In a decision dated August 9, 2010, Justice Bransten granted in part and denied in part a motion to dismiss a complaint brought by the plaintiff investor who purchased from defendant Dutch Book Funds, SPC, a segregated portfolio company, shares in a portfolio following its receipt of a Memorandum containing certain representations as to the portfolio, including a representation that the defendant fund had developed a certain set of algorithms that had been successfully used previously . After the plaintiff lost millions of dollars, the plaintiff brought suit against the fund, the fund’s investment advisor, and the CEO/CFO of the and alleged causes of action for breach of contract, breach of fiduciary duty, negligence, fraud, and personal liability against the CEO/CFO. The court granted the motion to dismiss insofar as it dismissed: (1) the breach of contract claim against the fund and the advisor because the Memorandum did not contractually obligate the fund to achieve the investment objective, and because there was no valid and binding contract between the plaintiff and the advisor; (2) the breach of fiduciary duty claim against all defendants because it was duplicative of the breach of contract claim asserted against the fund, the advisor owed no fiduciary duty to the plaintiff, and the plaintiff admitted it was a sophisticated investor and failed to allege that the CEO/CFO acted outside of his capacity as a corporate representative; and (3) the negligence claim against all defendants because it was duplicative of the breach of contract claim and no defendant owed a duty to the plaintiff beyond the terms of the Memorandum.
The court denied the motion with respect to the fraud claims, finding: (1) the alleged misrepresentations contained in the Memorandum were not merely aspirational, as the defendants argued, but may have mislead a reasonable investor; (2) the cautionary language contained in the Memorandum concerning risk disclosures did not insulate the defendants from a failure to disclose adverse current conditions; and (3) even as a sophisticated investor, the plaintiff may have justifiably relied on the misrepresentations concerning the algorithms. Finally, the court denied the motion to dismiss the claim for personal liability against the CEO/CFO, finding that the complaint sufficiently pled, and thus created an issue of fact as to whether the CEO/CFO “exercised complete dominion of the corporation in respect to the transaction attacked, and that such dominion was used to commit a fraud or wrong against the plaintiff which resulted in plaintiff’s injury.”