Aquino v. Alexander Capital, LP

Citation642 B.R. 106
Decision Date08 July 2022
Docket Number21-cv-1355 (JSR)
Parties John J. AQUINO, Chapter 7 Trustee, BY his assignee, CONVERGENT DISTRIBUTORS OF TEXAS, LLC, Plaintiff-Counter-Defendant, v. ALEXANDER CAPITAL, LP, and its Managing Partners: Joseph Amato, Rocco Guidicipietro, and NESA Management, LLC, Defendants-Counter-Claimants.
CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York

Donald F. Farrell, Jr., Anderson Aquino LLP, Boston, MA, Jan Richard Schlichtmann, Prides Crossing, MA, William Coudert Rand, Law Office of William Coudert Rand, New York, NY, for Plaintiff-Counter-Defendant.

Aaron Jacob Wright, Jenner & Block LLP, New York, NY, Bryan Ward, M. Scott Holcomb, Bryan Myerson Ward, Holly Cole, Aaron Wright, Holcomb Ward LLP, Atlanta, GA, for Defendant-Counter-Claimant Alexander Capital LP.

Bryan Myerson Ward, Holly Cole, Aaron Wright, Holcomb & Ward, LLP, Atlanta, GA, for Defendants-Counter-Claimants Rocco Guidicipietro, NESA Management LLC, Joseph Amato.


JED S. RAKOFF, United States District Judge:

This is a civil fraud case concerning the failed 2015 initial public offering ("IPO") of a now-bankrupt development-stage pharmaceutical company called Inpellis. The fraudulent inducement, fraud, breach of contract, and fiduciary duty claims at issue here have been brought against Alexander Capital L.P. ("ACLP"), the investment bank that Inpellis hired to underwrite the IPO, and three alleged "Managing Partners" of ACLP. The plaintiff, Convergent Distributors of Texas, LLC ("Convergent"), which purchased the claims at bar from the Inpellis bankruptcy trustee, John J. Aquino, accuses ACLP of having fraudulently induced Inpellis to hire it to provide financial advisory services and to underwrite the IPO by falsely representing that it could conduct the IPO transaction on a "firm commitment" basis, even though the Financial Industry Regulatory Authority ("FINRA") prohibited it from underwriting IPOs on a "firm commitment" basis. The operative complaint alleges that Inpellis incurred substantial costs at ACLP's direction to prepare for the IPO, that ACLP advised Inpellis to take on a $6.5 million bridge loan, that ACLP compelled Inpellis to hire a consultant as its new CEO to secretly work in concert with ACLP to conceal ACLP's fraud from Inpellis, and that ACLP ultimately switched the IPO to a less favorable "best efforts" transaction on the eve of the IPO without authority. All this, the complaint alleges, led the IPO to fail and, ultimately, led to Inpellis's bankruptcy.

The Court denied the defendantsmotion to dismiss last summer, holding that the complaint contained allegations that, just barely, supported the inferences necessary for all four of its claims to continue to discovery. See ECF 54 ("MTD Op."). Now before the Court are the partiescross-motions for summary judgment. The Court evaluates these motions with the benefit of the factual record developed in discovery and after resolving extensive motion practice over the last year regarding discovery and disqualification of counsel.

Much of the factual record remains disputed. However, certain pertinent facts are not contested. Moreover, the Court has determined, after carefully reviewing the underlying record, that certain asserted disputes lack an evidentiary basis and so are not genuine. As a result, the Court is able to grant certain aspects of both the plaintiff's and the defendantssummary judgment motions and, in the process, significantly simplify the case that will ultimately reach a jury.

The Court's analysis of the factual record and its legal reasoning are set forth at length below, but the following summary briefly describes the Court's main conclusions. First, the Court grants summary judgment in defendants’ favor on the issue of whether the allegedly conflicted CEO's acts and knowledge can be imputed to Inpellis, finding that even viewing the factual record in the plaintiff's favor, there is no evidence that could meet the high bar for applying the "adverse interest exception" to the normal rule of principal-agent law. Second, the Court denies the defendants’ attempt to have the alleged Managing Partners dismissed from the lawsuit, finding that it is unclear whether ACLP's filing deficiencies have been retroactively cured under Delaware's limited partnership law. Third, the Court grants summary judgment in plaintiff's favor on the issue of whether ACLP made material misrepresentations and omissions to Inpellis in connection with the initial engagement agreement, which was signed in July 2014, finding that there is no genuine dispute that the engagement agreement misled Inpellis about ACLP's ability to conduct the contemplated "firm commitment" underwriting. Fourth, the Court finds that there is no genuine dispute that Inpellis eventually learned that ACLP had an issue with FINRA that prohibited it from underwriting IPOs on a firm commitment basis, but the Court nonetheless rejects the defendants’ contention that they can escape liability for any fraudulent inducement arising from ACLP's misrepresentations because Inpellis supposedly "ratified" the fraud in various ways. Fifth, the Court dismisses the fiduciary duty claim as duplicative of the breach of contract claim. And sixth, the Court dismisses most aspects of the fraud claim, except insofar as it relates to the bridge loan that Inpellis took on in August 2015.

Further, and perhaps most significantly, the Court finds that the plaintiff has failed to adduce facts sufficient to blame the failure of the Inpellis IPO on ACLP's alleged last-minute switch to a "best efforts" transaction. As explained further below, there is no genuine dispute that Inpellis learned approximately two months before the IPO that ACLP had a FINRA issue and that unless the FINRA issue were resolved, ACLP would only be able to conduct the IPO on a "best efforts basis." Inpellis nonetheless decided to proceed with the planned IPO, and the Inpellis board ultimately authorized the company's counsel to switch the S-1 registration statement to a "best efforts" offering. The record also reflects that the regulatory scrutiny of the IPO that came from U.S. Securities and Exchange Commission ("SEC") almost immediately after the IPO did not arise because of the switch to best efforts. Rather, the SEC stopped the IPO because of concerns that the S-1 did not adequately disclose Inpellis's relationship to its founder and its original parent company, both of which then faced pending judgments and penalties from unrelated SEC securities fraud claims. The IPO was ultimately withdrawn as part of a global settlement with the SEC brokered by representatives of those controlling entities. The Court therefore concludes that ACLP's alleged fraud, fraudulent inducement, and breaches of the engagement agreements did not proximately cause the IPO's failure. Accordingly, the plaintiff is precluded from seeking damages arising from the IPO.

The plaintiff therefore has three remaining, if trimmed, claims for relief. These claims should now proceed expeditiously to trial.

I. Legal Standard

"[S]ummary judgment is appropriate where there exists no genuine issue of material fact and, based on the undisputed facts, the moving party is entitled to judgment as a matter of law." D'Amico v. City of New York, 132 F.3d 145, 149 (2d Cir. 1998).1 Where, as here, "cross-motions for summary judgment are filed, a court must evaluate each party's own motion on its own merits, taking care in each instance to draw all reasonable inferences against the party whose motion is under consideration." Cayuga Nation v. Tanner, 6 F.4th 361, 373 (2d Cir. 2021).

Summary judgment is not precluded by a litigant's mere insistence that a fact asserted by an opposing part is subject to dispute. "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment. Factual disputes that are irrelevant or unnecessary will not be counted." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The determination of relevance and materiality therefore follows from the Court's analysis of the substantive law setting forth the "legal elements of the claim[s]" and defenses at issue in the motion. Id.

Furthermore, Fed. R. Civ. P. 56 requires that "a party opposing a properly supported motion for summary judgment may not rest upon the mere allegations or denials of his pleading, but ... must set forth specific facts showing that there is a genuine issue for trial." Id. "[A]ll that is required is that sufficient evidence supporting the claimed factual dispute be shown to require a jury or judge to resolve the parties’ differing versions of the truth at trial." First National Bank of Arizona v. Cities Service Co., 391 U.S. 253, 288-289, 88 S.Ct. 1575, 20 L.Ed.2d 569 (1968). The court is barred at summary judgment from weighing conflicting evidence, making credibility findings, or attempting to determine the truth. Rather, in assessing whether a dispute is genuine, the court must only ascertain whether "there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party." Liberty Lobby, 477 U.S. at 249, 106 S.Ct. 2505. However, "[a] party may not rely on mere speculation or conjecture as to the true nature of the facts to overcome a motion for summary judgment. Mere conclusory allegations or denials cannot by themselves create a genuine issue of material fact where none would otherwise exist." Hicks v. Baines, 593 F.3d 159, 166 (2d Cir. 2010).

II. Background

Inpellis (formerly known as Alterix) was a development-stage pharmaceutical company created to commercialize intellectual property ("IP") rights developed by a company called BioChemics. ECF 140-1 ¶¶ 1-4. This case concerns Inpellis's attempt to conduct an IPO, underwritten by ACLP. The IPO failed when it triggered an SEC "stop order" and investigation, though the parties dispute why. A lender from...

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  • Aquino v. Alexander Capital, LP
    • United States
    • United States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York
    • 6 Julio 2023
    ...capacity to conduct the IPO on a firm-commitment basis, rendering Alexander's failure to disclose this fact materially misleading. Aquino, 642 B.R. at 135. However, the Court declined to grant either party judgment on this claim, because the issue of scienter remained disputed, and the reco......

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