Starshinova v. Batratchenko

• Decision Date: 15 March 2013
• Docket Number: No. 11–CV–9498 (KMW).,11–CV–9498 (KMW).
• Citation: 931 F.Supp.2d 478
• Parties: Tamara STARSHINOVA, Marina Vasilyanskaya, and Rafail Tzentziper, Plaintiffs, v. Oleg BATRATCHENKO, et al., Defendants.
• Court: U.S. District Court — Southern District of New York

931 F.Supp.2d 478

Tamara STARSHINOVA, Marina Vasilyanskaya, and Rafail Tzentziper, Plaintiffs,

v.Oleg BATRATCHENKO, et al., Defendants.

No. 11–CV–9498 (KMW).

United States District Court, S.D. New York.

March 15, 2013.

Michael Hugh Ference, Christopher Philip Milazzo, Elena A. Agarkova, Sameer Rastogi, Sichenzia Ross Friedman Ference, LLP, New York, NY, for Plaintiffs.

Alexander Malyshev, Gary Douglas Sesser, Judith Wallace, Carter Ledyard & Milburn, LLP, New York, NY, for Defendants.

OPINION & ORDER

KIMBA M. WOOD, District Judge.

Russian citizens Tamara Starshinova (“Starshinova”), Marina Vasilyanskaya (“Vasilyanskaya”), and Rafail Tzentziper (“Tzentziper”) (collectively, “Plaintiffs”), on behalf of themselves and as assignees for 551 individuals set forth in Schedule A of their Amended Complaint, bring this action seeking millions of dollars in damages for an alleged massive fraud involving various funds in which Plaintiffs invested. Plaintiffs' Amended Complaint alleges eleven causes of action, including violations of federal law under the Commodities Exchange Act and the Securities Exchange Act of 1934 and various state law claims. [Dkt. No. 47].

Defendants Oleg Batratchenko (“Batratchenko”); Thor United Corp. (USA); Thor United Corp. (Nevis); Thor Asset Management, Inc.; Thor Opti–Max, LLC; Thor Real Estate Management, LLC; Thor Capital, LLC; Thor Futures, LLC; Thor Opti–Max Fund, Ltd.; Thor Guarant Real Estate Fund, Ltd. (BVI); Thor Real Estate Master Fund, Ltd. (BVI); Thor Realty Holdings, LLC; Optima Investment Holdings, Ltd.; and Thor Guarant, LLC (the “Thor Entities” ¹ and, collectively with Batratchenko, “Defendants”) move to dismiss the Amended Complaint pursuant to Federal Rules of Civil Procedure 12(b)(1), 12(b)(2), and 12(b)(6). [Dkt. No. 55]. For the following reasons, Defendants' motion is GRANTED.

I. BACKGROUND

A. Materials Considered on a Motion to Dismiss

As a threshold matter, both parties have submitted supplemental materials that they would like the Court to consider in resolving the pending motion. Defendants have attached copies of Investment Memoranda (“IMs”) on which Plaintiffs allegedly relied in making their investment decisions. (Wallace Decl. [Dkt. No. 56] ). Plaintiffs have submitted an affirmation challenging Defendants' translation of the IMs (originally in Russian), (Agarkova Aff. [Dkt. No. 63] ), and a declaration of supplemental facts by plaintiff Tzentziper. (Tzentziper Decl. [Dkt. No. 64] ).

In considering motions to dismiss under Rule 12(b)(6), the district court “is normally required to look only to the allegations on the face of the complaint.” Roth v. Jennings, 489 F.3d 499, 509 (2d Cir.2007). If the parties present materials outside the pleadings, the court may consider them only by converting the motion to dismiss into a motion for summary judgment and providing all parties with a “reasonable opportunity” to present pertinent material. Fed.R.Civ.P. 12(b). This conversion is “strictly enforced” and “mandatory.” Global Network Comm'cns, Inc. v. City of New York, 458 F.3d 150, 155 (2d Cir.2006). Consideration of outside materials at the motion to dismiss stage may warrant reversal, if the ruling “makes a connection not established by the complaint alone or contains an unexplained reference that raises the possibility that it improperly relied on matters outside the pleading.” Friedl v. City of New York, 210 F.3d 79, 84 (2d Cir.2000).

This standard bars the Court's consideration of Tzentziper's declaration. See Friedl, 210 F.3d at 84–85 (vacating district court's ruling that relied on factual contentions contained in a declaration in support of defendants' motion to dismiss). Defendants argue that the Court should consider the IMs because the Amended Complaint “relies heavily upon [their] terms and effect” such that they are “integral to the complaint.” Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir.2002). The Court finds consideration of the IMs inappropriate for two reasons. First, it is not clear that the IMs were integral to Plaintiffs' claims; although they are referenced, Plaintiffs' claims regarding Defendants' misrepresentations go well beyond the statements contained in the IMs, including statements Batratchenko made at marketing meetings and at annual conferences. ( Id. ¶¶ 69, 78). Second, given Plaintiffs' challenge to the accuracy of Defendants' translation of the IMs, ( see Agarkova Aff.), the IMs should be considered in deciding a motion to dismiss. See Faulkner v. Beer, 463 F.3d 130, 134 (2d Cir.2006) (overturning district court decision relying on outside documents that did not consider authenticity, accuracy, or relevance of various documents).

Accordingly, the Court considers solely the allegations contained in Plaintiff's Amended Complaint, which the Court assume to be true for the purposes of Defendants' motion. See Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).

B. Factual and Procedural Background

Plaintiffs are all citizens of the Russian Federation. (Am. Compl. ¶¶ 5–7). They bring this action on behalf of themselves and hundreds of other investors who seek to recover money that they contributed to investment programs managed and controlled by Defendants. Batratchenko, a U.S. citizen residing in Moscow, is the “co-founder, principal, officer, owner, employee, and/or agent” of the Thor Entities, a series of related domestic and foreign companies operating a number of “programs” that invest in U.S. and foreign stocks, commodities, and real estate. ( Id. ¶¶ 9, 32).

This suit arises from Plaintiffs' investments in three of the Thor Entities' investment programs: the Thor Optima Program, the Thor Opti–Max Program, and the Thor Guarant Program. ( Id. ¶ 35). In 2003, Batratchenko created the Thor Optima Program, and attracted investors by promising stable returns “regardless of the market conditions.” ( Id. ¶ 43). Batratchenko pledged to invest in “relatively liquid instruments,” and promised returns based on a “market-neutral investment strategy” that would change based on “algorithms of statistical arbitrage, dynamic allocation of assets and computerized system trading.” ( Id. ¶¶ 44–46). The Thor Guarant Program purported to invest in “international real estate,” was “highly liquid,” claimed to “minimize ‘the numerous risks associated with investments in individual properties,’ ” and promised “stable profits of 20–25 percent per year regardless of market conditions.” ( Id. ¶¶ 54–55). The Thor Opti–Max Program focused on real estate and financial investments, including investments in both the Thor Optima and Thor Guarant Programs. ( Id. ¶ 60). All of the programs were managed by various Thor Entities; investors signed a power of attorney authorizing Thor United and its representatives to act as agents on behalf of investors. ( Id. ¶ 68).

Plaintiff Tzentziper invested $190,538.87 in Thor Optima and Thor Opti–Max between September 2003 and April 2010; Plaintiff Vasilyanskaya invested $37,017 of her own money and $80,000 of her son's money in Thor Optima between July 2004 and April 2010; and Plaintiff Starshinova invested $21,900 in Thor Optima between September 2004 and April 2010. ( Id. ¶¶ 75–77). Plaintiffs assert that these investments were made in reliance on various misrepresentations made by Defendants, including “[p]romises of safety of their principal, substantial returns on their investments and high liquidity,” and “returns of 15–25% annually.” ( Id. ¶¶ 70–73). Plaintiffs also assert that hundreds of other individuals, also plaintiffs in this suit, invested in reliance on these “misrepresentations.” ( Id. ¶ 79). Plaintiffs also served as “freelance financial consultants” and solicited others to invest more than $20 million in the Thor programs “on a commission basis.” ( Id. ¶ 81).

Periodic account statements issued by the Thor Entities prior to 2008 reflected returns as high as 50%. ( Id. ¶ 99). After the “worldwide economic crisis” in 2008, Plaintiffs became “concerned” about the program. ( Id. ¶ 100). To assuage these concerns, Batratchenko attended a number of meetings in New York and Russia at which he represented “that despite the ailing economy, the Thor Program continued to perform well” and that it operated just as well in a failing market as it did in a strong market. ( Id.). In 2008, Batratchenko sent investors a letter asserting that “the New York residential property market would need to experience a threefold decline” in order for the funds to lose money. ( Id. ¶ 122).

In 2009, however, Batratchenko announced that the SEC had “frozen all funds and assets of the Thor Optima Program.” ( Id. ¶ 101). Batratchenko and the Thor Group claimed that the SEC had frozen all of the Thor Optima Program's assets, ( id. ¶ 101), and, “as a result of ‘radical reform of the U.S. financial markets regulatory system,’ the procedure for redemption or removal of funds from the Thor Optima Program ha[d] changed and became more complicated.” ( Id. ¶ 102). In late 2009, the Thor Opti–Max and Thor Guarant programs showed a 50% decline, at which time the remaining investors sought to redeem their investments. ( Id. ¶ 108). Defendants made no payments in response to any of these requests. ( Id. ¶ 106). In August of 2010, Batratchenko sent a letter to all investors saying he could not return the funds because they were tied up in illiquid investments, such as real estate. ( Id. ¶ 111).

Plaintiffs filed this action on December 23, 2011 [Dkt. No. 1], and filed an Amended Complaint on May 25, 2012. [Dkt. No. 47]. The Amended Complaint alleges violations of the Commodities Exchange Act (“CEA”) (Count I) and the Securities Exchange Act (“SEA”) (Counts II and III), asserts state law claims for breach of contract (Count IV), common law fraud (Count V), breach of fiduciary duty (Count VI), unjust enrichment (Count VII), constructive trust (Count VIII), accounting (Count IX), and negligence (Count X), and seeks...