBC’s argument ignores the Seven Seas confirmed reorganization plan that provides explicitly that “the Reorganized Debtor may bring suit or defend actions on behalf of, and in the name of, the Chapter 11 Trustee as well as itself.” 13 CIBC’s argument fails to account for this clear language in the confirmed reorganization plan that permits Seven Seas to sue in the name of Trustee Floyd.
Alternatively, CIBC argues, citing
Wieburg v. GTE Southwest Inc.,
C. Plaintiffs Standing to Assert Claims on Behalf of Seven Seas’ Bankruptcy Estate, Shareholders, or Creditors
CIBC argues that Plaintiff lacks standing to assert claims against CIBC on behalf of Seven Seas’ creditors because those сlaims are personal to the creditors and were not the property of the bankruptcy estate. CIBC additionally argues that Plaintiff has failed “to allege how Seven Seas was harmed by incurring more debt when the company was already supposedly insolvent.” 15 Plaintiff responds that its Amended Complaint asserts claims on behalf of the Seven Seas’ bankruptcy estate for pre-bankruptcy injuries to Seven Seas and that Plaintiff is not attempting to assert claims personal to any specific creditors. In this vein, Plaintiff asserts claims against CIBC for aiding and abetting the breach of fiduciary duty by Seven Seas’ directors, for breach of CIBC’s own fiduciary duties to Seven Seas, negligence, gross negligence, fraud, and negligent misrepresentation.
A case is properly dismissed under Rule 12(b)(1) “for lack of subject matter jurisdiction when the court lacks the statutory or constitutional power to adjudicate the case.”
Krim v. pcOrder.com, Inc.,
Procedurally, “[w]hether a specific cause of action belongs to a bankruptcy estate is ... a matter of law that [the Court] decides by reference to the facial allegations in the complaint.”
In re Seven Seas,
CIBC argues that Plaintiffs Amended Complaint “purports to allege damages to various entities or persons including the ‘unsecured creditors’ or ‘the Company, its
shareholders,
and its
creditors.”
18
CIBC argues that these allegations make clear that there was no underlying injury to Seven Seas and that the injuries alleged were suffered by the company’s unsecured creditors when their claims were subordinated to the secured creditors. The Court is not persuaded by CIBC’s interpretation of the claims alleged in Plaintiffs Amended Complaint. Plaintiffs Amended Complaint alleges that CIBC’s actions injured Seven Seas itself prior to its filing bankruptcy. Spe
CIBC directs the Court to
In re Seven Seas,
D. Plaintiffs Standing to Assert Claims Based on the Express Reservation of the Claims
In a similar vein, CIBC
21
argues that the Fifth Circuit’s decision in
In
CIBC argues that Plaintiffs reorganization plan failed to expressly retain the right to pursue actions against CIBC and, therefore, that Plaintiff does not have standing to assert these claims. CIBC adds that “Floyd failed to identify any specific claims it might later bring against CIBC in his Disclosure or Plan” and, therefore, he cannot meet the express retention requirement of United Operating. 23 Plaintiff responds that it is not required to expressly reserve specific causes of action against specific defendants and that such a requirement would frustrate the policy behind the Bankruptcy Code. Plaintiff argues that United Operating merely requires the reorganized debtor to “receive a general assignment of all a debtor’s litigation claims or an assignment of litigation claims by type (i.e., common law claims based on state law, preferences actions or other statutory claims arising under the Bankruptcy Code) in the debtor’s Chapter 11 plan.” 24 Additionally, Plaintiff argues that it expressly retained specific claims against CIBC in its reorganization plan.
The Court has fully examined the Second Amended Plan of Reorganization for Seven Seas Petroleum, Inc. (“Reorganization Plan”)
25
and the Second Amended Disclosure Statement under 11 U.S.C. § 1125 in Support of Trustee’s First Amended Plan of Reorganization (“Disclosure Statement”).
26
Courts are to consid
The Reorganization Plan provided that the “Reorganized Debtor shall have all the power of the Trustee to prosecute claims, including the power to prosecute all claims and causes of action that the Chapter 11 Trustee could have asserted.” 27 The Disclosure Statement provides that “[o]n the Effective Date of the Plan ... all property of the Debtor and of the Estate including all rights to bring Litigation Claims, shall vest in the Reorganized Debtor.” 28 “Litigation Claims” are defined as “all claims or causes of action held by the Debtor and its Subsidiaries, including any Avoidance Actions.” 29 Significantly the Disclosure Statement further and more specifically provides that:
All rights of the Debtor to pursue recovery of Litigation Claims (including claims under Chapter 5 of the Bankruptcy Code), as well as all other claims belonging to the Estate, including but not limited to claims for breach of fiduciary duty, alter ego, single business enterprise, self-dealing, usurpation of corporate opportunity, denuding, and similar claims under In re: S.I. Acquisition,817 F.2d 1142 (5th Cir.1987)[,] and related authorities will be transferred to the Reorganized Debtor for the purpose of recovery for the benefit of the creditors of the Estate. A summary of the types of Avoidance Actions and the potential claims to be asserted by the Reorganized Debtor are described below. 30
Subsequently in a section that appears shortly thereafter and is titled “S.I. Acquisition Claims and Other Potential Claims,” the Disclosure Statement expressly provides that:
Prior to the Petition Date, CIBC was retained by the Debtor to assist it in obtaining financing to develop the Gua-duas fields and to provide it with certain other financial advice and professional service. The Trustee is currently investigating and may bring certain causes of aсtion against CIBC, its affiliated entities, and/or subsidiary corporations. 31
Under
United Operating,
the blanket reservation in the Reorganization Plan in itself, is insufficient to constitute a specific and unequivocal reservation of claims.
See United Operating,
Accordingly, the Court concludes that Plaintiff has standing to assert its claims against CIBC. CIBC’s motion to dismiss on this basis is denied.
E. Choice of Law
CIBC argues that New York law governs Plaintiffs substantive claims because the engagement letter under which Seven Seas hired CIBC as its financial advisor contained a “broad” choice of law provision. Plaintiff argues that while the choice of law provision may arguably require application of New York law to interpret the engagement letter, it does not require the application of New York law to Plaintiff’s substantive claims, which sound in tort, not contract.
“In making a choice of law determination, a federal court exercising diversity jurisdiction must apply the choice of law rules of the forum state.”
Mayo v. Hartford Life Ins. Co.,
The choice of law provision in the engagement letter provides in its entirety: “This letter agreement will be governed by and construed in accordance with the laws of the State of New York applicable to agreements made and to be fully performed therein.”
33
Considering the effect of an
identically
worded choice of law
CIBC argues that the choice of law provision in the engagement letter is far broader. CIBC states that “the choice of law provision in the engagement letter here applies to ‘any suit, action or other proceeding arising out of this letter agreement or the engagement of CIBC World Markets.’ ” 35 CIBC erroneously relies on a clause pertaining solely to consent to personal jurisdiction, a provision distinct from the choice of law clause. CIBC’s selective quotation ignores the beginning of the quoted sentence; the language on which CIBC focuses refers solely to Seven Seas’ consent to personal jurisdiction in New York, not choice of law. The sentence in its entirety reads as follows:
[Seven Seas] irrevocably submits to the jurisdiction of any court of the State of New York located in the City and County of New York, or in the United States District Court for the Southern District of New York for the purposes of any suit, action or other proceeding arising out of this letter agreement or the engagement of CIBC World Markets hereunder.
Plaintiff thus broadly consented to personal jurisdiction in New York, i.e., to be sued in New York. The engagement letter’s choice of law provision, ie., what state’s law will apply, however, is narrow; the choice of law provision expressly applies only to the construction and interpretation of the engagement letter and does not encompass all disputes between the parties relating to that letter or CIBC’s engagement.
CIBC alternatively argues that Texas courts have applied contractual choice of law provisions to tort claims that arise out of a contractual relationship.
See TelPhonic Servs., Inc. v. TBS Int’l, Inc.,
Because the parties’ contractual choice of law provision does not apply to Plaintiffs tort or non-contractual claims, the Court must perform a choice of law analysis under the Restatement’s most significant relationship test. Section 6 of the Restatement provides seven general factors to be considered by the Court in making choice of law determinations.
36
The Court lacks evidence at this stage of the proceedings to properly analyze all the Restatement factors. While Plaintiff argues that the overwhelming majority of the facts related to Plaintiffs claims occurred in Texas — specifically alleging that the Seven Seas’ employees who negotiated the Secured Facility were residents of Texas and that “the CIBC employees that purportedly worked on the Seven Seas engagement were residents of Texas” 39 — CIBC counters that CWM Corp. maintains its principal place of business in New York and that the fairness opinion was issued from CIBC’s New York Office. Because the facts of this case are complex, the Court cannot resolve these and other factual disputes concerning the various Restatement factors. After appropriate time for discovery and presentation of evidence, the Court will apply these factors and make a choice of law determination.
F. Wagoner Rule
CIBC argues that the
“Wagoner
Rule” of
Shearson Lehman Hutton, Inc. v. Wagoner,
G. In Pari Delicto
CIBC argues that Plaintiffs claims are barred by the doctrine of
in pari delicto.
As a threshold matter, Plaintiff points out that the Fifth Circuit has not applied the
in pari delicto
defense to claims made by a bankruptcy trustee. However, a majority of circuits have done so,
see In re Today’s Destiny, Inc.,
In pari delicto
is an equitable affirmative defense that bars a corporate plaintiff from recovering from a defendant when the corporation’s management participated in the alleged wrongdoing. The
in pari delicto
doctrine “embodies the common-law notion that a plaintiffs recovery may be barred by his own wrongful conduct and is undergirded by the concerns, first, that courts should not lend their good offices to mediating disputes among wrongdoers; and second, that denying judicial relief to an admitted wrongdoer is an effective means of deterring illegality.”
Rogers v. McDorman,
The Trustee is subject to all defenses available against the debtor.
In re Segerstrom,
Furthermore, dismissal of Plaintiffs claims on this basis is premature because even in situations where the parties are found to be
in pari delicto,
under Texas law, “relief will sometimes be granted if public policy demands it.”
Lewis v. Davis,
H. Judicial Estoppel
CIBC argues that Plaintiff is judicially estopped from making claims and assertions inconsistent from those made in the Director Litigation. Specifically, CIBC argues that Plaintiff is “estopped from asserting that CIBC had a duty to advise Seven Seas of alternative transactions or to warn that the [Secured Facility] would likely lead to liquidation.” 41 CIBC also argues Plaintiff is estopped from asserting that Seven Seas relied on CIBC’s fairness opinion. 42 CIBC asserts that Plaintiff took and prevailed on positions in the Director Litigation that prevent it from asserting positions required to establish a claim upon which relief may be granted.
Judicial estoppel is an equitable doctrine that “prevents a party from asserting a position in a legal proceeding that is contrary to a position previously taken in the same or some earlier proceeding.”
Hopkins v. Cornerstone Am,.,
CIBC argues that in the Director Litigation, Plaintiff dismissed the claims against CIBC and then avoided summary judgment on the claims remaining against the directors by asserting that “CIBC had no duty to advise the directors of alternative transactions or warn [Seven Seas] that the secured financing would likely result in the distressed liquidation of its assets” and that “the directors did not rely on CIBC’s advice or fairness opinion.” 44
Having examined the prior representations by the Trustee
45
and the prior court’s opinion denying summary judgment against Plaintiff in the Director Litigation,
46
the Court finds that CIBC has not satisfied the second limitation on the application of judicial estoppel. The prior cоurt did not actually rely on either of the assertions that CIBC argues are inconsistent, CIBC’s lack of a duty to advise the Directors of alternative transaction and the Directors’ alleged lack of reliance on CIBC.
See Floyd,
I. Contractual Defenses
CIBC argues that Plaintiffs negligence and negligent misrepresentation claims are barred by Seven Seas’ contractual obligations under the “prospective release” aspect of the indemnification provision in the engagement letter. CIBC also argues that Plaintiffs claims are barred by Seven Seas’ contractual obligation in the engagement letter to release CIBC in connection with any settlement of litigation (the “settlement consent clause”). Plaintiff argues that both the prospective release and the settlement consent clauses are unenforceable under both New York and Texas law. As discussed in Section II.E above, New York law applies to the construction and interpretation of the engagement letter. The Court conсludes that under New York
1. Prospective Release Clause
The engagement letter provides that
As CIBC World Markets will be acting on your behalf, [Seven Seas] agrees to indemnify CIBC World Markets and certain related parties in the manner set forth in Annex A which is attached and incorporated by reference in its entirety to this letter agreement. 48
Annex A provides that
[Seven Seas] also agrees that no Indemnified Party [CIBC] 49 will have any liability (whether direct or indirect, in contract, tort or otherwise) to the Company or any person asserting claims on behalf of the Company arising out of or in connection with any transactions contemplated by this letter agreement or the engagement of or performance of services by any Indemnified Party thereunder except to the extent that any Damages are found in a final non-ap-pealable judgment by a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of the Indemnified Party. 50
Under New York law, contractual clauses absolving a party prospectively from liability from its own ordinary negligence are generally enforceable.
Col-naghi, U.S.A., Ltd. v. Jewelers Protection Servs., Ltd.,
Plaintiff primarily argues that prospective releases are “highly disfavored” under New York law and that releases purporting to exempt a party from its own negligence must do so in clear, unambiguous, understandable terms. Plaintiff argues the prospective release clause in the engagement letter does not satisfy the requirements of New York law. Having examined the engagement letter in its entirety, the Court concludes as a matter of law that the prospective release is sufficient under New York law to bar Plaintiffs claims based on negligence. The prospective release in the engagement letter constitutes the parties’ expressed intent to exempt CIBC from any liability to
Plaintiff advances several additional arguments. First, Plaintiff argues that the prospective release is “buried in an attachment to the main engagement letter and the print is considerably smaller than the print contained in the body of CIBC’s engagement letter, making it unenforceable under New York law.”
52
Plaintiff directs the Court to
Gross v. Sweet,
Second, Plaintiff argues that the prospective release does not justify dismissal of Plaintiffs negligence and negligent misrepresentation claims because the “release itself does not unequivocally and specifically state that CIBC is released for future acts of its own negligence asserted by [Seven Seas].” 53 Plaintiffs argument regarding future acts is misplaced. The parties entered into the engagement letter prior to CIBC’s performance of its duties under that agreement. The release stated it was to cover “liability ... arising out of or in connection with any transactions contemplated by this letter agreement or the engagement of or performance of services by any Indemnified Party thereunder.” 54 This language provided CIBC protection from liability for future acts performed in connection with or pursuant to the engagement letter.
Third, Plaintiff argues that the prospective rеlease does not provide that it is enforceable against Seven Seas’ successors, the Seven Seas bankruptcy estate or estate’s creditors. Plaintiff argues the right to indemnity is distinguishable from a prospective release from liability, and Annex A provides only that the “indemnity, reimbursement and contribution obligations of [Seven Seas] hereunder” will be
Finally, Plaintiff argues that the Court should exercise its equitable power and not enforce the prospective release because there is an “overwhelming amount of evidence demonstrating CIBC has unclеan hands.”
57
Parties are presumed to know the legal effect of their contracts.
In re Lyon Fin. Servs., Inc.,
In sum, the Court concludes that under New York law the prospective release is valid to immunize CIBC from liability arising out of its ordinary negligence. Accordingly, Count IV (negligence) and Count VII (negligent misrepresentation) in Plaintiffs Amended Complaint are dismissed.
2. Settlement Consent Clause
The settlement consent clause of the engagement letter’s Annex A provides:
[Seven Seas] agrees not to enter into any waiver, release or settlement of any Proceeding (whether or not CIBC World Markets or any other Indemnified Party is a formal party to such Proceeding) in respect of which indemnification may be sought hereunder without the prior written consent of CIBC World Markets (which consent will not be unreasonably withheld), unless such waiver, release or settlement includes an unconditional release of CIBC World Markets and each Indemnified Party from all liability arising out of such Proceeding. 58
CIBC argues that this clause precludes CIBC’s liability on any of Plaintiffs claims. Plaintiff did not seek, and CIBC did not give, its express approval of the settlement in the Director Litigation. Nor did the
CIBC’s interpretation of the settlement consent clause is not supported by the language of the clause or any legal authority. The clause provides CIBC with the right to notice of and a right to object to a proposed settlement that may give rise to a claim by CIBC for indemnification. The plain terms of the settlement consent clause do not, however, entitle CIBC to a release from liability for a breach of that clause. While CIBC denies that the settlement consent clause operates as a prospective release, the remedy that CIBC seeks for the alleged breach in the Director Litigation essentially amounts to a prospective release of CIBC from claims. Under New York law, the language of such a release must express in unequivocal terms the intention of the parties to relieve a defendant of liability.
Lago,
Alternatively, Plaintiff argues that CIBC has waived the right to relief under the settlement consent clause by failing to object to the settlement in the Director Litigation before the bankruptcy court. CIBC responds simply that the bankruptcy court’s finding that the settlement terms were reasonable is “simply irrelevant and has no bearing on the contractual rights afforded [CIBC].” 60 CIBC cites no authority in support of its contention and the Court is unpersuaded. On July 2, 2008, before the settlement in the Director Litigation was final, Plaintiff filed a “Motion to Compromise Claims against Director and Entity Defendants under Bankruptcy Rule 9019.” 61 Notice was given to all parties-in-interest with directions that objections had to be filed within 20 days. CIBC received notice but did not object to the Motion to Compromise. On August 8, 2008, the bankruptcy court approved the settlement, finding it to be fair and equitаble. 62
Under New York law, “the defense of waiver requires a ‘clear manifestation of an intent by plaintiff to relinquish her known right.’ ”
Beth Israel Medical Ctr. v. Horizon Blue Cross & Blue Shield of New Jersey, Inc.,
J. Proximate Cause
CIBC argues that Plaintiffs First Amended Complaint fails to allege facts sufficient to establish that CIBC’s Fairness Opinion proximately caused any of the damages alleged. CIBC also argues that a number of superseding causes resulted in the actual injury to Plaintiff, thus relieving CIBC from any potential liability. Plaintiff argues that dismissal on proximate causation grounds is premature. The Court agrees. While the question of proximate cause may be decided as a matter of law when only one conclusion may be drawn from the established facts,
Pironti v. Leary,
K. Breach of Fiduciary Duty
CIBC argues that Plaintiffs Amended Complaint does not allege facts sufficient to establish a fiduciary relationship between CIBC and Seven Seas or Seven Seas’ Board of Directors. Plaintiff argues that a fiduciary relationship existed because CIBC provided complex financial advice to Seven Seas and had an “extremely close and extensive relationship” with Seven Seas.
63
CIBC contends that financial advisors do not owe fiduciary duties to their clients in the ordinary course of business. “The existence of a fiduciary relationship, outside of formal relationships that automatically give rise to fiduciary duties, is usually a fact intensive inquiry.”
ARA Automotive Group v. Cent. Garage, Inc.,
Plaintiff relies primarily on New York law for legal support for this claim. Under New York law, a fiduciary relationship is necessarily “grounded in a higher level of trust than normally present in the marketplace between those involved in arms’ length business transactions.”
JPMorgan Chase Bank, N.A. v. IDW Group, LLC,
“New York courts [also] have found fiduciary relations between clients and investment banks where there is either a confidence reposed which invests the person trusted with an advantage in treating the person so confiding or an assumption of control and responsibility.”
Am. Tissue, Inc. v. Donaldson, Lufkin & Jenrette Securities Corp.,
Plaintiffs Amended Complaint also fails to allege sufficient facts to impose a fiduciary duty on CIBC under Texas law. Under Texas law, fiduciary duties arise as a matter of law in certain formal relationships.
See Crim Truck & Tractor Co. v. Navistar Int’l Transp. Corp.,
Taking all allegations in Plaintiffs Amended Complaint as true, Plaintiff has failed allege facts sufficient to establish the existence of a fiduciary relationship between Plaintiff and CIBC under New York or Texas law. Accordingly, CIBC’s Motion is granted with respect to Count II (CIBC’s alleged fiduciary duty of loyalty) and Count III (CIBC’s alleged fiduciary duties of care and prudence). The Court nevertheless grants Plaintiff leave to amend to replead these claims if it is able to do so within the strictures of Federal Rule of Civil Procedure 11.
L. Fraud and Negligent Misrepresentation Claims
Under New York and Texas law, the elements of a fraud cause of action are:
As a threshold matter, CIBC argues that its representations abоut the fairness of the transaction are not actionable because the representations were statements of opinion, not fact. However, the parties cite no cases addressing specifically “fairness opinions,” as involved here. In any event, “whether a statement is an actionable statement of ‘fact’ or merely one of ‘opinion’ often depends on the circumstances in which a statement is made.”
Transport Ins. Co. v. Faircloth,
As discussed in Section II.I.l above, Plaintiffs negligent misrepresentation claim is barred by the release language in Annex A. Therefore, the Court confines its further analysis to Plaintiffs fraud claim. CIBC primarily argues that Plaintiff has failed to plead fraud with sufficient particularity to satisfy the requirements of Federal Rule of Civil Procedure 9(b).
66
Rule 9(b) requires that “[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.” Fed. R. Civ. P. 9(b);
see Leatherman v. Tarrant Cty. Narcotics Intelligence Unit,
Here, Plaintiffs Amended Complaint alleges that in its fairness opinion, CIBC represented that the Secured Facili
Accordingly, CIBC’s Motion is granted with respect to Plaintiffs fraud claim. Dismissal of a claim for failure to meet the pleading requirements of Rule 9(b), however, must be accompanied by leave to amend, “unless the defect is simply incurable or the plaintiff has failed to plead with particularity after being afforded repeated opportunities to do so.”
Hart,
III. CONCLUSION
For the foregoing reasons, the Court dismisses Plaintiffs claims against CIBC World Markets, Inc., but grants Plaintiff leave to amend, if it is able to do so within the strictures of Rule 11. The Court dismisses Plaintiffs Count IV (negligence) and Count VII (negligent misrepresentation) claims with prejudice. The Court grants CIBC’s Motion on Plaintiffs breach of fiduciary duty claims (Counts II and III) and Plaintiffs fraud claim (Count VI), but grants Plaintiff leave to amend within Rule 11 requirements. The Court denies CIBC’s Motion on all other grounds. Accordingly, it is hereby
ORDERED that CIBC’s Motion [Doc. # 13] is GRANTED IN PART and DENIED IN PART.
Notes
. Four days after filing the Motion, CIBC filed a Motion to Supplement Motion to Dismiss [Doc. # 16] ("Motion to Supplement”). Plaintiff responded [Doc. # 20] (“Plaintiff's Response to Motion to Supplement”), CIBC replied [Doc. # 24] ("CIBCs Reply to Motion to Supplement”), and Plaintiff filed a surreply [Doc. # 25] ("Plaintiff’s Surreply”).
. The caption to Plaintiff's Amended Complaint indicates that there are two plaintiffs: Ben Floyd and Seven Seas. However, as clarified at the initial pretrial conference held on Februаry 9, 2009, Plaintiff's Amended Complaint asserts claims by only one plaintiff, Ben Floyd. Accordingly, throughout this Memorandum and Order, the Court refers to Plaintiff in the singular. See also infra Section II.B.
.CIBC has additionally filed a Supplemental Brief in Support of Motion to Dismiss [Doc. # 26] ("Supplemental Brief”) to which Plaintiff has responded [Doc. # 27] (Plaintiff’s Response to Supplemental Brief).
.Plaintiff does not distinguish in its allegations between the two named CIBC entities. See infra Section II.A.2.
. The group of insiders included four of the seven directors on Seven Seas’ board of directors.
.
See Floyd v. Hefner,
. Id. at 8-9.
. "[A] court considering a motion to dismiss can choose to begin by identifying pleadings that, because they are no more than conclusions, are not entitled to the assumption of truth.”
Iqbal,
. "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,
. Plaintiff's Response [Doc. # 19], at 8.
. Plaintiff’s Amended Complaint [Doc. #5], at S n. 4.
. Accordingly, the Court does not reach CIBC’s argument that the Court lacks specific or general personal jurisdiction over CIBC World Markets, Inc., which CIBC raised in its Motion to Supplement [Doc. #16].
. Order Confirming Chapter 11 Trustee's Second Amended Plan of Reorganization for Seven Seas Petroleum, Inc., Exh. 6 to CIBC’s Motion [Doc. # 13], § 12.2 (emphasis added) (“Order of Confirmation”).
. This ruling is consistent with the Court's comments during the initial pretrial conference on February 9, 2009, when the Court discussed with the parties the issue of who is the appropriate party-in-interest to assert the claims in the Amended Complaint. See Transcript of Initial Pretrial Conference, [Doc. # 21], at 16. The parties have been aware of the issue for a substantial period of time, if not from the case’s inception, and it is still early in the case. There is no surprise to CIBC. The Court clearly informed the parties that it would permit Plaintiff to file an amended complaint naming Seven Seas the real party in interest, if appropriate.
. CIBC's Motion [Doc. # 13], at 10.
.In In re Seven Seas, bondholders of Seven Seas' unsecured notes brought an action against Chesapeake, a secured creditor of Seven Seas, asserting claims for conspiracy to defraud and aiding and abetting fraud. On appeal, the Fifth Circuit held that the claims asserted by the bondholders were not the property of Seven Seas' bankruptcy estate because the claims could not have been brought by Seven Seas at the commencement of the bankruptcy proceeding.
. Order of Confirmation, Exh. 6 to CIBC's Motion [Doc. # 13], § 12.2.
. CIBC’s Motion [Doc. # 13], at 9 (emphasis in original).
. It is also immaterial, from a Rule 12(b)(1) and subject matter jurisdiction standpoint, that the claim may not result in any, let alone significant, damages. Such a deficiency must be addressed in due course on the merits.
. With respect to CIBC's argument that Plaintiff cannot demonstrate injury to Seven Seas because it was already insolvent at the point at which the alleged injury took place, the Court disagrees. As aptly stated by the Honorable Melinda Harmon in a related case, this argument fails to consider that the alleged injury
ultimately cost Seven Seas its very existence, which is affirmative harm to all of Seven Seas' constituencies, including the shareholders. The Court notes that to hold otherwise would essentially permit a director to pursue any course of action without scrutiny if the corporation is in dire financial straits. Such a result would be untenable.
Floyd,
.The United Operating decision was issued nearly six months before CIBC filed its Motion to Dismiss. CIBC nevertheless first raised this argument in its Supplemental Brief [Doc. # 26], which it filed after CIBC’s Motion to Dismiss was fully briefed.
.By way of background information, Dynasty owned several oil and gas properties that were not in production at the time Dynasty it filed its Chapter 11 petition. Citizens Bank, Dynasty’s largest creditor, moved the court to appoint an operator to bring these properties back into production. The bankruptcy court appointed Wildcat Energy to operate the properties until the confirmation of the Chapter 11 plan. Under the plan, Dynasty’s operating assets were liquidated through sale to Saber Resources. Dynasty, however, was to survive as a corporation with limited powers to pursue some claims on behalf of the estate. After confirmation of the plan, Dynasty filed a state court action against Citizens Bank and Wildcat, alleging common law claims including fraud, breach of fiduciary duty, and negligence arising out of the defendants’ pre-confirmation management of the bankruptcy estate’s assets.
. CIBC’s Supplemental Brief [Doc. # 23], at 9.
. Plaintiff’s Response to Supplemental Brief [Doc. # 27], at 15.
. Chapter 11 Trustee’s Second Amended Plan of Reorganization for Seven Seas Petroleum, Inc., Exh. 4A to CIBC’s Supplemental Brief [Doc. # 26].
. Second Amended Disclosure Statement under 11 U.S.C. § 1125 in Support of Trustee’s First Amended Plan of Reorganization,
. Reorganization Plan [Doc. # 26, Exh. 4A], § 12.2.
. Disclosure Statement [Doc. # 26, Exh. 3], § IV.C.l (emphasis added).
. Reorganization Plan [Doc. # 26, Exh. 4A], at 6.
. Disclosure Statement [Doc. # 26, Exh. 3], § VII.D.l.
. Id., § VII.D.4.
. See
S.I. Acquisition,
. CIBC Engagement Letter, Exh. 1 to CIBC’s Motion [Doc. # 13], at 5.
. The choice of law clause in
Benchmark Elecs,
provided that the "Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York.”
Benchmark Elecs.,
. CIBC’s Reply [Doc. # 23], at 10.
. The relevant factors include "(a) the needs of the interstate and international systems; (b) the relevant policies of the forum; (c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue; (d) the protection of justified expectations; (e) the basic policies underlying the particular field of law; (£) certainty, predictability and uniformity of result; and (g) ease in the determination and application of the law to be applied.” Restatement (Second) of Conflict of Laws § 6(2) (1971).
. The relevant § 145(2) factors include "(a) the place where the injury occurred, (b) the place where the conduct causing the injury occurred, (c) the domicil [sic], residence, nationality, place of incorporation and place of business of the parties, and (d) the place where the relationship, if any, between the parties is centered." Restatement (Second) of Conflict of Laws § 145(2) (1971). These factors are to be evaluated according to their relative importance with respect to the particular issue. Id.
. Section 148 provides that "[w]hen the plaintiffs action in reliance took place in whole or in part in a state other than that where the false representations were made, the forum will consider such of the following contacts, among others, as may be present in the particular case in determining the state which, with respect to the particular issue, has the most significant relationship to the occurrence and the parties: (a) the place, or places, where the plaintiff acted in reliance upon the defendant’s representations, (b) the place where the plaintiff received the representations, (c) the place where the defendant made the representations, (d) the domicil [sic], residence, nationality, place of incorporation and place of business of the parties, (e) the place where a tangible thing which is the subject of the transaction between the parties was situated at the time, and (f) the place where the plaintiff is to render performance under a contract which he has been induced to enter by the false representations of the defendant.” Restatement (Second) of Conflict of Laws § 148(2) (1971).
.Id. at 6.
.Plaintiff argues that three exceptions to the
in pari delicto
defense apply to prevent application of this affirmative defense to Plaintiff's claims: the adverse interest exception, the corporate insider exception, and the innocent insider exception.
See, e.g., Silverman v. H.I.L. Assocs.,
. CIBC's Motion [Doc. # 13], at 16.
. Id.
.Citing dicta in
Hall v. GE Plastic Pacific PTE, Ltd.,
. CIBC’s Motion [Doc. # 13], at 18.
. See Plaintiff's Response to Director and Entity Defendants' Motion for Summary Judgment, Exh. 7 to CIBC’s Motion [Doc. # 13],
.
Floyd,
. The Court does note, however, that Plaintiff appears to have argued factual theories in the prior litigation against CIBC that are somewhat inconsistent with those Plaintiff asserts here.
. Engagement Letter, Exh. 1 to CIBC’s Motion [Doc. # 13], at 4.
. "Indemnified Party” is defined in the engagement letter as "CIBC World Markets, and its affiliates and their respective directors, officers, employees, agents and controlling persons.” Id. at 7.
.Id.
.The clause in Official Committee of Unsecured Creditors provided that:
The Company [SmarTalk] also agrees that no Indemnified Person shall have any liability (whether direct or indirect, in contract or tort or otherwise) to the Company for or in connection with advice or services rendered or to be rendered by an Indemnified Person pursuant to this Agreement, the transactions contemplated hereby or any Indemnified Person’s actions or inactions in connection with such advice, service or transactions except for Liabilities (and related Expenses) of the Company that are determined by a judgment of a court of competent jurisdiction which is no longer subject to appeal or further review to have resulted solely from such Indemnified Person's gross negligence or willful misconduct in connection with any such advice, actions, inactions or services.
Official Comm. of Unsecured Creditors,
. Plaintiff's Response [Doc. # 19], at 37.
. Id. at 36-37 (emphasis in original).
. Engagement Letter, Exh. 1 to CIBC's Motion [Doc. # 13], at 7.
. Id.
. Id. at 4.
. Plaintiff's Response [Doc. # 19], at 38.
.Engagement Letter, Exh. 1 to CIBCs Motion [Doc. # 13], at 7.
. Id. (“Seven Seas agrees not to enter into any ... release or settlement ... in respect of which indemnification may be sought hereunder without the prior written consent of CIBC ...") (emphasis added).
. CIBC's Reply [Doc. # 23], at 20.
. Motion to Compromise Claims against Director and Entity Defendants under Bankruptcy Rule 9019, Exh. 5 to CIBC's Motion [Doc. # 5].
. Order Approving Compromise and Settlement Between Plaintiffs and the Director and Entity Defendants, Bankruptcy Case No. 02-45206 [Doc. # 366],
. Plaintiff's Amended Complaint [Doc. # 5], ¶ 19.
. Plaintiffs Amended Complaint [Doc. # 5], ¶ 19.
. Plaintiffs Surreply [Doc. #25], at 12-13.
. As a threshold matter, Plaintiff advances the argument that it is not required to plead its fraud claims specifically because Plaintiff is suing CIBC for pre-petition acts. Plaintiff clarifies that a more liberal pleading standard is applied to fraud allegations in bankruptcy cases, citing
In re Allou Distributors, Inc.,
. Plaintiff’s Response [Doc. # 19], at 49.