Liana Carrier Ltd. v. Pure Biofuels Corp.
| Decision Date | 06 December 2016 |
| Docket Number | 15-3856 |
| Parties | LIANA CARRIER LTD., AMIR RIMON, Plaintiffs-Appellants, v. PURE BIOFUELS CORPORATION, PURE BIOFUELS DEL PERU, S.A.C., PURE BIOFUELS HOLDINGS, L.P., CARLOS ALBERTO PINTO ROCHA, Defendants-Appellees, LUIS HUMBERTO GOYZUETA ANGOBALDO, GUSTAVO GOYZUETA, BRIAN S. ALPERSTEIN, Defendants. |
| Court | U.S. Court of Appeals — 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 TO A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the 6th day of December, two thousand sixteen.
Present: AMALYA L. KEARSE, RICHARD C. WESLEY, DEBRA ANN LIVINGSTON, Circuit Judges.
For Plaintiffs-Appellants:
CHRISTOPHER B. SPUCHES, Ehrenstein Charbonneau Calderin, Miami, Florida
For Defendants-Appellees:
RONALD D. LEFTON (Richard A. Edlin, on the brief), Greenberg Traurig, LLP, New York, New York
Appeal from a judgment of the United States District Court for the Southern District of New York (Marrero, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that the judgment of the district court is MODIFIED and, as so modified, is AFFIRMED.
Plaintiffs-Appellants Liana Carrier Ltd. ("Liana Ltd.") and Amir Rimon appeal from a judgment of the United States District Court for the Southern District of New York (Marrero, J.) granting the motion to dismiss by Defendants-Appellees Pure Biofuels Corporation ("Pure Biofuels"), Pure Biofuels del Peru, S.A.C., Pure Biofuels Holdings, L.P., and Carlos Alberto Pinto Rocha ("Pinto") and declining to exercise supplemental jurisdiction over Plaintiffs-Appellants' state law claims. Liana Ltd. and Rimon argue that the district court erred (1) in denying them leave to amend their complaint on grounds of futility; (2) in holding that their state law contract claim did not "aris[e] under" the laws of the United States for purposes of 28 U.S.C. § 1331; (3) by utilizing a letter-briefing procedure in evaluating the merits of the proposed amendments to the complaint; and (4) in dismissing all of their claims, including their state law claims, with prejudice. We assume the parties' familiarity with the facts, procedural history of the case, and the issues on appeal.
On August 14, 2008, Liana Ltd. and Rimon entered into two private placement subscription agreements for a total 15,714,287 shares of defendant Pure Biofuels at $0.35 ashare, a cumulative investment of $5,500,000. Pure Biofuels, now dissolved, was, at the time, the parent company of defendant Pure Biofuels del Peru, S.A.C., and aimed to develop a biodiesel production facility in Lima, Peru serving the Peruvian market. Liana Ltd. and Rimon allege that they were led to believe that the prospects for Pure Biofuels were bright, that Pure Biofuels' Securities and Exchange Commission ("SEC") disclosures suggested that the necessary biodiesel production facility could be constructed inexpensively, and that Pinto represented to them that Pure Biofuels would soon have steadily rising sales and income.
By the end of 2008, however, Pure Biofuels was already in desperate need of a capital infusion. Plaintiffs allege that Pinto, who, at the time, was Pure Biofuels' Chief operating Officer, arranged matters so that the only financing options presented to Pure Biofuels' board of directors were those which would ultimately permit him to obtain a controlling stake in the company and to take it private. Included among the proposals Pinto encouraged Pure Biofuels' board to enter into was one from FDS, an entity Plaintiffs-Appellants allege Pinto secretly controlled. At Pinto's urging, Pure Biofuels allegedly entered into several transactions with FDS from late 2008 through 2010 in which Pure Biofuels issued millions of equity warrants to FDS in exchange for financing (together with the transactions described in the remainder of this paragraph, the "Financing Transactions"). Pinto also helped Pure Biofuels secure a line of credit from Trimarine, another entity in which Pinto allegedly maintained an interest, in exchange for which Pure Biofuels issued warrants to Trimarine. To protect its own interest in Pure Biofuels, Plainfield Peru I LLC ("Plainfield"), Pure Biofuels' largest shareholder, demanded that Pure Biofuels issue warrants in its favor before it would accede to these arrangements. By the end of 2010, Plainfield, FDS and Trimarine controlled more than ninetypercent of Pure Biofuels' shares, as computed on a fully diluted basis. In January 2011, Pure Biofuels deregistered its securities with the SEC.
In May 2012, Pure Biofuels gave notice that its parent, PBC Acquisition LLC ("PBC Acquisition"), a Nevada limited liability company, had merged with and into it under Nevada's short-form merger statute (the "Short-Form Merger"). Nevada's short-form merger statute permits a parent corporation owning at least ninety percent of the outstanding shares of each class of a subsidiary corporation to effect a merger of the parent with and into the subsidiary without the approval of the minority shareholders. Nev. Rev. Stat. § 92A.180(2). Liana Ltd. and Rimon allege that PBC Acquisition was a vehicle jointly controlled by FDS and Plainfield, used to hold their shares in Pure Biofuels and thereby effect the Short-Form Merger. The remaining shareholders in Pure Biofuels, including Plaintiffs-Appellants, received $0.00832 per share in the exchange.1
On May 12, 2014, Plaintiffs-Appellants filed this action in the District Court for the Southern District of New York alleging violations of § 10(b) and Rule 10b-5 as well as a variety of state law claims. The district court dismissed those securities law claims that turned on the initial sale of securities on the grounds that these claims were time barred under the five year statute of repose imposed by 28 U.S.C. § 1658(b). The district court also rejected the contention that the alleged misrepresentations in Pure Biofuels' disclosures with respect to the Financing Transactions, which would bring Plaintiffs-Appellants' cause of action within five years of their filing suit, grounded a separate cause of action under the securities laws. It reasoned that, though these claims would not be barred by § 1658(b)'s term of repose,Plaintiffs-Appellants had not sufficiently elaborated how the various transactions in which they had no involvement - whether induced by fraudulent misrepresentations or not - had caused the securities transaction at issue, the Short-Form Merger.
The district court also held that Plaintiffs-Appellants' contract claim - which alleged that defendants had breached their contractual representation that they were in compliance with federal securities law (the "10b-5 Representation") - did not arise under the securities laws such that federal question jurisdiction would attach and declined to exercise supplemental jurisdiction. It therefore dismissed all Plaintiffs-Appellants' claims. However, the district court did allow Plaintiffs-Appellants to submit letter briefing describing how they would amend their complaint to address the complaint's deficiencies, after which it would consider whether leave to amend would be appropriate.
Plaintiffs-Appellants' letter briefing argued that they could amend their complaint to make clear that the non-disclosure of the conflict of interest inherent in the Financing Transactions - that the entities providing the financing were largely tied to Pinto - had allowed Pinto and Plainfield to obtain sufficient control over Pure Biofuels to effect the Short-Form Merger, and that this connection grounded their securities law claim. The district court denied leave to amend as futile, and this appeal followed.
Panther Partners Inc. v. Ikanos Commc'ns, Inc., 681 F.3d 114, 119 (2d Cir. 2012) (internal alterations omitted).
"To succeed on a § 10(b) and Rule 10b-5 claim, a plaintiff must prove '(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.'" GAMCO Inv'rs, Inc. v. Vivendi Universal, S.A., 838 F.3d 214, 217 (2d Cir. 2016) (quoting Halliburton Co. v. Erica P. John Fund, Inc., 134 S. Ct. 2398, 2407 (2014)).
We have termed the third and fourth elements of a § 10(b) claim "transaction causation," which requires "an allegation that but for the claimed misrepresentations or omissions, the plaintiff would not have entered into the detrimental securities transaction." Lentell v. Merrill Lynch & Co., Inc., 396 F.3d 161, 172 (2d Cir. 2005) (...
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