Preview
FILED: NASSAU COUNTY CLERK 10/30/2020 06:04 PM INDEX NO. 608354/2020
NYSCEF DOC. NO. 12 RECEIVED NYSCEF: 10/30/2020
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NASSAU
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Adrienne Goodman, Gary Goodman, and Beth Index No.: 608354/2020
Slosberg,
Plaintiffs,
- against -
Brian Tepfer, LBH Capital Inc, and Lake End Capital
LLC,
Defendants.
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MEMORANDUM OF LAW IN SUPPORT OF DEFENDANTS’ MOTION TO DISMISS
J. KAPLAN & ASSOCIATES, PLLC
Attorneys for the Defendants
60 East 42nd Street, Suite 4600
New York, New York 10165
(212) 601-9278
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Defendants Brian Tepfer, LBH Capital Inc (LBH), and Lake End Capital LLC, respectfully
submit this Memorandum of Law in support of their motion to dismiss the Verified Complaint,
dated August 10, 2020, pursuant to CPLR § 3211 (a) (1), (2), and (7).
PRELIMINARY STATEMENT
Plaintiffs are investors in Lake End Capital, LLC, a hedge fund formed in 2019. LBH
Capital, Inc. is the manager of the fund, and Tepfer controls the manager. Plaintiffs are suing to
recover losses incurred by the fund since its inception. However, the plaintiffs’ claims are all
either jurisdictionally defective or foreclosed by the investment agreements the parties entered
when the plaintiffs became investors.
ARGUMENT
I. The Legal Standard.
A motion pursuant to CPLR 3211(a)(1) to dismiss a complaint on the ground that a
defense is founded on documentary evidence “may be appropriately granted only where the
documentary evidence utterly refutes [the] plaintiff's factual allegations, conclusively
establishing a defense as a matter of law.” Goshen v. Mutual Life Ins. Co. of N.Y., 98 NY2d 314,
326, (2002); see Rodolico v. Rubin & Licatesi, P.C., 114 AD3d 923, 924-925 (2d Dept 2014).
The evidence submitted in support of such motion must be “documentary” or the motion
must be denied. Cives Corp. v. George A. Fuller Co., Inc., 97 AD3d 713, 714 (2d Dept 2012). In
order for evidence submitted in support of a CPLR 3211(a)(1) motion to qualify as documentary
evidence, it must be “unambiguous, authentic, and undeniable.” Granada Condominium III Assn.
v. Palomino, 78 AD3d 996, 996-997 (2d Dept 2010). “[J]udicial records, as well as documents
reflecting out-of-court transactions such as mortgages, deeds, contracts, and any other papers, the
contents of which are ‘essentially undeniable,’ would qualify as ‘documentary evidence’ in the
proper case.” Fontanetta v. John Doe 1, 73 AD3d 78, 84-85 (2d Dept 2010) (quoting David D.
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Siegel, Practice Commentaries, McKinney’s Cons Laws of NY, Book 7B, CPLR C3211:10 at
21-22).
CPLR § 3211(a)(7) provides that a party may move to dismiss “one or more causes of
action asserted against him on the ground that ... the pleading fails to state a cause of action.”
When evaluating a motion to dismiss pursuant to CPLR § 3211(a)(7), the Court must
“accept as true each and every allegation made by plaintiff and limit [its] inquiry to the legal
sufficiency of plaintiff’s claim.” Davis v. Boeheim, 24 NY3d 262 (2014). The Court’s task is to
“determine only whether the facts as alleged fit within any cognizable legal theory.” Leon v.
Martinez, 84 NY2d 83, 87–88 (1994). However, allegations consisting of bare legal conclusions
are not entitled to a presumption of truth. Webster v. Sherman, 165 AD3d 738, 739–740 (2d Dept
2018). A copy of the First Amended Complaint [hereinafter abbreviated as “FAC”] is attached to
the annexed affirmation of Joseph D. DePalma as Exhibit A.
II. Plaintiffs’ representations foreclose a cause of action for fraud in the inducement.
While a general merger clause will not operate to bar parol evidence of fraud in the
inducement, where the party alleging fraud has made its own specific representation indicating
that it is not relying on the alleged inducement, it is foreclosed from establishing its asserted
reliance on the ground that it has misrepresented its true intention. First Nationwide Bank v. 965
Amsterdam, Inc., 212 AD2d 469, 471 (1st Dept 1995); see also Barnaba Realty Group, LLC v.
Solomon, 121 AD3d 730, 731 (2d Dept 2014) (“[w]hile a general merger clause is ineffective to
exclude parol evidence of fraud in the inducement, a specific disclaimer defeats any allegation
that the contract was executed in reliance upon contrary oral representations”).
Plaintiffs allege that they were induced to enter the attached agreements based on
Tepfer’s misrepresentations that “(a) his personal account was realizing monthly gains of 20%-
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30% per month, (b) the fund [LBH] would realize monthly gains of 20%-30% per month, and (c)
that there was $500,000.00 invested in the Fund when there was actually only $400,000.00.”
Complaint at ¶ 30.
Prior to investing with the defendants, the plaintiffs each executed a subscription
agreement in which they made specific representations regarding their investment. Copies of the
executed Subscription Agreements executed by the plaintiffs are attached to the DePalma
affirmation as Exhibits B, C, and D. The plaintiffs made the following representations:
I acknowledge, represent and warrant to, and agree with, the
Fund as follows:
(a) I am aware that my investment involves a
high degree of risk and have read, reviewed and
understand the “Risk Factors” as set forth in the Term
Sheet;
(b) I am aware that there is no assurance as to
the future performance of the Fund;
[…]
(e) I have the financial ability to bear the
economic risk of my investment in the Fund (including its
possible total loss), have adequate means for providing for
my current needs and personal contingencies and have no
need for liquidity with respect to my investment in the
Fund;
(f) I have such knowledge and experience in
financial and business matters as to be capable of evaluating
the merits and risks of an investment in the Membership Units
and have obtained, in my judgment, sufficient information
from the Fund in order to evaluate the merits and risks of an
investment in the Fund;
(g) I: ________________
(1) have carefully read this Subscription Agreement,
the Term Sheet and the Risk Factors contained therein,
and the Operating Agreement and I understand and have
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evaluated the risks of a purchase of the Membership Units
and have relied solely (except as indicated in subsection (2)
and (3) below) on the information contained in this
Subscription Agreement and the Term Sheet;
(2) have also been provided an opportunity to obtain
material and relevant information from the Fund (provided
that such information can be acquired without unreasonable
effort or expense) enabling me to make an informed
investment decision; and
(3) have been given the opportunity to ask questions of,
and receive answers from, the Fund concerning the terms and
conditions of the Offering and other matters pertaining to this
investment.
[…]
(i) No representations or warranties have been
made to the undersigned by the Fund, or any of their
respective officers, employees, agents, affiliates or
attorneys;
[…]
(l) I have not received any general solicitation or
advertising regarding the purchase of the securities and I
became aware of this investment through a substantive, pre-
existing relationship with the Fund;
Subscription Agreement at B1-3 (emphasis added). Copies of the Term Sheet, Risk
Factors, and Operating Agreement acknowledged by the plaintiffs and integrated into the
Subscription Agreement are attached to the DePalma affirmation as Exhibit E1. Risk factors
identified and disclosed to the plaintiffs include warnings that “[w]e may not realize gains or
income from our investments, which would adversely affect your investment in the Fund”
(Exhibit E at A1); “[b]ecause the Manager has not managed securities for the accounts of others,
you do not have a “track record” to review in evaluating the investment opportunity” (Exhibit E
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The executed signature pages for each plaintiff are attached to the plaintiffs’ respective Subscription Agreement.
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at A3); and “[b]ecause there is no minimum amount of proceeds which the Fund may receive, it
creates further risk of the lack of diversification” (Exhibit E at A6).
The plaintiffs’ specific representations in the Subscription Agreement and the Risk Factor
disclosures reviewed and acknowledged by the plaintiffs refute the plaintiffs’ allegations that
they were induced to invest with the defendants due to the alleged misrepresentations set forth in
the complaint. The specific disclaimers in the attached agreements defeat plaintiffs’ allegations
that their investment decision was made in reliance upon contrary oral representations.
Accordingly, plaintiffs’ cause of action for Fraud in the Inducement must be dismissed. Barnaba
Realty Group, LLC v. Solomon, 121 AD3d 730, 731 (2d Dept 2014).
III. This Court does not have jurisdiction over the plaintiffs’ Securities Act claim.
CPLR § 3211(a)(2) allows a party to move for dismissal of a cause of action where the
Court lacks jurisdiction to hear the claim. 15 U.S. Code § 78aa “vests federal district courts with
exclusive jurisdiction to entertain [suits brought for violations of the Securities Exchange Act of
1934].” See, e.g., Financial Indus. Regulatory Auth., Inc. v. Fiero, 10 NY3d 12, 17 (2008)
(holding “state courts do not possess the power to hear and decide” Securities Exchange Act
Claims).
This Court lacks jurisdiction to adjudicate claims that the defendants violated the
Securities Exchange Act of 1934, and those claims must be dismissed.
IV. Plaintiffs have failed to allege any acts that occurred in Delaware.
The complaint alleges that “the Investment Agreements are governed by the laws of
the State of Delaware, and plaintiffs’ fourth cause of action is for alleged violations of the
Delaware Securities Act, 6 Del. Admin. Code §709, entitled “Dishonest or Unethical Practices,”
which prohibits an investment advisor from engaging in any act, practice, or course of business
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which is fraudulent, deceptive, or manipulative in contravention of Section 206(4) of the
Investment Advisers Act of 1940. Complaint at ¶ 51.
The Operating Agreement does not subject the parties’ actions to Delaware law, but
states merely that “[the] agreement shall be governed by and construed in accordance with the
domestic laws of the State of Delaware.” Exhibit E at C30 (emphasis added).
Furthermore, the Supreme Court of Delaware has stated that there is “a presumption
that a law is not intended to apply outside the territorial jurisdiction of the State in which it is
enacted” and “specifically held that the [Delaware Securities] Act does not apply to a Delaware
corporation simply by virtue of the act of incorporating in Delaware.” FdG Logistics LLC v.
A&R Logistics Holdings, 131 A3d 842, 853 (Del Court of Chancery 2016) (discussing Singer v.
Magnavox Co., 380 A2d 969, 981 [Del 1977]). A copy of the opinion in FdG Logistics LLC is
attached to the DePalma affirmation as Exhibit F for the Court’s convenience.
The plaintiffs’ allegations are thus insufficient to state a claim that defendants
violated the Delaware Securities Act—the Operating Agreement refutes plaintiffs’ claim that the
parties agreed to govern their actions by Delaware law, and Delaware law only applies within
Delaware’s territorial jurisdiction. Accordingly, the plaintiffs’ cause of action sounding in
Delaware law should be dismissed.
V. The plaintiffs are contractually foreclosed from alleging breaches of good faith and
fiduciary duty.
The plaintiffs second and fifth causes of action are for alleged breaches of defendants’
duties to act in good faith and as a fiduciary. These causes of action are also disposed of by the
agreements between the parties. While plaintiffs allege that the defendants owed them the duties
of a fiduciary, the Operating Agreement between the parties explicitly states that “no Manager,
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Member or Affiliate of any Manager or Member (the “Specified Persons”) shall (x) owe any
fiduciary duties to the Company or its Affiliates or to any other Member or its Affiliates.”
Exhibit E at C10-11. The specific waiver of fiduciary duties requires dismissal of plaintiffs’
claims. See OFSI Fund II, LLC v. Canadian Imperial Bank of Commerce, 82 AD3d 537, 539 (1st
Dept 2011) (dismissing claims where agreements “explicitly limits the duties of the
administrative agent and collateral agent”).
Furthermore, plaintiffs have improperly asserted as personal claims causes of action
belonging to LBH. See, e.g., Abrams v. Donati, 66 NY2d 951, 952 (1985) (allegations of
mismanagement or diversion of corporate assets also plead a wrong to the corporation). To
determine whether the plaintiffs’ complaint alleges direct or derivative claims, the relevant
analysis is “who suffered the alleged harm . . . and who would receive the benefit of any
recovery or other remedy.” SFR Holdings Ltd. v. Rice, 132 AD3d 424, 425 (1st Dept 2015)
(quoting Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A2d 1031, 1033 [Del 2004]).
Allegations that confuse a shareholder’s derivative and individual rights will be dismissed.
Abrams v. Donati, 66 NY2d 951, 953 (1985) (holding “for a wrong against a corporation a
shareholder has no individual cause of action, though he loses the value of his investment”).
The plaintiffs’ second and fifth causes of action allege mismanagement of the
corporation, and therefore should have been brought as derivative claims. Because they were not,
they should be dismissed. Id.
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CONCLUSION
For the reasons set forth above, the plaintiffs’ complaint should be dismissed in its
entirety.
Dated: New York, New York
October 30, 2020
____________________________________
Joseph D. DePalma, Esq.
J. KAPLAN & ASSOCIATES, PLLC
Attorneys for the Defendants
60 East 42nd Street, Suite 4600
New York, New York 10165
(212) 601-9278
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Preview
FILED: NASSAU COUNTY CLERK 10/30/2020 06:04 PM INDEX NO. 608354/2020 NYSCEF DOC. NO. 12 RECEIVED NYSCEF: 10/30/2020 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NASSAU -------------------------------------------------------------------X Adrienne Goodman, Gary Goodman, and Beth Index No.: 608354/2020 Slosberg, Plaintiffs, - against - Brian Tepfer, LBH Capital Inc, and Lake End Capital LLC, Defendants. --------------------------------------------------------------------X MEMORANDUM OF LAW IN SUPPORT OF DEFENDANTS’ MOTION TO DISMISS J. KAPLAN & ASSOCIATES, PLLC Attorneys for the Defendants 60 East 42nd Street, Suite 4600 New York, New York 10165 (212) 601-9278 1 1 of 9 FILED: NASSAU COUNTY CLERK 10/30/2020 06:04 PM INDEX NO. 608354/2020 NYSCEF DOC. NO. 12 RECEIVED NYSCEF: 10/30/2020 Defendants Brian Tepfer, LBH Capital Inc (LBH), and Lake End Capital LLC, respectfully submit this Memorandum of Law in support of their motion to dismiss the Verified Complaint, dated August 10, 2020, pursuant to CPLR § 3211 (a) (1), (2), and (7). PRELIMINARY STATEMENT Plaintiffs are investors in Lake End Capital, LLC, a hedge fund formed in 2019. LBH Capital, Inc. is the manager of the fund, and Tepfer controls the manager. Plaintiffs are suing to recover losses incurred by the fund since its inception. However, the plaintiffs’ claims are all either jurisdictionally defective or foreclosed by the investment agreements the parties entered when the plaintiffs became investors. ARGUMENT I. The Legal Standard. A motion pursuant to CPLR 3211(a)(1) to dismiss a complaint on the ground that a defense is founded on documentary evidence “may be appropriately granted only where the documentary evidence utterly refutes [the] plaintiff's factual allegations, conclusively establishing a defense as a matter of law.” Goshen v. Mutual Life Ins. Co. of N.Y., 98 NY2d 314, 326, (2002); see Rodolico v. Rubin & Licatesi, P.C., 114 AD3d 923, 924-925 (2d Dept 2014). The evidence submitted in support of such motion must be “documentary” or the motion must be denied. Cives Corp. v. George A. Fuller Co., Inc., 97 AD3d 713, 714 (2d Dept 2012). In order for evidence submitted in support of a CPLR 3211(a)(1) motion to qualify as documentary evidence, it must be “unambiguous, authentic, and undeniable.” Granada Condominium III Assn. v. Palomino, 78 AD3d 996, 996-997 (2d Dept 2010). “[J]udicial records, as well as documents reflecting out-of-court transactions such as mortgages, deeds, contracts, and any other papers, the contents of which are ‘essentially undeniable,’ would qualify as ‘documentary evidence’ in the proper case.” Fontanetta v. John Doe 1, 73 AD3d 78, 84-85 (2d Dept 2010) (quoting David D. 1 2 of 9 FILED: NASSAU COUNTY CLERK 10/30/2020 06:04 PM INDEX NO. 608354/2020 NYSCEF DOC. NO. 12 RECEIVED NYSCEF: 10/30/2020 Siegel, Practice Commentaries, McKinney’s Cons Laws of NY, Book 7B, CPLR C3211:10 at 21-22). CPLR § 3211(a)(7) provides that a party may move to dismiss “one or more causes of action asserted against him on the ground that ... the pleading fails to state a cause of action.” When evaluating a motion to dismiss pursuant to CPLR § 3211(a)(7), the Court must “accept as true each and every allegation made by plaintiff and limit [its] inquiry to the legal sufficiency of plaintiff’s claim.” Davis v. Boeheim, 24 NY3d 262 (2014). The Court’s task is to “determine only whether the facts as alleged fit within any cognizable legal theory.” Leon v. Martinez, 84 NY2d 83, 87–88 (1994). However, allegations consisting of bare legal conclusions are not entitled to a presumption of truth. Webster v. Sherman, 165 AD3d 738, 739–740 (2d Dept 2018). A copy of the First Amended Complaint [hereinafter abbreviated as “FAC”] is attached to the annexed affirmation of Joseph D. DePalma as Exhibit A. II. Plaintiffs’ representations foreclose a cause of action for fraud in the inducement. While a general merger clause will not operate to bar parol evidence of fraud in the inducement, where the party alleging fraud has made its own specific representation indicating that it is not relying on the alleged inducement, it is foreclosed from establishing its asserted reliance on the ground that it has misrepresented its true intention. First Nationwide Bank v. 965 Amsterdam, Inc., 212 AD2d 469, 471 (1st Dept 1995); see also Barnaba Realty Group, LLC v. Solomon, 121 AD3d 730, 731 (2d Dept 2014) (“[w]hile a general merger clause is ineffective to exclude parol evidence of fraud in the inducement, a specific disclaimer defeats any allegation that the contract was executed in reliance upon contrary oral representations”). Plaintiffs allege that they were induced to enter the attached agreements based on Tepfer’s misrepresentations that “(a) his personal account was realizing monthly gains of 20%- 2 3 of 9 FILED: NASSAU COUNTY CLERK 10/30/2020 06:04 PM INDEX NO. 608354/2020 NYSCEF DOC. NO. 12 RECEIVED NYSCEF: 10/30/2020 30% per month, (b) the fund [LBH] would realize monthly gains of 20%-30% per month, and (c) that there was $500,000.00 invested in the Fund when there was actually only $400,000.00.” Complaint at ¶ 30. Prior to investing with the defendants, the plaintiffs each executed a subscription agreement in which they made specific representations regarding their investment. Copies of the executed Subscription Agreements executed by the plaintiffs are attached to the DePalma affirmation as Exhibits B, C, and D. The plaintiffs made the following representations: I acknowledge, represent and warrant to, and agree with, the Fund as follows: (a) I am aware that my investment involves a high degree of risk and have read, reviewed and understand the “Risk Factors” as set forth in the Term Sheet; (b) I am aware that there is no assurance as to the future performance of the Fund; […] (e) I have the financial ability to bear the economic risk of my investment in the Fund (including its possible total loss), have adequate means for providing for my current needs and personal contingencies and have no need for liquidity with respect to my investment in the Fund; (f) I have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the Membership Units and have obtained, in my judgment, sufficient information from the Fund in order to evaluate the merits and risks of an investment in the Fund; (g) I: ________________ (1) have carefully read this Subscription Agreement, the Term Sheet and the Risk Factors contained therein, and the Operating Agreement and I understand and have 3 4 of 9 FILED: NASSAU COUNTY CLERK 10/30/2020 06:04 PM INDEX NO. 608354/2020 NYSCEF DOC. NO. 12 RECEIVED NYSCEF: 10/30/2020 evaluated the risks of a purchase of the Membership Units and have relied solely (except as indicated in subsection (2) and (3) below) on the information contained in this Subscription Agreement and the Term Sheet; (2) have also been provided an opportunity to obtain material and relevant information from the Fund (provided that such information can be acquired without unreasonable effort or expense) enabling me to make an informed investment decision; and (3) have been given the opportunity to ask questions of, and receive answers from, the Fund concerning the terms and conditions of the Offering and other matters pertaining to this investment. […] (i) No representations or warranties have been made to the undersigned by the Fund, or any of their respective officers, employees, agents, affiliates or attorneys; […] (l) I have not received any general solicitation or advertising regarding the purchase of the securities and I became aware of this investment through a substantive, pre- existing relationship with the Fund; Subscription Agreement at B1-3 (emphasis added). Copies of the Term Sheet, Risk Factors, and Operating Agreement acknowledged by the plaintiffs and integrated into the Subscription Agreement are attached to the DePalma affirmation as Exhibit E1. Risk factors identified and disclosed to the plaintiffs include warnings that “[w]e may not realize gains or income from our investments, which would adversely affect your investment in the Fund” (Exhibit E at A1); “[b]ecause the Manager has not managed securities for the accounts of others, you do not have a “track record” to review in evaluating the investment opportunity” (Exhibit E 1 The executed signature pages for each plaintiff are attached to the plaintiffs’ respective Subscription Agreement. 4 5 of 9 FILED: NASSAU COUNTY CLERK 10/30/2020 06:04 PM INDEX NO. 608354/2020 NYSCEF DOC. NO. 12 RECEIVED NYSCEF: 10/30/2020 at A3); and “[b]ecause there is no minimum amount of proceeds which the Fund may receive, it creates further risk of the lack of diversification” (Exhibit E at A6). The plaintiffs’ specific representations in the Subscription Agreement and the Risk Factor disclosures reviewed and acknowledged by the plaintiffs refute the plaintiffs’ allegations that they were induced to invest with the defendants due to the alleged misrepresentations set forth in the complaint. The specific disclaimers in the attached agreements defeat plaintiffs’ allegations that their investment decision was made in reliance upon contrary oral representations. Accordingly, plaintiffs’ cause of action for Fraud in the Inducement must be dismissed. Barnaba Realty Group, LLC v. Solomon, 121 AD3d 730, 731 (2d Dept 2014). III. This Court does not have jurisdiction over the plaintiffs’ Securities Act claim. CPLR § 3211(a)(2) allows a party to move for dismissal of a cause of action where the Court lacks jurisdiction to hear the claim. 15 U.S. Code § 78aa “vests federal district courts with exclusive jurisdiction to entertain [suits brought for violations of the Securities Exchange Act of 1934].” See, e.g., Financial Indus. Regulatory Auth., Inc. v. Fiero, 10 NY3d 12, 17 (2008) (holding “state courts do not possess the power to hear and decide” Securities Exchange Act Claims). This Court lacks jurisdiction to adjudicate claims that the defendants violated the Securities Exchange Act of 1934, and those claims must be dismissed. IV. Plaintiffs have failed to allege any acts that occurred in Delaware. The complaint alleges that “the Investment Agreements are governed by the laws of the State of Delaware, and plaintiffs’ fourth cause of action is for alleged violations of the Delaware Securities Act, 6 Del. Admin. Code §709, entitled “Dishonest or Unethical Practices,” which prohibits an investment advisor from engaging in any act, practice, or course of business 5 6 of 9 FILED: NASSAU COUNTY CLERK 10/30/2020 06:04 PM INDEX NO. 608354/2020 NYSCEF DOC. NO. 12 RECEIVED NYSCEF: 10/30/2020 which is fraudulent, deceptive, or manipulative in contravention of Section 206(4) of the Investment Advisers Act of 1940. Complaint at ¶ 51. The Operating Agreement does not subject the parties’ actions to Delaware law, but states merely that “[the] agreement shall be governed by and construed in accordance with the domestic laws of the State of Delaware.” Exhibit E at C30 (emphasis added). Furthermore, the Supreme Court of Delaware has stated that there is “a presumption that a law is not intended to apply outside the territorial jurisdiction of the State in which it is enacted” and “specifically held that the [Delaware Securities] Act does not apply to a Delaware corporation simply by virtue of the act of incorporating in Delaware.” FdG Logistics LLC v. A&R Logistics Holdings, 131 A3d 842, 853 (Del Court of Chancery 2016) (discussing Singer v. Magnavox Co., 380 A2d 969, 981 [Del 1977]). A copy of the opinion in FdG Logistics LLC is attached to the DePalma affirmation as Exhibit F for the Court’s convenience. The plaintiffs’ allegations are thus insufficient to state a claim that defendants violated the Delaware Securities Act—the Operating Agreement refutes plaintiffs’ claim that the parties agreed to govern their actions by Delaware law, and Delaware law only applies within Delaware’s territorial jurisdiction. Accordingly, the plaintiffs’ cause of action sounding in Delaware law should be dismissed. V. The plaintiffs are contractually foreclosed from alleging breaches of good faith and fiduciary duty. The plaintiffs second and fifth causes of action are for alleged breaches of defendants’ duties to act in good faith and as a fiduciary. These causes of action are also disposed of by the agreements between the parties. While plaintiffs allege that the defendants owed them the duties of a fiduciary, the Operating Agreement between the parties explicitly states that “no Manager, 6 7 of 9 FILED: NASSAU COUNTY CLERK 10/30/2020 06:04 PM INDEX NO. 608354/2020 NYSCEF DOC. NO. 12 RECEIVED NYSCEF: 10/30/2020 Member or Affiliate of any Manager or Member (the “Specified Persons”) shall (x) owe any fiduciary duties to the Company or its Affiliates or to any other Member or its Affiliates.” Exhibit E at C10-11. The specific waiver of fiduciary duties requires dismissal of plaintiffs’ claims. See OFSI Fund II, LLC v. Canadian Imperial Bank of Commerce, 82 AD3d 537, 539 (1st Dept 2011) (dismissing claims where agreements “explicitly limits the duties of the administrative agent and collateral agent”). Furthermore, plaintiffs have improperly asserted as personal claims causes of action belonging to LBH. See, e.g., Abrams v. Donati, 66 NY2d 951, 952 (1985) (allegations of mismanagement or diversion of corporate assets also plead a wrong to the corporation). To determine whether the plaintiffs’ complaint alleges direct or derivative claims, the relevant analysis is “who suffered the alleged harm . . . and who would receive the benefit of any recovery or other remedy.” SFR Holdings Ltd. v. Rice, 132 AD3d 424, 425 (1st Dept 2015) (quoting Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A2d 1031, 1033 [Del 2004]). Allegations that confuse a shareholder’s derivative and individual rights will be dismissed. Abrams v. Donati, 66 NY2d 951, 953 (1985) (holding “for a wrong against a corporation a shareholder has no individual cause of action, though he loses the value of his investment”). The plaintiffs’ second and fifth causes of action allege mismanagement of the corporation, and therefore should have been brought as derivative claims. Because they were not, they should be dismissed. Id. 7 8 of 9 FILED: NASSAU COUNTY CLERK 10/30/2020 06:04 PM INDEX NO. 608354/2020 NYSCEF DOC. NO. 12 RECEIVED NYSCEF: 10/30/2020 CONCLUSION For the reasons set forth above, the plaintiffs’ complaint should be dismissed in its entirety. Dated: New York, New York October 30, 2020 ____________________________________ Joseph D. DePalma, Esq. J. KAPLAN & ASSOCIATES, PLLC Attorneys for the Defendants 60 East 42nd Street, Suite 4600 New York, New York 10165 (212) 601-9278 8 9 of 9