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Failure to Plead Statements of Present Fact, Among Other Deficiencies, Results in Dismissal of Fraud and Breach of Fiduciary Duty Claims

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  • Posted on: Jun 17 2020

In today’s post we examine, SHIR Capital, LLC v. Fortress Credit Advisors LLC, 2020 N.Y. Slip Op. 31825(U) (Sup. Ct., N.Y. County June 11, 2020) (here), a case involving an alleged fraud, breach of fiduciary duty, and misappropriation of trade secrets. 

We chose to SHIR Capital because of its common theme – pleading with particularity. As discussed below, pleading fraud, breach of fiduciary duty and the misappropriation of trade secrets requires particularity or specificity. The failure to provide the requisite particularity or specificity will, as in SHIR Capital, result in the dismissal of the claim.

SHIR Capital, LLC v. Fortress Credit Advisors LLC 


SHIR Capital arose from an aborted joint venture to purchase an apartment building in Austin, Texas. Plaintiff, SHIR Capital, LLC (“SHIR Capital”), initially explored the potential transaction and entered into a contract with the seller but needed a co-investor to close the deal. To that end, SHIR Capital was introduced to defendant, Fortress Credit Advisors LLC (“Fortress”), by an intermediary, defendant, CBRE Capital Markets, Inc. (“CBRE”). SHIR Capital and Fortress then entered into a letter agreement, which set out the framework for further discussions of a joint venture. But the joint venture never materialized. SHIR Capital decided to terminate its contract with the seller – the basis for the letter agreement – rather than pay an additional fee and lose its deposit. A few weeks later, SHIR Capital learned that Fortress, with the aid of CBRE, had purchased the property for itself.

SHIR Capital claimed that Fortress never intended to partner with it, but feigned interest in order to steal SHIR Capital’s business strategy and close the deal for itself. And CBRE, while purporting to act in SHIR Capital’s interest as “broker”, allegedly concealed its connections to Fortress and helped orchestrate the fraud against SHIR Capital. 

SHIR Capital alleged six causes of action, including fraud, breach of fiduciary duty, and misappropriation of trade secrets. Fortress (with CREF3 Copper Creek Owner LLC (“CREF3”), the entity that Fortress allegedly created for purposes of the acquisition) and CBRE moved to dismiss the complaint in its entirety.

The Court granted the motions.

We examine the decision with regard to the fraud, breach of fiduciary duty and misappropriation of trade secrets causes of action.

A. Claims Against CREF3

The Court dismissed all claims against CREF3 because the complaint contained no specific allegations of wrongdoing by CREF3. Instead, plaintiff “impermissibly lumped” CREF3 together with Fortress. RKA Film Fin., LLC v. Kavanaugh, 171 A.D.3d 678, 678 (1st Dept. 2019). Since plaintiff failed to allege that CREF3 made any misrepresentations, was a party to “any contract … that could give rise to breach of the duty of good faith and fair dealing,” or misappropriated any confidential information, the Court held that the complaint was deficient as against CREF3. Slip Op. at *6.

[Note: this Blog previously wrote about the problem of group pleading and the courts’ dismissal of claims that lump together numerous defendants without differentiation (here).]

B. Fraud

1. Fraud Claim Against Fortress

To state a claim for fraud, a plaintiff must allege “a misrepresentation or a material omission of fact which was false and known to be false by defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury.” Lama Holding Co. v. Smith Barney Inc., 88 N.Y.2d 413, 421 (1996). Importantly, “[t]o fulfill the element of misrepresentation of material fact, the party advancing the claim must allege a misrepresentation of present fact rather than of future intent.” Perella Weinberg Partners LLC v. Kramer, 153 A.D.3d 443, 449 (1st Dept. 2017). “General allegations of lack of intent to perform are insufficient; rather, facts must be alleged establishing that the adverse party, at the time of making the promissory representation, never intended to honor the promise.” Id.; Meiterman v. Corp. Habitat, 173 A.D.3d 593, 594 (1st Dept. 2019).

Significantly, “[a] claim rooted in fraud must be pleaded with the requisite particularity under CPLR 3016 (b).” Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553, 559 (2009). If “sufficient factual allegations of even a single element are lacking,” the claim must be dismissed. RKA Film Fin., LLC v Kavanaugh, 2018 WL 3973391, at *3 (Sup. Ct., N.Y. County 2018) (quoting Shea v. Hambros PLC, 244 A.D.2d 39, 46 (1st Dept. 1998)).

The Court held that SHIR Capital failed to allege, with the requisite particularity, any actionable misrepresentations of fact attributable to Fortress. The Court noted that the “fraud claim against Fortress hinge[d] on Fortress’s alleged misrepresentation that it ‘was interested in partnering with SHIR Capital.’” Slip Op. at *7. The Court explained that SHIR Capital merely “surmise[d]” that “Fortress must have been misleading SHIR” “because Fortress ultimately did not partner with it, and promptly purchased the Property without it.” The Court concluded that “[t]his line of reasoning, premised on a ‘conclusory statement of intent’, was insufficient to support a fraud claim as a matter of law.” Id. at *7-*8 (citing Zanett Lombardier, Ltd. v Maslow, 29 A.D.3d 495 (1st Dept 2006). 

Fortress’s interest in partnering with SHIR Capital was memorialized in the Letter Agreement, and Fortress is not alleged to have breached any of the terms in that Agreement. When SHIR Capital terminated the PSA, moreover, Fortress was free to pursue its own transaction with Seller. The speed with which it exercised that right, without more, does not evince “a present intent to deceive.”

Id. at *8 (citation omitted). 

The Court rejected SHIR Capital’s argument that other alleged misrepresentations were statements of present fact, stating that they “reflect[ed] vague promises about future intentions.” Id. (citations omitted). 

“In addition,” explained the Court, “the fraud claim include[d] distinct allegations of fraudulent concealment, which center[ed] on CBRE’s failure to disclose a prior relationship with Fortress.” Id. at *9. “Those allegations fail[ed] to state a cause of action against Fortress,” concluded the Court, “because SHIR Capital [did] not allege any duty on Fortress’s part to disclose that information. Id. (citing P.T Bank Cent. Asia v. ABN AMRO Bank NV, 301A.D.2d 373, 376 (1st Dept. 2003); Sebastian Holdings, Inc. v. Deutsche Bank AG, 78 A.D.3d 446, 447 (1st Dept. 2010) (“lack of a fiduciary relationship between the parties is fatal to plaintiffs claim[] for … fraudulent concealment”).

2. Fraud Claim Against CBRE

The Court dismissed the fraud claim against CBRE “[f]or similar reasons” – “the alleged misrepresentations ascribed to CBRE consist[ed] of statements about future intent and events outside the control of the Defendants ….” Id. at *9.

The Court also held that the fraud claim against CBRE was “duplicative of the breach of fiduciary duty claim asserted against it.” Id. at *10. (citing Interventure 77 Hudson LLC v. Falcon Real Estate Inv. Co., LP, 172 A.D.3d 481, 481-82 (1st Dept. 2019); Pai v. Blue Man Grp. Pub., LLC, 151 A.D.3d 456 (1st Dept. 2017). “Both claims arise from the same factual allegations and seek the same damages,” said the Court. Id. (citations omitted).

C. Breach of Fiduciary Duty Against CBRE

To plead a breach of fiduciary duty claim, “a plaintiff must allege that the defendant owed him a fiduciary duty, that the defendant committed misconduct, and that the plaintiff suffered damages caused by that misconduct.” NRT NY, L.L.C. v. Morin, 147 A.D.3d 589, 589 (1st Dept. 2017). The Court held that SHIR Capital failed to state a cause of action for breach of fiduciary duty against CBRE.

The Court explained that the Complaint failed to establish that CBRE owed a fiduciary duty to SHIR Capital. The Court noted that CBRE was brought in “to identify potential investors in return (ultimately) for a fee if the transaction were successful.” Id. at *11. “That is the prototypical role of a ‘finder,’” said the Court, “which generally does not create a ‘relationship of higher trust.’” Id. The complaint, concluded the Court, was devoid of any allegations that SHIR Capital “retained CBRE to act as a broker or to provide expert knowledge or advice in negotiating the joint venture.” Id.  “Placing the label ‘broker’ on CBRE’s alleged functions,” said the Court, “does not change the result.” Id. at *12.

C. Trade Secret Misappropriation Against Fortress

“To prevail on a claim for misappropriation of trade secrets, a plaintiff must demonstrate: (1) that it possessed a trade secret, and (2) that the defendants used that trade secret in breach of an agreement, confidential relationship or duty, or as a result of discovery by improper means.” Schroeder v. Pinterest Inc., 133 A.D.3d 12, 27 (1st Dept. 2015).

The Court held that “[f]or at least two reasons, SHIR Capital fail[ed] to allege a cause of action for misappropriation of trade secrets. First,” said the Court, “SHIR Capital failed to identify the trade secrets with sufficient specificity.” Slip Op. at *14 (citations omitted). The Court found that plaintiff merely alleged vague ideas and strategies concerning due diligence. Id. “Absent from the pleadings [was] a description of any specific concept or strategy that elevate[d] these routine due diligence materials to the status of trade secrets.” Id. (citations omitted). Second, SHIR Capital failed “to allege the requisite novelty or originality that would qualify for trade secret protection.” Id. at *15. “A trade secret is any formula, pattern, device or compilation of information which is used in one’s business, and which gives him an opportunity to obtain an advantage over competitors who do not know or use it.” Schroeder, 133 A.D.3d at 27 (citation omitted). The Court held that “the work performed by SHIR Capital may have been laborious, but it was not novel.” Id. Consequently, the Court dismissed SHIR Capital’s claim for misappropriation of trade secrets.

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