UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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DANIEL RAVICHER,
Plaintiff,
v.
BANK OF AMERICA CORPORATION,
JPMORGAN CHASE & CO., and WELLS
FARGO & COMPANY, all Delaware
corporations,
Defendants.
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ECF CASE
13 Civ. 3908 (LLS)
Oral Argument Requested
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MEMORANDUM OF LAW IN SUPPORT OF
DEFENDANTS’ MOTION TO DISMISS THE COMPLAINT
Scott D. Musoff
Paul J. Lockwood
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
4 Times Square
New York, New York 10036
(212) 735-7852
Attorneys for Bank of America
Corporation
August 9, 2013
Gary W. Kubek
Ashley E. Fisher
DEBEVOISE & PLIMPTON LLP
919 Third Avenue
New York, New York 10022
(212) 909-6000
Attorneys for Defendant JPMorgan Chase
& Co.
Eric Seiler
Andrew W. Goldwater
Jason C. Rubinstein
Lindsey R. Skibell
FRIEDMAN KAPLAN SEILER &
ADELMAN LLP
7 Times Square
New York, New York 10036
(212) 833-1100
Attorneys for Defendant Wells Fargo &
Company
Case 1:13-cv-03908-LLS Document 11 Filed 08/09/13 Page 1 of 17
i
TABLE OF CONTENTS
TABLE OF AUTHORITIES .......................................................................................................... ii
PRELIMINARY STATEMENT .....................................................................................................1
STATEMENT OF FACTS ..............................................................................................................3
ARGUMENT...................................................................................................................................5
I. THE COMPLAINT SHOULD BE DISMISSED BECAUSE IT FAILS TO ALLEGE
THE ELEMENTS OF AIDING AND ABETTING FRAUD. ............................................5
A. The Complaint Fails to Plead Any Underlying Fraud. ............................................6
1. The Complaint Fails to Plead Herbalife’s Alleged Fraud with the
Requisite Particularity..................................................................................6
2. Plaintiff Fails to Plead Reasonable Reliance on the Purported
Fraud ............................................................................................................8
B. The Complaint Fails to Allege That Defendants Had Actual Knowledge of
Any Fraudulent Conduct..........................................................................................9
C. The Complaint Fails to Allege Substantial Assistance. .........................................10
CONCLUSION..............................................................................................................................13
Case 1:13-cv-03908-LLS Document 11 Filed 08/09/13 Page 2 of 17
ii
TABLE OF AUTHORITIES
Pages
CASES
In re Agape Litigation,
681 F. Supp. 2d 352 (E.D.N.Y. 2010) .....................................................................................12
In re Agape Litigation,
773 F. Supp. 2d 298 (E.D.N.Y. 2011) .....................................................................................10
Armstrong v. McAlpin,
699 F.2d 79 (2d Cir. 1983).........................................................................................................5
Banque Arabe et Internationale D’Investissement v. Maryland National Bank,
57 F.3d 146 (2d Cir. 1995).........................................................................................................9
Caputo v. Pfizer, Inc.,
267 F.3d 181 (2d Cir. 2001).......................................................................................................6
Cohen v. S.A.C. Trading Corp.,
711 F.3d 353 (2d Cir. 2013).......................................................................................................6
Cromer Finance Ltd. v. Berger,
137 F. Supp. 2d 452 (S.D.N.Y. 2001)......................................................................................11
In re Eugenia VI Venture Holdings, Ltd. Litigation,
649 F. Supp. 2d 105 (S.D.N.Y. 2008),
aff’d, 370 F. Appx. 197 (2d Cir. 2010) ......................................................................................5
Fraternity Fund Ltd. v. Beacon Hill Asset Management, LLC,
479 F.Supp.2d 349 (S.D.N.Y.2007).........................................................................................10
Glidden Co. v. Jandernoa,
5 F. Supp. 2d 541 (W.D. Mich. 1998) .....................................................................................11
Gray v. First Winthrop Corp.,
776 F. Supp. 504 (N.D. Cal. 1991) ..........................................................................................11
Herbalife International of America, Inc. v. Ford,
No. CV-07-02529 GAF (FMOx), slip op. (C.D. Cal. Aug. 25, 2009).......................................7
Inn Chu Trading Co. Ltd. v. Sara Lee Corp.,
810 F. Supp. 501 (S.D.N.Y. 1992) ............................................................................................6
Iowa Public Employee’s Retirement System v. Deloitte & Touche LLP,
No. 12 Civ. 2136, 2013 WL 245805 (S.D.N.Y. Jan. 23, 2013)...........................................9, 10
Case 1:13-cv-03908-LLS Document 11 Filed 08/09/13 Page 3 of 17
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JPMorgan Chase Bank v. Winnick,
406 F. Supp. 2d 247 (S.D.N.Y. 2005)........................................................................................5
Koppel v. 4987 Corp.,
Nos. 96 Civ. 7570, 97 Civ. 1754, 1999 WL 608783 (S.D.N.Y. Aug. 11, 1999).......................8
Kubin v. Miller,
801 F. Supp. 1101 (S.D.N.Y.1992)............................................................................................8
Lama Holding Co. v. Smith Barney Inc.,
88 N.Y.2d 413, 668 N.E.2d 1370 (N.Y. 1996) ..........................................................................5
Lerner v. Fleet Bank, N.A.,
459 F.3d 273 (2d Cir. 2006).........................................................................................5, 6, 9, 10
Musalli Factory for Gold & Jewellry v. JPMorgan Chase Bank, N.A.,
261 F.R.D. 13 (S.D.N.Y. 2009) ...............................................................................................12
Powers v. British Vita, P.L.C.,
57 F.3d 176 (2d Cir. 1995).........................................................................................................6
Rombach v. Chang,
355 F.3d 164 (2d Cir. 2004).......................................................................................................6
Rosner v. Bank of China,
No. 06 Civ. 13562, 2008 WL 5416380 (S.D.N.Y. Dec. 18, 2008),
aff’d, 349 Fed. Appx. 637 (2d Cir. 2009) ................................................................................11
Shields v. Citytrust Bancorp, Inc.,
25 F.3d 1124 (2d Cir. 1994).......................................................................................................6
South Cherry St., LLC v. Hennessee Group LLC,
573 F.3d 98 (2d Cir. 2009).........................................................................................................8
Terra Securities ASA Konkursbo v. Citigroup, Inc.,
450 F. Appx. 32 (2d Cir. 2011)..................................................................................................9
RULES
Fed. R. Civ. P. 9(b) ................................................................................................................ passim
Fed. R. Civ. P. 12(b)(6)....................................................................................................................1
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Defendants Bank of America Corporation (“Bank of America”), JPMorgan Chase & Co.
(“JPMorgan”) and Wells Fargo & Company (“Wells Fargo,” and collectively with Bank of
America and JPMorgan, “Defendants”) respectfully submit this memorandum in support of their
motion, pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure, to dismiss
the Complaint (“Complaint” or “Compl.”).
PRELIMINARY STATEMENT
This litigation is one of several attempts by pro se Plaintiff Daniel Ravicher, a lawyer-
investor, to salvage a “substantial” investment that is in danger of expiring worthless. Plaintiff
purchased put options based on his apparent belief that by November 2013 Herbalife Ltd.
(“Herbalife”) -- a marketing company that sells weight management, nutritional and personal
care products -- would be exposed as a supposed illegal pyramid scheme and its stock price
would tumble. Thus far that has not happened, and Herbalife’s stock price has actually increased
significantly in recent months. Faced with a prospective loss, Plaintiff has brought this action
against Bank of America, JPMorgan and Wells Fargo for supposedly aiding and abetting
Herbalife’s alleged pyramid scheme by simply continuing to honor their pre-existing credit
agreement with Herbalife. Plaintiff’s nine-page Complaint, however, fails to assert any plausible
basis for holding the Defendants liable, and it should therefore be dismissed pursuant to Rules
9(b) and 12(b)(6) of the Federal Rules of Civil Procedure. 1
Plaintiff acknowledges that the Defendants did nothing wrong by issuing credit to
Herbalife and continuing to perform their obligations under the credit agreement through early
1 Plaintiff has also brought a derivative action in this Court, purportedly on behalf of the same
Defendants he is suing in this action, alleging claims against officers and directors of Bank
of America, JPMorgan and Wells Fargo for their alleged failure to cause those companies to
terminate the credit agreement with Herbalife. See Ravicher v. Moynihan, et al., 13 Civ.
1665 (LLS). In addition, he has sued Carl Icahn in this Court for allegedly aiding and
abetting Herbalife’s purported fraud. See Ravicher v. Icahn, 13 Civ. 1666 (LLS).
Case 1:13-cv-03908-LLS Document 11 Filed 08/09/13 Page 5 of 17
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February 2013. The sole allegation Plaintiff makes is that on February 5, 2013, he supposedly
informed the Defendants about “the [Herbalife] fraud and their role therein” via letters he sent to
the CEO and General Counsel of each Defendant asking each company to cease doing business
with Herbalife, which they did not do. Compl. ¶ 19. Plaintiff now brings suit against the
Defendants because they did not immediately thereafter withdraw from the credit agreement.
Without addressing whether Defendants could have done so without breaching the agreement
(and thereby potentially exposing the companies he is supposedly trying to protect in his related
derivative action to liability), Plaintiff alleges that the Defendants aided and abetted Herbalife’s
alleged fraudulent pyramid scheme by honoring their contractual commitments after receipt of
his letters.
The Complaint should be dismissed for two reasons. First, Plaintiff’s aiding and abetting
claim fails because he has not pled any underlying fraud by Herbalife with the requisite
particularity. Specifically, Plaintiff has not alleged the circumstances of the purported fraud or
Herbalife’s scienter with requisite particularity, and he cannot meet the requirement of reliance
because he admits that he is aware of the purported truth, i.e., he made his investment precisely
because he believed Herbalife was a fraud, and therefore he was not misled.
Second, even assuming arguendo that Plaintiff has properly alleged a fraud by Herbalife,
he has failed to meet his burden under Rule 9(b) of pleading specific facts showing that any
Defendant actually knew of and substantially assisted the fraud. Given these fatal deficiencies in
the Complaint, it should be dismissed in its entirety.
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STATEMENT OF FACTS
A. The Plaintiff.
Plaintiff pro se Daniel Ravicher2 alleges that “[k]nowing that [Herbalife] is a fraudulent
pyramid scheme, [he] has established and maintains a substantial short position in [Herbalife]
stock.” Compl. ¶ 23.3 According to the Complaint, Herbalife “describes itself as ‘a network
marketing company [that] sells weight management, healthy meals and snacks, sports and
fitness, energy and targeted nutritional products, and personal care products worldwide.’”
Compl. ¶ 9. Plaintiff makes the conclusory allegation that Herbalife “is a fraudulent pyramid
scheme because it has a compensation program based primarily on providing payments to
participants for the recruitment of new participants, not on the retail sale of products or services.”
Id.
B. The Defendants.
Plaintiff alleges that on March 9, 2011, Herbalife announced that it had entered into a
$700 million revolving credit facility with, among other banks, the Defendants. See Compl.
¶¶ 14–15. He further alleges that on July 30, 2012, Herbalife announced an amendment to the
2 Ravicher is an attorney. See http://www.martindale.com/Daniel-Ben-Ravicher/2067152-
lawyer.htm.
3 Although the Complaint is silent as to the nature of Plaintiff’s purported “substantial
investment,” Plaintiff represented in another action, also pending before this Court,
that “Plaintiff currently owns 50 put option contracts with an expiration date of
November 16, 2013, that each give him the right to sell 100 shares of Herbalife at the price
of $45.00.” Memorandum of Law in Support of Plaintiff’s Motion for Preliminary
Injunction Against Defendant Carl C. Icahn at 5, Ravicher v. Icahn, 13-Civ.1666 (LLS)
(S.D.N.Y. June 19, 2013), ECF No. 8. In other words, Plaintiff is betting that Herbalife’s
stock price will fall below $45 before his put options expire on November 16, 2013.
Herbalife’s stock closed at $66.41 on August 8, 2013.
Case 1:13-cv-03908-LLS Document 11 Filed 08/09/13 Page 7 of 17
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credit facility to add a $500 million term loan arranged by Bank of America with Wells Fargo as
a joint lead arranger. See id. ¶¶ 17–18. Plaintiff acknowledges that at the time of these
arrangements and all times prior to February 5, 2013, “the defendants cannot be blamed for
playing an unwitting role in [Herbalife’s] fraud,” id. ¶ 19, because they did not have knowledge
of any alleged wrongdoing by Herbalife.
C. The Defendants’ Alleged Wrongdoing.
On February 5, 2013, Plaintiff sent letters to the CEO and General Counsel of each of the
Defendants allegedly “describing the [Herbalife] fraud and their role therein.” Compl. ¶19.
Plaintiff does not allege that he possessed any first-hand knowledge or had undertaken any
investigation concerning Herbalife’s purported fraud. The Complaint fails to identify any
evidence contained in these letters regarding the alleged fraud, and they in fact contained none.
The letters asked “each Defendant to withdraw its involvement with the [Herbalife] fraud, and
particularly withdraw the critical line of credit extended thereto.” Id.4
Despite the letters’ lack of any factual support for Plaintiff’s assertions concerning
Herbalife, the Complaint asserts, based solely on the Defendants’ alleged receipt of the letters on
February 7, 2013, that Defendants “had actual knowledge of the [Herbalife] fraud and their
continued involvement therein,” id. ¶ 20, and thus “began illegally aiding and abetting the
[Herbalife] fraud[.]” Id. ¶ 22. Plaintiff makes the conclusory allegation that by maintaining “the
critical line of credit” to Herbalife, the Defendants “have illegally caused the [Herbalife] share
4 Plaintiff did not attach copies of these letters to his Complaint in this action, but he did
include them as exhibits to the complaint in his purported derivative action, Ravicher v.
Moynihan, et al., 13 Civ. 1665 (LLS). Copies of the letters are submitted as Exhibit A to the
Declaration of Ashley E. Fisher (“Fisher Decl.”), submitted in support of this motion.
Case 1:13-cv-03908-LLS Document 11 Filed 08/09/13 Page 8 of 17
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price to be unjustifiably inflated, which has negatively impacted the value of Plaintiff’s
investment.” Id. ¶ 23.
On March 13, 2013, Plaintiff filed this action alleging that the Defendants have aided
and abetted Herbalife’s fraudulent activities. Compl. ¶ 26. Plaintiff fails to plead any specific
facts about his actual alleged losses as of the time he filed the Complaint.5
ARGUMENT
I. THE COMPLAINT SHOULD BE DISMISSED BECAUSE IT FAILS TO ALLEGE
THE ELEMENTS OF AIDING AND ABETTING FRAUD.
To state a claim for aiding and abetting fraud, Plaintiff must allege: “(1) the existence of
a fraud; (2) [the] defendant[s’] knowledge of the fraud; and (3) that the defendant[s] provided
substantial assistance to advance the fraud’s commission.” Lerner v. Fleet Bank, N.A., 459 F.3d
273, 292 (2d Cir. 2006) (quoting JPMorgan Chase Bank v. Winnick, 406 F. Supp. 2d 247, 252
(S.D.N.Y. 2005)). He must allege these elements with the particularity necessary to satisfy the
heightened pleading requirements of Rule 9(b) of the Federal Rules of Civil Procedure. See
Lerner, 459 F.3d at 292 (applying Rule 9(b) to claim for aiding and abetting fraud); Armstrong v.
McAlpin, 699 F.2d 79, 92–93 (2d Cir. 1983) (same). Plaintiff’s conclusory allegations do not
come close to meeting this standard, and thus his Complaint should be dismissed.
5 It is clear from Plaintiff’s submission in Ravicher v. Icahn, see n.3, supra, that his alleged
damages of over $200,000 represent the profit that he would gain in the event that
Herbalife’s stock price went to zero before the options expire, and that the purchase price of
these options, which is his actual maximum potentially compensable injury, is substantially
less than that amount. See Lama Holding Co. v. Smith Barney Inc., 88 N.Y.2d 413, 421, 668
N.E.2d 1370, 1374 (N.Y. 1996) (“Under the out-of-pocket rule, there can be no recovery of
profits which would have been realized in the absence of fraud.”); In re Eugenia VI Venture
Holdings, Ltd. Litig., 649 F. Supp. 2d 105, 122 (S.D.N.Y. 2008) (plaintiffs alleging fraud are
limited to recovering their out-of-pocket expenses, i.e., “the sum necessary to restore a party
to the position it occupied before commission of the fraud”), aff’d sub nom. Eugenia VI
Venture Holdings, Ltd. v. Glaser, 370 F. Appx. 197 (2d Cir. 2010).
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A. The Complaint Fails to Plead Any Underlying Fraud.
1. The Complaint Fails to Plead Herbalife’s Alleged Fraud with the
Requisite Particularity
Plaintiff’s claim that the Defendants aided and abetted Herbalife’s alleged fraud fails
because, among other reasons, the Complaint inadequately pleads the first element, Herbalife’s
purported underlying fraud. “A party [alleging fraud] must state with particularity the
circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). Plaintiff alleges that
“[Herbalife’s] pyramid scheme constitutes a fraud” in violation of a litany of statutes that are
subject to Rule 9(b)’s heightened pleading standard.6 “To satisfy this requirement, a complaint
must ‘specify the time, place, speaker, and content of the alleged misrepresentations,’ ‘explain
how the misrepresentations were fraudulent and plead those events which give rise to a strong
inference that the defendant[s] had an intent to defraud, knowledge of the falsity, or a reckless
disregard for the truth.’” Cohen v. S.A.C. Trading Corp., 711 F.3d 353, 359 (2d Cir. 2013)
(citing Caputo v. Pfizer, Inc., 267 F.3d 181, 191 (2d Cir. 2001)); see also Lerner, 459 F.3d at
290. In addition, the complaint must “provide some minimal factual basis” that gives rise to a
strong inference of fraudulent intent. Powers v. British Vita, P.L.C., 57 F.3d 176, 184 (2d Cir.
1995) (citation omitted). Plaintiff’s conclusory allegations about Herbalife are plainly
insufficient to meet the pleading standard required for fraud claims.
6 Plaintiff alleges fraud in violation of Section 12(a)(2) of the Securities Act of 1933, Section
10 of the Securities Exchange Act of 1934, Section 5 of the FTC Act, RICO and various
state laws. See, e.g., Rombach v. Chang, 355 F.3d 164, 171 (2d Cir. 2004) (holding that “the
heightened pleading standard of Rule 9(b) applies to . . . Section 12(a)(2) claims insofar as
the claims are premised on allegations of fraud”); Shields v. Citytrust Bancorp, Inc., 25 F.3d
1124, 1127 (2d Cir. 1994) (“Securities fraud allegations under § 10(b) and Rule 10b-5 are
subject to the pleading requirements of Rule 9(b)”); Cohen v. S.A.C. Trading Corp., 711
F.3d 353, 359 (2d Cir. 2013) (Rule 9(b)’s pleading standard “also applies to allegations of
fraudulent predicate acts supporting a RICO claim”); Inn Chu Trading Co. Ltd. v. Sara Lee
Corp., 810 F. Supp. 501, 506–07 (S.D.N.Y. 1992) (state law fraud claims presented in
federal court must satisfy Rule 9(b) requirements).
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The Complaint asserts, without any supporting facts, that Herbalife “is a fraudulent
pyramid scheme because it has a compensation program based primarily on providing payments
to participants for the recruitment of new participants, not on the retail sale of products or
services.” Compl. ¶ 9. This assertion is based on a federal district court opinion that supposedly
“found in 2009 that, ‘Herbalife’s entire business model appears to incentivize primarily the
payment of compensation that is “facially unrelated to the sale of product to the ultimate users[ ]
because it is paid based on the suggested retail price of the amount ordered [from Herbalife],
rather than based on actual sales to consumers.”’” Id. ¶ 11, quoting Herbalife Int’l of Am., Inc. v.
Ford, Case No. CV 07-02529 GAF (FMOx), slip op. at 16 (C.D. Cal. Aug. 25, 2009). Plaintiff
contends that this purported “factual finding by the California state [sic] court satisfies the Ninth
Circuit’s description of a pyramid scheme, meaning [Herbalife] is indeed, without question, a
fraud.” Compl. ¶ 11. However, the court in that case did not make any “factual finding” that
Herbalife is a fraud. Rather, the court held that “conflicting evidence . . . create[d] a triable
issue” of fact as to whether Herbalife qualifies as an “endless-chain-scheme” under California
law and thus denied the parties’ cross-motions for summary judgment. Herbalife Int’l of Am.,
Inc., slip op. at 17. (Copy submitted as Fisher Decl., Exhibit B).
The Complaint also makes the conclusory allegation that “[Herbalife] has also been
found to be a pyramid [sic] by a Belgian court” but fails to provide any information about that
opinion, such as what court rendered the decision, what the decision involved, or when it was
made. Compl. ¶ 12. Thus, neither the Central District of California decision nor the reference to
the unidentified Belgian decision renders Plaintiff’s fraud claim sufficiently particularized to
comply with Rule 9(b).
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Plaintiff similarly fails to identify any false or misleading statement or omission by
Herbalife on which he purportedly relied. The Complaint contains only conclusory allegations
that Herbalife uses unspecified “misleading, scientifically unsound reports” by some unidentified
“hired-gun experts who are not attorneys” to “distract and confuse the public regarding the
legality of its business model.” Compl. ¶12. Plaintiff does not allege with the required
specificity who made the reports, what misrepresentations were contained in such reports or
when and where those reports were made. See Kubin v. Miller, 801 F. Supp. 1101, 1117
(S.D.N.Y. 1992) (“Although the complaint contains various references to statements made by
[the defendant], . . . [the plaintiff] has failed to specify either the time . . . or place . . . of each of
[the defendant’s] alleged statements.”). Moreover, the Complaint offers no particularized facts
as to how those reports were fraudulent.
The Complaint also fails to plead any factual basis that gives rise to a strong inference of
Herbalife’s fraudulent intent. The Second Circuit has enumerated four circumstances that may
give rise to a strong inference of fraudulent intent—where the party who committed the
purported fraud: “(1) benefited in a concrete and personal way from the purported fraud . . . ;
(2) engaged in deliberately illegal behavior . . . ; (3) knew facts or had access to information
suggesting that [its] public statements were not accurate . . . ; or (4) failed to check information
[it] had a duty to monitor . . . .” South Cherry St., LLC v. Hennessee Group LLC, 573 F.3d 98,
110 (2d Cir. 2009) (citation omitted). The Complaint does not provide any factual basis to
establish any of these circumstances.
2. Plaintiff Fails to Plead Reasonable Reliance on the Purported Fraud
Critically, Plaintiff fails to meet another “essential element” of fraud: reasonable reliance
on a purported misrepresentation. Koppel v. 4987 Corp., Nos. 96 Civ. 7570, 97 Civ. 1754, 1999
WL 608783, at *3 (S.D.N.Y. Aug. 11, 1999). Plaintiff has admitted his lack of reliance because
Case 1:13-cv-03908-LLS Document 11 Filed 08/09/13 Page 12 of 17
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he alleges throughout his Complaint that he was aware of the supposed truth – that Herbalife is a
fraud – and indeed made his investment because of his knowledge of that purported fraud.
Plaintiff states that he “established and maintains a substantial short position in [Herbalife]
stock” “[k]nowing that [Herbalife] is a fraudulent pyramid scheme[.]” Compl. ¶ 23. See also id.
¶ 19 (admitting he “describe[d] the [Herbalife] fraud” to Defendants in a February 5, 2013
letter); id. ¶ 22 (admitting he “provided [Defendants] with actual knowledge … of [Herbalife’s]
fraud”). Thus, even if Plaintiff had alleged some kind of fraud relating to Herbalife (which he
has not), he was not defrauded, and thus he has no claim. For this reason alone, Plaintiff’s
underlying fraud claim fails. See Banque Arabe et Internationale D’Investissement v. Maryland
Nat. Bank, 57 F.3d 146, 156–57 (2d Cir. 1995) (plaintiffs could not allege reliance because
truth had been disclosed to them); Terra Sec. ASA Konkursbo v. Citigroup, Inc., 450 F. Appx. 32,
34–35 (2d Cir. 2011) (plaintiffs did not reasonably rely on false statements because they could
have learned truth).
Given all the foregoing deficiencies in Plaintiff’s allegations concerning Herbalife’s
purported fraud, he cannot maintain a claim of aiding and abetting fraud. On this basis alone, the
claims against all Defendants should be dismissed.
B. The Complaint Fails to Allege That Defendants Had Actual Knowledge of
Any Fraudulent Conduct.
Even if the Complaint properly alleged an underlying fraud, it fails to allege that the
Defendants had actual knowledge of any fraudulent conduct on the part of Herbalife.
See Lerner, 459 F.3d at 292–93 (plaintiff must allege aider and abettor possessed “actual
knowledge” of fraud, and allegation must be pled with the particularity required for fraud claims
generally). The standard for pleading “actual knowledge” for a claim of aiding and abetting a
fraud is more stringent than that for pleading the underlying fraud. See Iowa Pub. Emp.’s
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Ret. Sys. v. Deloitte & Touche LLP, No. 12 Civ. 2136, 2013 WL 245805, at *19 (S.D.N.Y.
Jan. 23, 2013); In re Agape Litig., 773 F. Supp. 2d 298, 308 (E.D.N.Y. 2011)) (“While a plaintiff
may adequately plead under Rule 9(b) the scienter required to support an underlying fraud claim
‘by providing a factual basis which gives rise to a strong inference of fraud, including facts that
constitute strong circumstantial evidence of . . . recklessness, [case law] defines knowledge in the
context of an aiding and abetting claim as actual knowledge.’”) (citations omitted). The plaintiff
“must allege that the defendant had actual knowledge of the wrongful conduct committed, not
simply that the defendant should have known of the conduct.” Id. (quotation and citation
omitted). See also Fraternity Fund Ltd. v. Beacon Hill Asset Mgmt., LLC, 479 F. Supp. 2d 349,
367 (S.D.N.Y. 2007).
Plaintiff merely alleges, based solely on the delivery of his letters, that “Plaintiff provided
[Defendants] with actual knowledge received February 7, 2013, of [Herbalife’s] fraud[.]”
Compl. ¶ 22. But Plaintiff’s conclusory letters, claiming no first-hand knowledge and providing
no other support for crediting his unsupported assertions concerning Herbalife, do not provide
any basis from which the Court can strongly infer actual knowledge on the part of any of the
Defendants concerning Herbalife’s purported fraud. See Lerner, 459 F.3d at 293 (“Although the
plaintiffs conclusorily allege that the banks had actual knowledge, we think that they failed to
plead facts with the requisite particularity to support that claim.”). Because the Complaint fails
to allege that the Defendants had actual knowledge of any fraud, Plaintiff’s claim for aiding and
abetting should be dismissed.
C. The Complaint Fails to Allege Substantial Assistance.
Lastly, even if Plaintiff’s letters were sufficient to establish actual knowledge, dismissal
of his aiding and abetting claim would nevertheless be proper because the Complaint fails to
allege that the Defendants substantially assisted Herbalife in the perpetration of its supposed
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fraudulent scheme. Substantial assistance is generally found where: (1) a defendant
“affirmatively assists, helps conceal, or by virtue of failing to act when required to do so enables
the fraud to proceed;” and (2) “the actions of the aider/abettor proximately caused the harm on
which the primary liability is predicated.” Cromer Fin. Ltd. v. Berger, 137 F. Supp. 2d 452, 470
(S.D.N.Y. 2001) (quotation and citation omitted); Rosner v. Bank of China, No. 06 Civ. 13562,
2008 WL 5416380, at *5 (S.D.N.Y. Dec. 18, 2008) (quotation and citation omitted), aff’d, 349
Fed. Appx. 637 (2d Cir. 2009).
Plaintiff alleges that the Defendants have provided substantial assistance to Herbalife’s
supposed fraud “through the maintenance of the critical line of credit thereto.” Compl. ¶ 22.
This allegation is insufficient because, first, the mere fact that the Defendants continue to honor
their contractual obligations as lenders under the credit agreement is insufficient to constitute
substantial assistance in a borrower’s commitment of a fraud. See Glidden Co. v. Jandernoa, 5
F. Supp. 2d 541, 557 (W.D. Mich. 1998) (“The Court is aware of no authority for holding a bank
liable for financing a client’s business undertaking on the basis that the client might be engaged
in fraud . . . . Where . . . there are no allegations or evidence that the Banks themselves made
any misrepresentations or took any actions to affirmatively hide their client’s misdeeds, there is
no basis for holding the Banks liable for aiding and abetting[.]”); Gray v. First Winthrop Corp.,
776 F. Supp. 504, 512 (N.D. Cal. 1991) (“The mere advancement of loans and performance of
ministerial tasks in relation to the loans does not constitute substantial assistance for aider and
abettor liability.”). Second, the Complaint provides no support for the allegation that the line of
credit is “critical”—or even necessary—to Herbalife, other than Plaintiff’s naked assertions that
merely because Herbalife (a publicly traded company) issued a press release in 2011 announcing
the line of credit, it supposedly “conceded it was extremely material” to their current business,
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and that Herbalife “needed to increase its credit limit even further in order to keep its fraud from
collapsing.” Compl. ¶¶ 16–17. Plaintiff offers no facts showing that Herbalife was dependent
on the credit line or could not have obtained credit from another source. The Complaint thus
offers no basis to satisfy the second element of substantial assistance: that the Defendants
proximately caused any harm to Plaintiff.
Moreover, an alleged “failure to act may not serve as the basis for claiming that the
[D]efendant[s] provided substantial assistance” to Herbalife. In re Agape Litig., 681 F. Supp. 2d
352, 365 (E.D.N.Y. 2010); see Musalli Factory for Gold & Jewellry v. JPMorgan Chase Bank,
N.A., 261 F.R.D. 13, 25 (S.D.N.Y. 2009) (“[T]o the extent that [plaintiff] bases its aiding and
abetting claim on JPMorgan’s failure to prevent the diversion by failing to shut down the account
or to inform [the plaintiff] of the account withdrawals, these omissions also do not rise to the
level of substantial assistance because there was no fiduciary relationship between the bank and
[the plaintiff].”)
Because the Complaint fails to allege any conduct by the Defendants that would
constitute substantial assistance, Plaintiff’s claim for aiding and abetting fraud fails, and the
Complaint should be dismissed in its entirety.
Case 1:13-cv-03908-LLS Document 11 Filed 08/09/13 Page 16 of 17
13
CONCLUSION
For the foregoing reasons, Defendants Bank of America, JPMorgan and Wells Fargo
respectfully submit that their motion to dismiss should be granted and that Plaintiff’s Complaint
should be dismissed.
Dated: August 9, 2013
Respectfully submitted,
FRIEDMAN KAPLAN SEILER &
ADELMAN LLP
By:/s/ Eric Seiler
Eric Seiler
Andrew W. Goldwater
Jason C. Rubinstein
Lindsey R. Skibell
7 Times Square
New York, New York 10036
Tel.: (212) 833-1100
Fax: (212) 909-6836
eseiler@fklaw.com
agoldwater@fklaw.com
jrubinstein@fklaw.com
rskibell@fklaw.com
Attorneys for Defendant
Wells Fargo & Company
DEBEVOISE & PLIMPTON LLP
By: /s/ Gary W. Kubek
Gary W. Kubek
Ashley E. Fisher
919 Third Avenue
New York, New York 10022
Tel.: (212) 909-6000
Fax: (212) 909-6836
gwkubek@debevoise.com
aefisher@debevoise.com
Attorneys for Defendant JPMorgan
Chase & Co.
SKADDEN, ARPS, SLATE,
MEAGHER & FLOM LLP
By:/s/ Scott D. Musoff
Scott D. Musoff
Paul J. Lockwood
4 Times Square
New York, New York 10036
Tel.: (212) 735-7852
Fax: (212) 735-2000
scott.musoff@skadden.com
paul.lockwood@skadden.com
Attorneys for Defendant
Bank of America Corporation
Case 1:13-cv-03908-LLS Document 11 Filed 08/09/13 Page 17 of 17
