     11-1071-cv
     Alki Partners, L.P. v. Windhorst

                          UNITED STATES COURT OF APPEALS
                              FOR THE SECOND CIRCUIT

                                     SUMMARY ORDER
     RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED
     ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE
     PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A
     DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN
     ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST
     SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

 1            At a stated term of the United States Court of Appeals
 2       for the Second Circuit, held at the Daniel Patrick Moynihan
 3       United States Courthouse, 500 Pearl Street, in the City of
 4       New York, on the 21st day of March, two thousand twelve.
 5
 6       PRESENT:
 7                    DENNIS JACOBS,
 8                         Chief Judge,
 9                    DENNY CHIN,
10                    SUSAN L. CARNEY,
11                         Circuit Judges.
12
13       - - - - - - - - - - - - - - - - - - - -X
14       Alki Partners, L.P., Alki Fund, Ltd.,
15                Plaintiffs-Appellants,
16
17                    -v.-                                               11-1071-cv
18
19       Lars Windhorst, Peter A. Ogrisek,
20       Robert B. Hersov, Credit Suisse Group
21       AG, Frederick Ruiz,
22                Defendants-Appellees,
23       - - - - - - - - - - - - - - - - - - - -X
24
25       FOR PLAINTIFFS-APPELLANTS:            Brian D. Graifman, Gusrae,
26                                             Kaplan, Bruno & Nusbaum PLLC,
27                                             New York, NY.
28




                                                  1
 1   FOR DEFENDANTS-APPELLEES
 2   WINDHORST, OGRISEK, AND
 3   HERSOV:                       James A. Beha, II (Christopher
 4                                 Allegaert and Howard Chen, on
 5                                 the brief), Allegaert Berger &
 6                                 Vogel LLP, New York, NY.
 7
 8   FOR DEFENDANTS-APPELLEES
 9   CREDIT SUISSE GROUP AG
10   AND FREDERICK RUIZ            Michael T. Sullivan, Sullivan &
11                                 Worcester LLP (Stuart Alan
12                                 Krause, Zeichner Ellman & Krause
13                                 LLP, on the brief), New York,
14                                 NY.
15

16       Appeal from a judgment of the United States District

17   Court for the Southern District of New York (Batts, J.).

18

19       UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED,

20   AND DECREED that the judgment of the district court is

21   AFFIRMED.

22

23       Plaintiffs-Appellants Alki Partners, L.P., and Alki

24   Fund, Ltd., appeal the grant of the defendants’ motions to

25   dismiss the complaint.     We assume the parties’ familiarity

26   with the underlying factual allegations, the procedural

27   history of the case, and the issues on appeal.

28       Like the district court, we assume the truth of the

29   well-pleaded factual allegations in the First Amended


                                     2
1    Complaint, as well as the allegations that Plaintiffs argue

2    they would include in a putative second amended complaint.

3    [1] Plaintiffs argue on appeal that the district court

4    erred in analyzing their misrepresentation claim as a

5    market-manipulation claim.   But it is clear from the face of

6    the complaint that Plaintiffs’ claim for relief was for

7    market manipulation -- not for misrepresentation, as they

8    now urge.    Because a plaintiff cannot amend the complaint

9    through an appellate brief, Cody v. Harris, 409 F.3d 853,

10   859 (7th Cir. 2005) (quoting Kennedy v. Venrock Assocs., 348

11   F.3d 584, 594 (7th Cir. 2003)); Daury v. Smith, 842 F.2d 9,

12   15 (1st Cir. 1988), Plaintiffs cannot assert a different

13   claim on appeal by arguing it in their appellate brief.

14   [2] Even if Plaintiffs had asserted a claim for

15   misrepresentation, their allegations would still fail to

16   state an actionable claim for relief.   The requisite

17   elements of a securities fraud claim involving statements or

18   omissions are: (1) a material misrepresentation or omission,

19   (2) scienter, (3) a connection with the purchase or sale of

20   a security, (4) reliance, (5) economic loss, and (6) loss

21   causation.   Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 341-

22   42 (2005).


                                    3
1        Plaintiffs have not alleged any fact to show that

2    Hersov made any statement to them that was materially false

3    or misleading.   The First Amended Complaint has no factual

4    allegation at all regarding statements made by Hersov.     See

5    Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 570 (2007)

6    (holding that a complaint must plead “enough facts” to

7    “raise a right to relief above the speculative level” and

8    state a “plausible” claim); accord Ashcroft v. Iqbal, 129 S.

9    Ct. 1937, 1949 (2009) (holding that “‘naked assertion[s]’

10   devoid of ‘further factual enhancement,’” and “unadorned,

11   the-defendant-unlawfully-harmed-me accusation[s]” are

12   insufficient to state a claim for relief that is plausible).

13   [3] Similarly, the First Amended Complaint is devoid of any

14   factual allegation regarding any allegedly false statement

15   made by Ogrisek.   The only potentially relevant allegation

16   about him was that he was one of the managing directors of

17   Vatas; but that is insufficient to make him personally

18   liable absent a link between him and the fraudulent

19   misstatement or omission.   See Mills v. Polar Molecular

20   Corp., 12 F.3d 1170, 1175 (2d Cir. 1993).   Plaintiffs’ new

21   allegations against Ogrisek -- that he signed two Schedule

22   13G reports and one Schedule 13D report relating to RMDX


                                   4
1    stock held by Vatas -- are also insufficient because

2    Plaintiffs have not alleged facts showing that those reports

3    were materially false and have not established the

4    “requisite proximate relation[ship]” between those

5    statements and Plaintiffs’ purchases of RMDX stock.    See

6    Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc.,

7    552 U.S. 148, 158 (2008).

8    [4] Likewise, Plaintiffs have failed to allege facts

9    sufficient to show that Windhorst made any materially false

10   statement.   Plaintiffs allege that Windhorst’s assurance

11   that Vatas would buy the shares from Plaintiffs was false

12   because Vatas did not ultimately buy all of Plaintiffs’

13   shares.   But the failure to perform a promise “does not

14   constitute fraud if the promise was made with a good faith

15   expectation that it would be carried out.”   Luce v.

16   Edelstein, 802 F.2d 49, 56 (2d Cir. 1986); accord Mills, 12

17   F.3d at 1176.   Plaintiffs have not alleged facts tending to

18   demonstrate that Windhorst’s statement was made in bad faith

19   -- nor could they, because Vatas initially purchased the

20   shares as per the agreement.   See Elliott Assocs., L.P. v.

21   Hayes, 141 F. Supp. 2d 344, 355-56 (S.D.N.Y. 2000)

22   (reasoning that the defendant’s initial performance is


                                    5
1    “compelling evidence . . . [that] negat[es] any inference of

2    fraudulent intent”), aff’d 26 F. App’x 83 (2d Cir. 2002)

3    (summary order).

4        The conclusory allegation that Vatas was

5    “undercapitalized” is not entitled to the assumption of

6    truth, Twombly, 550 U.S. at 555, and Plaintiffs have alleged

7    no facts supporting the conclusion that Vatas was

8    undercapitalized (other than its eventual bankruptcy).    More

9    importantly, Plaintiffs have not alleged any facts that

10   Windhorst knew that Vatas was undercapitalized.

11       Plaintiffs allege that Windhorst falsely stated that

12   Vatas could not buy the RMDX shares on the open market.     But

13   no facts are alleged to establish falsehood.   In any event,

14   the alleged statement was not material.   Plaintiffs entered

15   into this arrangement because Vatas promised to pay

16   Plaintiffs $0.05 to $0.10 profit for every share that

17   Plaintiffs purchased.   It did not matter whether Vatas’s

18   charter precluded it from making its own open-market

19   purchases of the shares.   See Mills, 12 F.3d at 1175

20   (holding that a “statement cannot be fraudulent if it did

21   not affect an investment decision of the plaintiff”).

22


                                   6
1        Plaintiffs allege that they were not informed that

2    other investors were also involved in the alleged scheme to

3    manipulate the market.   This allegation does not state a

4    claim.   Plaintiffs participated in the scheme because of the

5    per-share profit they were guaranteed under the agreement

6    with Vatas.   That other investors were allegedly also making

7    that same profit (or more, or less) was immaterial.

8    [5] Plaintiffs have not stated a fraud claim against Credit

9    Suisse and its employee, Ruiz.    Plaintiffs allege that they

10   were not informed that Vatas’s account had been frozen; but

11   they have not established that Credit Suisse was under any

12   obligation to inform them of a client’s account status.

13       Even if Plaintiffs sufficiently alleged materially

14   false statements by Credit Suisse and Ruiz, the claim would

15   still fail for lack of scienter: “intent to deceive,

16   manipulate, or defraud.”   Tellabs, Inc. v. Makor Issues &

17   Rights, Ltd., 551 U.S. 308, 319 (2007) (quotation marks

18   omitted).   To plead scienter, a plaintiff must “state with

19   particularity facts giving rise to a strong inference that

20   the defendant acted with the required state of mind” --

21   i.e., fraudulent intent.   15 U.S.C. § 78u-4(b)(2)(A).   To

22   plead scienter, a plaintiff must allege facts that “show


                                   7
1    either (1) that defendants had the motive and opportunity to

2    commit fraud, or (2) strong circumstantial evidence of

3    conscious misbehavior or recklessness.”   ECA, Local 134 IBEW

4    Joint Pension Trust v. JP Morgan Chase Co., 553 F.3d 187,

5    198 (2d Cir. 2009).   Plaintiffs argue that Credit Suisse and

6    Ruiz were motivated to earn the fees from the transactions

7    and maintain a good relationship with large clients, but

8    neither a desire to earn transactional fees1 nor a desire to

9    cultivate business relations2 is sufficient to establish

10   scienter.   Since Plaintiffs have also not alleged

11   circumstances strongly evidencing conscious misbehavior or

12   recklessness, the claim against Credit Suisse and Ruiz

13   fails.

14   [6] The district court did not err in denying Plaintiffs

15   leave to amend their complaint.   The district court

16   considered the “new” factual allegations Plaintiffs might


         1
            Friedman v. Ariz. World Nurseries Ltd. P’Ship, 730 F.
     Supp. 521, 532 (S.D.N.Y. 1990), aff’d 927 F.2d 594 (2d Cir.
     1991) (table); accord In re College Bound Consol. Litig.,
     No. 93 Civ. 2348, 1995 WL 450486, at *12 (S.D.N.Y. July 31,
     1995).
         2
           In re MRU Holdings Sec. Litig., 769 F. Supp. 2d 500,
     515 (S.D.N.Y. 2011); In re JP Morgan Chase Sec. Litig., 363
     F. Supp. 2d 595, 621 (S.D.N.Y. 2005) (collecting cases);
     accord In re Merrill Lynch Auction Rate Sec. Litig., No. 09
     MD 2030, 2011 WL 1330847, at *9 (S.D.N.Y. Mar. 30, 2011).
                                   8
1    include in a second amended complaint and concluded that

2    those allegations were still insufficient.    We agree that

3    Plaintiffs’ amendment would have been futile.    See Dougherty

4    v. Town of N. Hempstead Bd. of Zoning Appeals, 282 F.3d 83,

5    88 (2d Cir. 2002) (holding that amendment is futile if the

6    proposed additional facts do not state a claim upon which

7    relief can be granted).

8        We have considered all of Plaintiffs’ other arguments

9    and find them to be without merit.   Accordingly, the

10   judgment of the district court is AFFIRMED.

11
12                              FOR THE COURT:
13                              Catherine O’Hagan Wolfe,
14
15
16




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