Romain et al v. Seabrook et al

REPLY MEMORANDUM OF LAW in Support re: 123 MOTION to Dismiss the Amended Complaint

S.D.N.Y.November 15, 2017

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ELIZABETH ROMAIN, HERMAN JIMINIAN, JEANETTE FELICIANO, ALBIN DUCLET, and MARIA MOREIRA, and ON BEHALF OF THE COBA ANNUITY FUND and THE COBA GENERAL FUND, Plaintiffs, v. NORMAN SEABROOK, ELIAS HUSAMUDEEN, JOSEPH BRACCO, ELIZABETH CASTRO, MICHAEL MAIELLO, AMELIA WARNER, THOMAS FARRELL, KAREN TYSON, BENNY BOSCIO, KENYATTA JOHNSON, ALBERT CRAIG, DANIEL PALMEIRI, ANGEL CASTRO, FREDERIC FUSCO, PAULETTE BERNARD, PLATINUM MANAGEMENT (NY) LLC, MURRAY HUBERFELD, DAVID BODNER, MARK NORDLICHT, JONA RECHNITZ, JEREMY REICHBERG, KOEHLER & ISAACS LLP, BUCHBINDER TUNICK & COMPANY, DANIEL H. COOK AND ASSOCIATES, and STERLING VALUATION GROUP, Defendants. No. 1:16-cv-08470-JPO ORAL ARGUMENT REQUESTED DEFENDANT KOEHLER & ISAACS LLP’S REPLY IN SUPPORT OF ITS MOTION TO DISMISS PLAINTIFFS’ FIRST AMENDED COMPLAINT GIBSON, DUNN & CRUTCHER LLP 200 Park Avenue New York, NY 10166-0193 Telephone: (212) 351-4000 Facsimile: (212) 351-4035 Dated: November 15, 2017 Attorneys for Defendant Koehler & Isaacs LLP Case 1:16-cv-08470-JPO Document 161 Filed 11/15/17 Page 1 of 16 i TABLE OF CONTENTS Page INTRODUCTION .......................................................................................................................... 1 ARGUMENT .................................................................................................................................. 2 I. Plaintiffs Lack Standing Because They Failed Sufficiently to Allege Demand Futility............................................................................................2 II. Plaintiffs Lack Standing Because They Have Failed to Bring Their Action on Behalf of 5% of COBA Members ...........................................................4 III. The Court Should Dismiss the Claims Against the Firm on Jurisdictional Grounds .............................................................................................5 IV. Plaintiffs’ Claim for Breach of Fiduciary Duty Fails ..............................................6 V. Plaintiffs’ Claim for Aiding and Abetting Breach of Fiduciary Duty Fails ...............................................................................................................10 CONCLUSION ............................................................................................................................. 10 Case 1:16-cv-08470-JPO Document 161 Filed 11/15/17 Page 2 of 16 ii TABLE OF AUTHORITIES Page(s) Cases Ackerman v. Nat’l Prop. Analysts, Inc., 887 F. Supp. 494 (S.D.N.Y. 1992).............................................................................................6 Ash v. Alexander, 2000 WL 20704 (S.D.N.Y. Jan. 12, 2000) ............................................................................3, 4 Bd. of Managers of Foundry at Washington Park Condo. v. Foundry Dev. Co., 975 N.Y.S.2d 707 (Sup. Ct. 2013) .............................................................................................9 Wandel ex rel. Bed Bath & Beyond, Inc. v. Eisenberg, 871 N.Y.S.2d 102 (App. Div. 2009) ......................................................................................3, 4 Campbell v. Rogers & Wells, 631 N.Y.S.2d 6 (App. Div. 1995) ..............................................................................................8 Clark v. Trois, 801 N.Y.S.2d 330 (App. Div. 2005) ......................................................................................1, 5 In re Comverse Tech., Inc., 866 N.Y.S.2d 10 (App. Div. 2008) ............................................................................................4 Delollis v. Archer, 9 N.Y.S.3d 342 (App. Div. 2015) ..............................................................................................9 Felske v. Hirschmann, 2012 WL 716632 (S.D.N.Y. Mar. 1, 2012) .........................................................................2, 10 FindTheBest.com, Inc. v. Lumen View Tech. LLC, 20 F. Supp. 3d 451 (S.D.N.Y. 2014) ..........................................................................................6 Flutie Bros. v. Hayes, 2006 WL 1379594 (S.D.N.Y. May 18, 2006) .......................................................................8, 9 Guiles v. Simser, 826 N.Y.S.2d 484 (App. Div. 2006) ..........................................................................................7 Javaheri v. Old Cedar Dev. Corp., 804 N.Y.S.2d 408 (App. Div. 2005) ..........................................................................................3 Kahn v. Ran, 2012 WL 2367796 (N.Y. Sup. Ct. June 12, 2012) .....................................................................4 Case 1:16-cv-08470-JPO Document 161 Filed 11/15/17 Page 3 of 16 TABLE OF AUTHORITIES (continued) Page(s) iii Klein & Co. Futures v. Bd. of Trade of City of New York, 464 F.3d 255 (2d Cir. 2006).......................................................................................................6 Levy v. Huszagh, 2012 WL 4512038 (E.D.N.Y. Sept. 28, 2012) ..........................................................................4 Lin v. Filion, 2004 WL 911777 (S.D.N.Y. Mar. 19, 2004) .............................................................................5 Lyndonville Sav. Bank & Trust Co. v. Lussier, 211 F.3d 697 (2d Cir. 2000).......................................................................................................5 Marco v. Sachs, 55 N.Y.S.2d 406 (App. Div. 1945) ............................................................................................3 Marx v. Akers, 88 N.Y.2d 189 (1996) ........................................................................................................2, 3, 4 New York State Court Clerks Ass’n v. Unified Court Sys. of the State of New York, 25 F. Supp. 3d 459 (S.D.N.Y. 2014) ........................................................................................10 Philan Ins. Ltd. v. Frank B. Hall & Co., 786 F. Supp. 345 (S.D.N.Y. 1992).............................................................................................6 Philatelic Found. v. Kaplan, 647 F. Supp. 1344 (S.D.N.Y. 1986) ...........................................................................................6 Schutz v. Kagan Lubic Lepper Finkelstein & Gold, LLP, 2013 WL 3357921 (S.D.N.Y. July 2, 2013) ..............................................................................7 SCS Commc’ns, Inc. v. Herrick Co., 360 F.3d 329 (2d Cir. 2004).....................................................................................................10 Turner v. New York Rosbruch/Harnik, Inc., 84 F. Supp. 3d 161 (E.D.N.Y. 2015) .........................................................................................6 In re UBS AG Sec. Litig., 2012 WL 4471265 (S.D.N.Y. Sept. 28, 2012) .........................................................................10 Ulico Cas. Co. v. Wilson, Elser, Moskowitz, Edelman & Dicker, 865 N.Y.S.2d 14 (App. Div. 2008) ........................................................................................7, 9 Volmar Distributors, Inc. v. New York Post Co., 899 F. Supp. 1187 (S.D.N.Y. 1995) ...........................................................................................3 Case 1:16-cv-08470-JPO Document 161 Filed 11/15/17 Page 4 of 16 TABLE OF AUTHORITIES (continued) Page(s) iv Weil, Gotshal & Manges, LLP v. Fashion Boutique of Short Hills, Inc., 780 N.Y.S.2d 593 (App. Div. 2004) ......................................................................................6, 7 Statutes N.Y. Not-for-Profit Corp. § 623(a) ..............................................................................................1, 4 N.Y. Lab. § 725................................................................................................................................4 Case 1:16-cv-08470-JPO Document 161 Filed 11/15/17 Page 5 of 16 1 INTRODUCTION Plaintiffs fail to meaningfully respond to Koehler & Isaacs’s motion to dismiss, choosing instead to ignore controlling case law, embellish their wholly conclusory allegations, and focus on the Union Defendants’ separately filed (and substantively distinct) motion.1 This Court should accordingly dismiss Counts Three and Four against Koehler & Isaacs and dismiss the First Amended Complaint (“FAC”) in its entirety with prejudice. First, Plaintiffs lack standing to sue derivatively because their purported excuses for failing to make a demand—i.e., Seabrook’s alleged “control” over the Board and the Board’s purported failure inform itself “to a degree reasonably necessary”—are not pleaded with particularity. Moreover, Plaintiffs’ request that this Court jettison New York Not-for-Profit Corporation Law section 623(a)’s (“N-PCL § 623(a)”) 5% requirement ignores Clark v. Trois, 801 N.Y.S.2d 330 (App. Div. 2005), an appellate decision that involves nearly identical facts. Second, this Court lacks jurisdiction over Plaintiffs’ state law claims against Koehler & Isaacs because those claims do not arise out of the same set of facts that give rise to Plaintiffs’ RICO claim against defendants Seabrook, Platinum Partners, Rechnitz, and Huberfeld. By withdrawing their RICO claim against Koehler & Isaacs, Plaintiffs effectively conceded that this claim does not substantially overlap with the facts underlying the state law claims against the firm. And the relevant discretionary factors also counsel against exercising supplemental jurisdiction. Third, if the Court exercises supplemental jurisdiction, Plaintiffs’ breach of fiduciary duty claim must be dismissed because—despite Plaintiffs’ contention otherwise—New York law requires that Plaintiffs plead all the elements of legal malpractice. Plaintiffs’ opposition fails even to accept this applicable legal standard, let alone demonstrate that it has been satisfied. 1 Koehler & Isaacs does not respond to Plaintiffs’ “Appendix” of “Case Law Errors from [the] Union Defendants’ Motion to Dismiss” because it has been stricken. See Dkt. 159. Case 1:16-cv-08470-JPO Document 161 Filed 11/15/17 Page 6 of 16 2 Fourth, Plaintiffs’ state law claim for aiding and abetting breach of fiduciary duty fails because Plaintiffs plead no facts to suggest that Koehler & Isaacs knew or even should have known about the alleged Ponzi scheme, the alleged kickbacks, or any of Seabrook’s alleged breaches. In fact, Plaintiffs’ fail even to respond to any of Koehler & Isaacs’s arguments regarding Plaintiffs’ defective aiding and abetting claim, “effectively conced[ing] [the firm’s] arguments.” Felske v. Hirschmann, 2012 WL 716632, at *3 (S.D.N.Y. Mar. 1, 2012). ARGUMENT I. Plaintiffs Lack Standing Because They Failed Sufficiently to Allege Demand Futility Plaintiffs argue that they have pleaded “with particularity” facts demonstrating “that (1) a majority of the directors are interested in the transaction,” and that “(2) the directors failed to inform themselves to a degree reasonably necessary about the transaction . . . .” Marx v. Akers, 88 N.Y.2d 189, 198 (1996) (emphasis added); see Opp. at 17–22.2 They are wrong. Plaintiffs have not pleaded with particularity that a majority of the directors are interested in the transaction. Plaintiffs argue that they have pleaded with particularity that “Seabrook reduced the Executive Board to a mere instrumentality that approved his decisions unquestionably” and was “incapable of legitimately considering a demand.” Opp. at 19. Specifically, Plaintiffs maintain they levied “numerous, highly specific allegations” regarding the Board’s (1) “receiving expensive luxury gifts and ideal job assignments,” (2) its “admitted hands- off approach to fiduciary obligations,” (3) its “zealous defense of Seabrook even after his arrest,” and (4) its “decision to use precious COBA assets for his criminal defense.” Id. at 22. But none of these “allegations”—some of which were not pleaded in the FAC—suffices under Marx. 2 Notably, Plaintiffs do not contend that the FAC satisfies the third Marx requirement involving failure to exercise “business judgement in approving the transaction.” Marx, 88 N.Y.2d at 198. Moreover, Plaintiffs do not dispute that any alleged waiver here does not affect Koehler & Isaacs. See K&I Mot. at 11. Case 1:16-cv-08470-JPO Document 161 Filed 11/15/17 Page 7 of 16 3 First, Plaintiffs’ assertions regarding the Board’s “reaction to Plaintiffs’ petition campaign” (Opp. at 21–22) do not appear in the FAC and must therefore be disregarded. Volmar Distributors, Inc. v. New York Post Co., 899 F. Supp. 1187, 1194 (S.D.N.Y. 1995). In any event, this Court has already explained that COBA “must be afforded reasonable leeway to speak (or not speak) freely to its membership.” Dkt. 154, at 3. And the allegations regarding Seabrook’s legal fees (FAC ¶¶ 115–24) are similarly irrelevant, as the alleged payment of these fees occurred years after the conduct underlying the claims here and cannot excuse failure to make a demand. Second, Plaintiffs’ wholly conclusory allegations of “expensive luxurious gifts” and “implicit threats” (Opp. at 19) fall woefully short of pleading with particularity that a majority of the Board was “controlled” by Seabrook such that demand would have been futile.3 See K&I Mot. at 8–10; Wandel ex rel. Bed Bath & Beyond, Inc. v. Eisenberg, 871 N.Y.S.2d 102, 104–05 (App. Div. 2009) (Marx’s first test not met where allegations sufficiently pleaded self-interest of only three out of ten directors); Ash v. Alexander, 2000 WL 20704, at *2 (S.D.N.Y. Jan. 12, 2000) (Rakoff, J.) (failure to plead with sufficient “specificity” that majority of Board was “controlled”). Finally, Plaintiffs’ reliance upon Javaheri v. Old Cedar Dev. Corp., 804 N.Y.S.2d 408 (App. Div. 2005) is misplaced. There, the court found Marx’s first requirement satisfied where numerous board members were allegedly involved in improper conduct, with one member misappropriating corporate funds, and another member assisting in “manipulation of the corporate books and records and in creating false records.” Id. at 408. Here, Plaintiffs do not allege a single 3 Plaintiffs maintain that Marco v. Sachs, 55 N.Y.S.2d 406 (App. Div. 1945) (“Marco I”) “actually demonstrates why Plaintiffs have adequately plead[ed] demand futility.” Opp. at 22. Not so. There, as here, the allegations did “not set forth facts showing or fairly creating the inference that the directors are such only in form, and that the wrongdoer or wrongdoers against whom relief is sought actually perform such directorate duties.” Marco I at 407. Case 1:16-cv-08470-JPO Document 161 Filed 11/15/17 Page 8 of 16 4 Board member either knowingly or intentionally assisted in Seabrook’s alleged misconduct, and their allegations of his purported dominance do not satisfy Marx. See Ash, 2000 WL 20704, at *2. Plaintiffs have not pleaded with particularity that the Executive Board failed to inform themselves about the PPVA transactions to a degree reasonably necessary. In arguing that they have satisfied the second Marx requirement, Plaintiffs rely on In re Comverse Tech., Inc., 866 N.Y.S.2d 10 (App. Div. 2008), a case which—rather than demonstrating the sufficiency of Plaintiffs’ allegations—highlights their shortcomings. Plaintiffs in Comverse alleged with particularity a “purposeful and egregious [options] backdating scheme where the directors had significant reason to question or investigate . . . and failed to do so,” and further “failed to take action to correct the damage . . . even after the scheme came to light.” Wandel, 871 N.Y.S.2d at 105, 106 (distinguishing Comverse). Here, in contrast, “the amended complaint fails to plead with the requisite particularity that the directors had specific information or reason to inform themselves about the details of the [relevant transactions], and failed to do so.” Id.; cf. Levy v. Huszagh, 2012 WL 4512038, at *5 (E.D.N.Y. Sept. 28, 2012) (distinguishing Comverse). Instead, Plaintiffs conclusorily assert that the Board failed to provide a “meaningful check” on Seabrook or to exercise sufficient “oversight responsibility.” FAC ¶¶ 97, 145. Such allegations are not pleaded with particularity. See Kahn v. Ran, 2012 WL 2367796, at *3 (N.Y. Sup. Ct. June 12, 2012). II. Plaintiffs Lack Standing Because They Have Failed to Bring Their Action on Behalf of 5% of COBA Members Plaintiffs concede that they have not satisfied N-PCL § 623(a)’s 5% requirement, but they argue that such failure is not fatal to their derivative suit because they meet a separate standing requirement. See N.Y. Lab. § 725 (“LMIPA § 725”). Plaintiffs maintain that LMIPA § 725 “takes precedence” over N-PCL § 623(a) and that applying the 5% requirement here “would establish[] a dangerous precedent . . . .” Opp. at 9. Once again, Plaintiffs are wrong. Case 1:16-cv-08470-JPO Document 161 Filed 11/15/17 Page 9 of 16 5 As Plaintiffs themselves recognize, the New York Appellate Division has already applied N-PCL § 623(a) to a derivative suit against a not-for-profit labor organization like COBA. Opp. at 15. Specifically, in Clark v. Trois, the court affirmed dismissal of a derivative suit that sought “to recover misappropriated funds of a not-for-profit corporation,” the Rockland County Patrolmen’s Benevolent Association, based on allegations that the labor organization’s former president “improperly used” money “for his personal use.” 801 N.Y.S.2d at 330–31. The court held that dismissal was “proper[]” where—as here—the complaint did “not allege that the plaintiff represents at least five percent of the [labor organization’s] membership.” Id. at 331. Unable to distinguish Clark, Plaintiffs argue it was wrongly decided. See Opp. at 15–16. But the Appellate Division’s opinion “is entitled to presumptive deference as a statement of New York law.” Lin v. Filion, 2004 WL 911777, at *4 (S.D.N.Y. Mar. 19, 2004) (collecting cases). Applying Clark here would not establish any new—let alone “dangerous”—precedent, but would instead simply afford the appellate decision the deference to which it is entitled. See id. III. The Court Should Dismiss the Claims Against the Firm on Jurisdictional Grounds First, Plaintiffs fail to rebut the argument that the withdrawal of their RICO claim against Koehler & Isaacs counsels in favor of declining to exercise supplemental jurisdiction over Plaintiffs’ common law claims against the firm. See K&I Mot. at 13–15. Instead, Plaintiffs assert that the issue is “moot” because a single “RICO Defendant”—Murray Huberfeld—filed an answer. Opp. at 44. But Huberfeld’s answer is irrelevant, as Plaintiffs still must plead that their state law claims against Koehler & Isaacs arise out of a “common nucleus of operative fact” as their RICO claim. Lyndonville Sav. Bank & Trust Co. v. Lussier, 211 F.3d 697, 704 (2d Cir. 2000). Plaintiffs have failed to carry their burden, conclusorily asserting that all defendants “share liability arising out of the improper investments of COBA money” and are all “involved in the common nucleus of operative facts,” such that the claims “should all be resolved in the same forum.” Opp. at 44. Case 1:16-cv-08470-JPO Document 161 Filed 11/15/17 Page 10 of 16 6 But Plaintiffs effectively conceded that the required commonality is lacking when they withdrew the only claim “common” to Koehler & Isaacs and the other defendants. See K&I Mot. at 14. Second, Plaintiffs argue that the Court should exercise supplemental jurisdiction “even if no federal claims remain” because “this case has already been pending for approximately one year” and the Court has “developed a familiarity with the facts.” Opp. at 45. But courts routinely decline to exercise such jurisdiction at far later stages of litigation. E.g., Turner v. New York Rosbruch/Harnik, Inc., 84 F. Supp. 3d 161, 171 (E.D.N.Y. 2015); FindTheBest.com, Inc. v. Lumen View Tech. LLC, 20 F. Supp. 3d 451, 461 (S.D.N.Y. 2014).4 And “the values of judicial economy, convenience, fairness, and comity” do not favor exercising supplemental jurisdiction here. Klein & Co. Futures v. Bd. of Trade of City of New York, 464 F.3d 255, 262 (2d Cir. 2006). IV. Plaintiffs’ Claim for Breach of Fiduciary Duty Fails Plaintiffs’ arguments regarding their breach of fiduciary duty claim are without merit. First, rather than identify the allegations in the FAC that demonstrate the sufficiency of their claim, Plaintiffs argue that they “did not sue Koehler & Isaacs for legal malpractice” and that Koehler & Isaacs’s reliance upon Weil, Gotshal & Manges, LLP v. Fashion Boutique of Short Hills, Inc., 780 N.Y.S.2d 593 (App. Div. 2004) “does not support converting Plaintiffs’ claims for a breach of fiduciary duty into a claim for legal malpractice.” Opp. at 27. Plaintiffs are wrong. In Weil, Appellate Division expressly noted that (1) legal malpractice and attorney-breach of fiduciary duty claims “are co-extensive,” and (2) that the court has “never differentiated between 4 Plaintiffs’ cited cases are easily distinguishable. Opp. at 45 (citing Ackerman v. Nat’l Prop. Analysts, Inc., 887 F. Supp. 494, 510 (S.D.N.Y. 1992) (case had “already been removed from New York State Court”); Philan Ins. Ltd. v. Frank B. Hall & Co., 786 F. Supp. 345, 348–49 (S.D.N.Y. 1992) (plaintiffs—not defendants—made a “delayed” request for dismissal, “render[ing] it unfair” to force defendants “to defend the same claims anew in state court”); Philatelic Found. v. Kaplan, 647 F. Supp. 1344, 1348 (S.D.N.Y. 1986) (noting “the anticipated completion of discovery in the near future”)). Case 1:16-cv-08470-JPO Document 161 Filed 11/15/17 Page 11 of 16 7 the standard of causation requested for a claim of legal malpractice and one for breach of fiduciary duty in the context of attorney liability.” 780 N.Y.S.2d at 596. Indeed, the court further explained that the trial court—in applying a “‘substantial factor’ causative standard”—“erred in holding that the ‘but for’ standard of causation, applicable to a legal malpractice claim, does not apply to the claim for breach of fiduciary duty.” Id. Subsequent decisions of the Appellate Division and federal courts make clear that under New York law, “in the context of an action asserting attorney liability, the claims of malpractice and breach of fiduciary duty are governed by the same standard of recovery.” Ulico Cas. Co. v. Wilson, Elser, Moskowitz, Edelman & Dicker, 865 N.Y.S.2d 14, 22 (App. Div. 2008) (emphasis added) (holding that New York malpractice law should apply to breach of fiduciary claim); Guiles v. Simser, 826 N.Y.S.2d 484, 485 (App. Div. 2006); Schutz v. Kagan Lubic Lepper Finkelstein & Gold, LLP, 2013 WL 3357921, at *9 (S.D.N.Y. July 2, 2013) (Engelmayer, J.), aff’d, 552 F. App’x 79 (2d Cir. 2014). Thus, contrary to Plaintiffs’ assertions, Weil does not merely preclude assertion of “duplicative” claims (Opp. at 28), but rather requires that Plaintiffs plead all the elements of legal malpractice to state a breach of fiduciary duty claim. Second, Plaintiffs fail to demonstrate they have sufficiently pleaded legal malpractice— i.e., (1) that Koehler & Isaacs was negligent, (2) that the firm’s negligence was a proximate cause of the loss Plaintiffs sustained, and (3) that Plaintiffs sustained actual damages. K&I Mot. 15–19. Plaintiffs fail sufficiently to plead that Koehler & Isaacs was negligent. Plaintiffs do not even argue that they pleaded negligence. Instead, they assert (without citing caselaw or the FAC) that Koehler & Isaacs “failed to advise the Executive Board that the PPVA investments were high risk and imprudent,” and that the firm “should have known that no financial advisor would find it prudent to invest 20% of the entire Annuity Fund in any type of venture.” Opp. at 29. Plaintiffs further assert—falsely—that Koehler & Isaacs “admits that it took on a duty to advise the Case 1:16-cv-08470-JPO Document 161 Filed 11/15/17 Page 12 of 16 8 Executive Board even if it was not required to do so.” Id. But Koehler & Isaacs made no such admission. Rather, the firm merely “assum[ed] the truth” of the FAC’s allegations, “as required on a motion to dismiss,” and argued those allegations failed to “show[] that Koehler & Isaacs was negligent.” K&I Mot. at 3, 17. The FAC alleges Koehler & Isaacs “conducted due diligence” on PPVA and raised “certain questions and concerns” before the investment was consummated. FAC ¶¶ 108–09, 111; K&I Mot. at 17–18. The FAC says nothing about what came of these “questions and concerns.” Nor do Plaintiffs’ allegations—which suggest nothing more than routine legal “due diligence” (FAC ¶ 108)—translate into the duties of a “financial advisor” (Opp. at 29). Cf. Campbell v. Rogers & Wells, 631 N.Y.S.2d 6, 9 (App. Div. 1995). Thus, even if Koehler & Isaacs allegedly failed to “warn[]” the full Board of the “pruden[ce]” of the Annuity Fund’s financial investment (FAC ¶¶ 4, 9), any such failure cannot constitute negligent provision of legal services. This is particularly so where the Annuity Fund hired its own financial advisor and made its financial decisions “in conjunction with [that] investment consultant . . . .”5 Id., Ex. C at ¶ 10(b). Plaintiffs fail to identify any allegations pleading that any purported breach of Koehler & Isaacs’s duties proximately caused actual and ascertainable damages. Instead of attempting to demonstrate how they meet the “high bar” required by but-for causation (Flutie Bros. v. Hayes, 2006 WL 1379594, at *8 (S.D.N.Y. May 18, 2006)), Plaintiffs attempt to read this causation requirement out of the law entirely, arguing that “[a]t this juncture,” they need only allege “that Koehler & Isaacs assumed a duty and failed to warn the Executive Board.” Opp. at 29. Of course, 5 As Koehler & Isaacs previously noted, the FAC selectively deleted allegations that a particular sub-group of the Executive Board had been “informed by Koehler & Isaacs” that the PPVA investment was “high risk” and “atypical of the type of investment usual for a prudent investor.” K&I Mot. at 16–17 (quoting Dkt. 3 ¶¶ 93–94). Rather than acknowledge this deletion, Plaintiffs accuse Koehler & Isaacs of being “deceptive.” Opp. at 30. Koehler & Isaacs respectfully reiterates the argument made in its motion. See K&I Mot. at 17. Case 1:16-cv-08470-JPO Document 161 Filed 11/15/17 Page 13 of 16 9 this is wrong: “In order to survive dismissal, [Plaintiffs] must establish proximate cause by showing that [they] would not have sustained actual damages but for [Koehler & Isaacs’s] alleged malpractice.” Bd. of Managers of Foundry at Washington Park Condo. v. Foundry Dev. Co., 975 N.Y.S.2d 707, at *2 (Sup. Ct. 2013) (emphasis added) (citation omitted); Ulico, 865 N.Y.S.2d at 22 (breach of fiduciary duty claim against law firm failed where “but for” causation was insufficiently pleaded). Next, Plaintiffs half-heartedly assert that they have “more than adequately pleaded proximate cause and damage arising out of Koehler & Isaacs’ breach of their fiduciary duties,” citing three conclusory sentences in the FAC. Opp. at 29 (citing FAC ¶¶ 166–68). But even accepting these allegations as true and “according the plaintiffs the benefit of every favorable inference,” Plaintiffs fail sufficiently to allege they “would not have suffered any damages but for [Koehler & Isaacs’s alleged] negligence.”6 Delollis v. Archer, 9 N.Y.S.3d 342, 343–44 (App. Div. 2015) (emphasis added). Ultimately, rather than meaningfully address their failure to plead but-for causation, Plaintiffs dismiss it instead as an “utterly absurd” requirement. Opp. at 29. Because Plaintiffs have failed to plead but-for causation, their breach of fiduciary claim fails. See, e.g., Flutie Bros., 2006 WL 1379594, at *6 (dismissing malpractice claim where plaintiff’s “hodgepodge of arguments of things it alleges [attorney] should have done[] do not in any way demonstrate that [the alleged] failures would have changed” the outcome of events). Plaintiffs do not even attempt to argue that they have sufficiently pleaded damages. Plaintiffs’ conclusory assertion regarding “significant damages” (FAC ¶ 166) is insufficient as a 6 Plaintiffs also fail to rebut Koehler & Isaacs’s argument that the FAC itself—by alleging that it would have been futile to inform the Board because of the Board’s “personal loyalty to Seabrook” (FAC ¶ 101)—undercuts any allegation that Koehler & Isaacs’s purported failure to inform the Board proximately caused any harm. See K&I Mot. at 18. Case 1:16-cv-08470-JPO Document 161 Filed 11/15/17 Page 14 of 16 10 matter of law to plead damages. See K&I Mot. at 19. Plaintiffs do not even address this argument in their opposition, conceding its force. See Felske, 2012 WL 716632, at *3. V. Plaintiffs’ Claim for Aiding and Abetting Breach of Fiduciary Duty Fails To state a claim for aiding and abetting (or inducing) breach of fiduciary duty, Plaintiffs must allege facts showing “[1] breach by a fiduciary of a duty owed to plaintiff; [2] defendant’s knowing participation in the breach; and [3] damages.” SCS Commc’ns, Inc. v. Herrick Co., 360 F.3d 329, 342 (2d Cir. 2004) (emphasis added). Koehler & Isaacs’s motion argued in detail that Plaintiffs failed to plead any of these elements. See K&I Mot. at 19–21. Plaintiffs’ opposition lists the elements of an aiding-and-abetting claim, but otherwise ignores all of Koehler & Isaacs’s arguments and cited caselaw. See Opp. at 25–30. Instead, Plaintiffs cite three irrelevant paragraphs in the FAC and assert—without citation to authority—that they “more than adequately pleaded” this claim “under notice pleading standards with plausible facts.” Id. at 29 (citing FAC ¶¶ 166–68). By “not directly address[ing] any of [Koehler & Isaacs’s] arguments” in their opposition, Plaintiffs have “conceded [Koehler & Isaacs’s] point[s] by silence.” In re UBS AG Sec. Litig., 2012 WL 4471265, at *18 (S.D.N.Y. Sept. 28, 2012) (Sullivan, J.), aff’d 752 F.3d 173 (2d Cir. 2014); New York State Court Clerks Ass’n v. Unified Court Sys. of the State of New York, 25 F. Supp. 3d 459, 469 (S.D.N.Y. 2014) (same). In light of these concessions, and for the reasons articulated in Koehler & Isaacs’s motion, Plaintiffs’ aiding-and-abetting claim fails and should be dismissed with prejudice. See K&I Mot. at 19–21 (collecting cases). CONCLUSION For the foregoing reasons, Koehler & Isaacs respectfully requests that this Court dismiss all claims against it with prejudice and grant such further relief as appropriate. Case 1:16-cv-08470-JPO Document 161 Filed 11/15/17 Page 15 of 16 11 Dated: November 15, 2017 Respectfully Submitted, GIBSON, DUNN & CRUTCHER LLP By: /s/ Reed Brodsky Reed Brodsky 200 Park Avenue New York, NY 10166-0193 Telephone: (212) 351-5334 Facsimile: (212) 351-6235 rbrodsky@gibsondunn.com Attorneys for Koehler & Isaacs LLP Case 1:16-cv-08470-JPO Document 161 Filed 11/15/17 Page 16 of 16