16-1154 

DNV Inv. P’ship, et. al. v. SGM Holdings, et. al.

 

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. 

 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 

30th day of November, two thousand sixteen. 

Present: DENNIS JACOBS 

 ROSEMARY S. POOLER, 

 Circuit Judges, 

 GEOFFREY W. CRAWFORD,1

 District Judge. 

_____________________________________________________ 

DNV INVESTMENT PARTNERSHIP, DALE MENARD, 

S. EUGENE MATHIS, JR., AND KENNETH A. GREENSPUN, 

 Plaintiffs-Appellants, 

 v. 16-1154 

SGM HOLDINGS L.L.C., LAWRENCE FIELD, 

PREMIER NATURAL RESOURCES LLC, 

SYNDICATED GEO MANAGEMENT CORPORATION, 

AND RICHARD FEATHERLY, 

 Defendants-Cross-Claimants-Appellees. 

_____________________________________________________ 

Appearing for Appellant: Richard L. Gaines, Knoxville, TN. 

Appearing for Appellee: Dan J. Schulman, The Schulman Law Firm LLP, New York, NY. 

 

1

 Judge Geoffrey W. Crawford, of the United States District Court for the District of Vermont, 

sitting by designation. 
2

 Appeal from a judgment of the United States District Court for the Southern District of 

New York (Crotty, J.). 

ON CONSIDERATION WHEREOF, IT IS HEREBY ORDERED, ADJUDGED, 

AND DECREED that the judgment of said District Court be and it hereby is AFFIRMED in 

part and VACATED and REMANDED in part. 

 Plaintiffs, a group of individual investors in a limited partnership, appeal from the 

judgment of the United States District Court for the Southern District of New York (Crotty, J.) 

dismissing their claims for fraudulent misrepresentation, fraudulent concealment, fraud in the 

inducement, violation of the RICO statute, and conspiracy. We assume the parties’ familiarity 

with the underlying facts, procedural history, and issues presented for review. We hold the 

district court erred in dismissing Plaintiffs’ complaint for lack of standing, and therefore vacate 

and remand in part on that issue. We affirm in part, however, because the district court did not 

err in holding that Plaintiffs have failed to state a claim for violation of the RICO statute. 

 Metropolitan EIH13, LP (“Met13”) was created as a vehicle for oil and gas investments. 

At the time Plaintiffs invested, Met13 was marketed as presenting a valuable opportunity for 

investors to fund and profit from a particular set of oil and gas investments. Met13 had no assets 

and conducted no business prior to being funded by investors. After Plaintiffs funded Met13, it 

made the oil and gas investments according to plan. The oil and gas assets turned out to be less 

valuable than anticipated, and Met13 suffered heavy losses. 

 Defendants are the entities that induced Met13 to invest in the particular oil and gas 

investments relevant to this case, along with some of their officers. According to the complaint 

(which we accept as true at the motion to dismiss stage), Defendants made knowingly false 

representations to fraudulently induce Plaintiffs to invest in Met13, including false allegations 

and omissions in the confidential disclosure memorandum (“CDM”) about the proposed oil and 

gas investments. 

 The district court concluded that Plaintiffs lacked standing to bring this suit as their 

injuries were purely derivative of the injuries suffered by Met13, rather than direct injuries 

suffered by the partners themselves. It then dismissed all of Plaintiffs’ claims. We vacate that 

ruling and remand for further consideration. 

 As the New York Court of Appeals explained in Continental Casualty Co. v. 

PricewaterhouseCoopers, LLP, 933 N.E.2d 738, 742 (N.Y. 2010), “plaintiffs, as limited partners 

of a partnership, may assert a direct claim for fraud in the inducement.” In order to assert a direct 

claim, a limited partner must assert it suffered a direct injury at the time of investment separate 

and apart from the limited partner’s share of the partnership loss. This type of injury, “sustained 

as a direct result of [a] fraud that induces [a plaintiff to make] an investment[,] is [calculated as] 

the difference between the value of the bargain which a plaintiff was induced by fraud to make 

and the amount or value of the consideration exacted as the price of the bargain.” Id. (internal 

quotation marks and citation omitted). At the motion to dismiss stage, Plaintiffs need not allege 

the precise amount of the overvaluation, but must only plausibly allege that there was a distinct 

overvaluation of the opportunity presented by Met13 on the date of their investment due to 
3

Defendants’ identified allegedly fraudulent misstatements and omissions in the CDM. 

Accordingly, we vacate the district court’s ruling that Plaintiffs lack standing. On remand, we 

instruct the district court to reconsider its ruling in light of the language in Continental Casualty

Co. regarding direct claims for fraud in the inducement, and encourage the district court to more 

fully develop the factual record in this case if necessary. 

 We also hold, however, that the district court did not err in dismissing Plaintiffs’ RICO 

claim. This Circuit has held that “the [Private Securities Litigation Reform Act of 1995’s] RICO 

Amendment, 18 U.S.C. § 1964(c), bars a plaintiff from asserting a civil RICO claim premised 

upon predicate acts of securities fraud, including mail or wire fraud[.]” MLSMK Inv. Co. v. JP 

Morgan Chase & Co., 651 F.3d 268, 280 (2d Cir. 2011). In their reply brief to this court, 

Plaintiffs state that all of the predicate acts alleged in support of their RICO claim consist of 

either wire fraud or mail fraud. These acts, even if assumed to be true, are insufficient as a matter 

of law to state a claim for a RICO violation following the PSLRA RICO Amendment. 

Accordingly, the ruling of the district court with respect to this claim only is affirmed. 

 For the foregoing reasons, and finding no merit in Plaintiffs’ other arguments, the order 

of the district court hereby is AFFIRMED in part and VACATED and REMANDED in part for 

further proceedings consistent with this opinion. 

 FOR THE COURT: 

 Catherine O’Hagan Wolfe, Clerk