15

‐ 408

‐ cv

Harbinger Capital Partners LLC, et al. v. Deere & Company et al.

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

SUMMARY ORDER

R ULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT

. C ITATION TO A

SUMMARY ORDER FILED ON OR AFTER J ANUARY 1, 2007 IS PERMITTED AND IS GOVERNED BY

F EDERAL R ULE OF A PPELLATE P ROCEDURE 32.1 AND THIS COURT ʹ S L OCAL R ULE 32.1.1.

W HEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT

, A PARTY MUST

CITE EITHER THE F EDERAL A PPENDIX OR AN ELECTRONIC DATABASE ( WITH THE NOTATION

ʺ SUMMARY ORDER ʺ ). 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 7 th day of December, two thousand fi fteen.

PRESENT: ROBERT D. SACK,

DENNY CHIN,

RAYMOND J. LOHIER, JR.,

Circuit Judges

.

‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ x

HARBINGER CAPITAL PARTNERS LLC, HARBINGER

CAPITAL PARTNERS II LP, HARBINGER CAPITAL

PARTNERS MASTER FUND I, LTD., HARBINGER

CAPITAL PARTNERS SPECIAL SITUATIONS FUND, LP,

HARBINGER CAPITAL PARTNERS SPECIAL

SITUATIONS GP, LLC, HGW GP, LTD, HGW HOLDING

COMPANY, LP, HGW US GP CORP., HGW US

HOLDING COMPANY, LP, CREDIT DISTRESSED

BLUE LINE MASTER FUND, LTD, GLOBAL

OPPORTUNITIES BREAKAWAY LTD.,

Plaintiffs

‐ Appellants

,2 SOL PRIVATE CORP.,

Plaintiff

,

v. 15

‐ 408

‐ cv

DEERE & COMPANY, GARMIN INTERNATIONAL,

INC., TRIMBLE NAVIGATION LIMITED,

UNITED STATES GPS INDUSTRY COUNCIL,

Defendants

‐ Appellees

,

COALITION TO SAVE OUR GPS,

Defendant

.

‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ ‐ x

FOR PLAINTIFFS

‐ APPELLANTS: DAVID M. FRIEDMAN, Marc E.

Kasowi tz

, Daniel R. Benson, Christine A.

Montenegro, Kasowi tz

, Benson, Torres &

Friedman LLP, New York, New York;

Gary M. Elden, Todd C. Jacobs, Daniel M.

Hinkle, Shook, Hardy & Bacon, LLP,

Chicago, IL.

FOR DEFENDANT

‐ APPELLEE DEERE &

COMPANY: Kenneth I. Schacter, Ari M. Selman,

Morgan, Lewis & Bockius LLP, New

York, NY.

FOR DEFENDANT

‐ APPELLEE GARMIN

INTERNATIONAL, INC.: MEIR FEDER, Phillip Le B. Douglas, Ian

Samuel, Jones Day, New York, New York;

Michael D. Hays, Cooley LLP,

Washington, D.C.

FOR DEFENDANT

‐ APPELLEE TRIMBLE

NAVIGATION LIMITED: William A. Isaacson, J. Wells Harrell,

Boies, Schiller & Flexner LLP,

Washington, D.C.; Stuart H. Singer, Boies,

Schiller & Flexner LLP, Fort Lauderdale,

FL.3 FOR DEFENDANT

‐ APPELLEE UNITED

STATES GPS INDUSTRY COUNCIL: Steven R. Schindler, Schindler Cohen &

Hochman LLP, New York, NY.

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

New York (Berman, J. ).

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,

ADJUDGED, AND DECREED that the judgment of the district court is AFFIRMED

.

Plainti ff s

‐ Appellants (collectively ʺ Harbinger ʺ ) appeal from a judgment

entered on February 10, 2015, by the United States District Court for the Southern

District of New York (Berman, J. ), dismissing Harbinger ʹ s third amended complaint (the

ʺ Complaint ʺ ). Harbinger asserted securities fraud and related claims under federal and

state law. The district court explained its reasoning in a memorandum and order fi led

February 5, 2015. We assume the parties ʹ familiarity with the underlying facts and

procedural history of the case.

Harbinger, an investment fund, invested in LightSquared, Inc.

( ʺ LightSquared ʺ ), a company that sought to develop a new wireless broadband

communications network. Three of the Defendants

‐ Appellees (the ʺ Manufacturer

Defendants ʺ ) are manufacturers and sellers of global positioning system ( ʺ GPS ʺ )

devices, which are dependent on the use of wireless spectrum. The remaining

Defendant

‐ Appellee is a nonprofit corporation that serves as an advocate for the GPS

industry. In the Complaint, Harbinger alleged, inter alia

, that Manufacturer Defendants4 deliberately designed their GPS receivers to experience ʺ overload interference ʺ from

out

‐ of

‐ band receptions ( ʺ OOBR ʺ ) that would render the receivers ineffective and that

defendants fraudulently concealed and misrepresented this fact even though they were

aware that LightSquared ʹ s plan to develop its new wireless network would cause such

OOBR interference. The district court below dismissed the Complaint in its entirety

under Federal Rules of Civil Procedure 12(b)(6) and 9(b).

We review the district court ʹ s dismissal of the Complaint for failure to

state a claim de novo

. Chambers v. Time Warner, Inc.

, 282 F.3d 147, 152 (2d Cir. 2002). To

survive a Rule 12(b)(6) motion to dismiss, a complaint must plead ʺ enough facts to state

a claim to relief that is plausible on its face. ʺ Bell Atl. Corp. v. Twombly

, 550 U.S. 544, 570

(2007). ʺ Any complaint alleging securities fraud must satisfy the heightened pleading

requirements of the [Private Securities Litigation Reform Act, 15 U.S.C. § 78u

‐ 4(b),] and

Fed. R. Civ. P. 9(b) by stating with particularity the circumstances constituting fraud. ʺ

ECA & Local 134 IBEW Joint Pension Tr. of Chi. v. JP Morgan Chase Co.

, 553 F.3d 187, 196

(2d Cir. 2009).

A. Fraud

The district court held that Harbinger lacked standing to sue under § 10(b)

of the Securities and Exchange Act of 1934, 15 U.S.C. § 78j(b), and Securities and

Exchange Commission Rule 10b

‐ 5 ( ʺ Rule 10b

‐ 5 ʺ ), 17 C.F.R. § 240.10b

‐ 5, because the

connection between defendants ʹ omissions and Harbinger ʹ s investment was ʺ too remote5 to sustain an action. ʺ LightSquared Inc. v. Deere & Co.

, Nos. 13 Civ. 8157 (RMB), 13 Civ.

5543 (RMB), 2015 WL 585655, at *18 (S.D.N.Y. Feb. 5, 2015) (quoting In re NYSE

Specialists Sec. Litig.

, 503 F.3d 89, 102 (2d Cir. 2007)). Harbinger argues that because

ʺ [d]efendants ʹ omissions directly concerned LightSquared, ʺ there is a direct causal link

between the fraud and the investment. Appellants ʹ Br. 44. There is no relevant

difference between Harbinger and the plaintiffs in Nortel Networks

. See Ontario Pub.

Serv. Emps. Union Pension Tr. Fund v. Nortel Networks Corp.

, 369 F.3d 27, 29

‐ 34 (2d Cir.

2004). Harbinger purchased LightSquared ʹ s stock based on LightSquared ʹ s ʺ optimistic

projections ʺ about the feasibility of its plan given defendants ʹ alleged failure to disclose

their receivers ʹ design issues for their own business reasons. See id. at 29. Accordingly,

just as in Nortel Networks

, the connection between defendants ʹ omissions about the

shortcomings of its receivers and Harbinger ʹ s purchase of LightSquared ʹ s stock was ʺ too

remote to sustain an action ʺ under § 10(b) and Rule 10b

‐ 5. In re NYSE Specialists Sec.

Litig.

, 503 F.3d at 102. Harbinger therefore lacks statutory standing to pursue its federal

securities fraud claim here.

Moreover, Harbinger has failed to adequately plead fraud. Under both

federal and New York law, an omission is actionable only if the defendant had a duty to

disclose. See SEC v. DiBella

, 587 F.3d 553, 563 (2d Cir. 2009) ( ʺ Under section 10(b) and

Rule 10b

‐ 5, an omission is actionable under the securities laws only when the buyer is

subject to a duty to disclose the omitted facts. ʺ (internal quotation marks omitted));6 Nissan Motor Acceptance Corp. v. Scialpi

, 94 A.D.3d 1067, 1067 (2d Dep ʹ t 2012) ( ʺ Where

the fraud claim at issue is based on an omission or concealment of a material fact, the

plaintiff must demonstrate that the defendant had a duty to disclose material

information and failed to do so. ʺ ).

ʺ New York recognizes a duty by a party to a business transaction to speak

in three situations: first, where the party has made a partial or ambiguous statement, on

the theory that once a party has undertaken to mention a relevant fact to the other party

it cannot give only half of the truth; second, when the parties stand in a fiduciary or

confidential relationship with each other; and third, ʹ where one party possesses

superior knowledge, not readily available to the other, and knows that the other is

acting on the basis of mistaken knowledge. ʹʺ Brass v. Am. Film Techs., Inc.

, 987 F.2d 142,

150 (2d Cir. 1993) (citations omitted) (quoting Aaron Ferer & Sons Ltd. v. Chase Manhattan

Bank, N.A.

, 731 F.2d 112, 123 (2d Cir. 1984)). Similarly, under Rule 10b

‐ 5, a duty to

disclose ʺ may arise when there is ʹ a corporate insider trad[ing] on confidential

information, ʹ a ʹ statute or regulation requiring disclosure, ʹ or a corporate statement that

would otherwise be ʹ inaccurate, incomplete, or misleading. ʹʺ Stratte

‐ McClure v. Morgan

Stanley

, 776 F.3d 94, 101 (2d Cir. 2015) (alteration in original) (quoting Glazer v. Formica

Corp.

, 964 F.2d 149, 157 (2d Cir. 1992)).

As the district court pointed out, ʺ Harbinger fails to allege that it had any

relationship with Defendants, let alone a ʹ special relationship of trust or confidence. ʹʺ7 LightSquared

, 2015 WL 585655, at *19. The Complaint does not allege that Harbinger

engaged in commercial dealings with defendants, or that defendants had a fiduciary

relationship with Harbinger, or that defendants made a partial or ambiguous statement

that required additional disclosure to avoid misleading Harbinger. The only time

Harbinger alleged that defendants directly communicated with a representative of

Harbinger was at the ITU working group meeting. There, Harbinger merely alleged

that, in response to a prompt to ʺ provide information to address any concerns regarding

the potential for the GPS receivers to experience OOBR as a result of transmissions from

the LightSquared Band, ʺ ʺ none of the Defendants raised any OOBR issues related to the

proposed LightSquared network. ʺ Joint App ʹ x 124

‐ 25.

Harbinger also seeks to rely on the superior knowledge doctrine, but the

reliance is misplaced. ʺ [A] duty to disclose due to one party ʹ s superior knowledge

. . .

ordinarily arises only in the context of business negotiations where parties are entering

a contract. ʺ Ray Larsen Assocs., Inc. v. Nikko Am., Inc.

, No. 89 Civ. 2809 (BSJ), 1996 WL

442799, at *5 (S.D.N.Y. Aug. 6, 1996). Harbinger was not engaged in business

negotiations with any of the defendants, and defendants had no obligation to disclose

information regarding OOBR inference on the basis of their purported superior

knowledge.8 We agree with the district court that Harbinger has failed to state a claim

for securities fraud under § 10(b) or Rule 10b

‐ 5, or a state law claim under New York

law for fraud.

B. Control Person Liability

Harbinger appeals the district court ʹ s dismissal of its control

‐ person

liability claim under § 20(a) of the Exchange Act. ʺ To establish a prima facie case of

control person liability, a plaintiff must show (1) a primary violation by the controlled

person, (2) control of the primary violator by the defendant, and (3) that the defendant

was, in some meaningful sense, a culpable participant in the controlled person ʹ s

fraud. ʺ ATSI Commc ʹ ns, Inc. v. Shaar Fund, Ltd.

, 493 F.3d 87, 108 (2d Cir. 2007). Because

Harbinger did not adequately plead a primary violation under § 10(b) and Rule 10b

‐ 5,

its control

‐ person liability claims cannot be sustained, and the district court properly

dismissed this claim.

C. Negligent Misrepresentation

Harbinger ʹ s negligent misrepresentation claim fails for substantially the

same reasons that the fraud claim fails. ʺ [L]iability for negligent misrepresentation has

been imposed only on those persons who possess unique or specialized expertise, or

who are in a special position of confidence and trust with the injured party such that

reliance on the negligent misrepresentation is justified. ʺ Kimmell v. Schaefer

, 89 N.Y.2d9 257, 263 (1996). Again, as the district court pointed out, Harbinger did not allege that it

had any relationship with defendants. See LightSquared

, 2015 WL 585655, at *19.

D. Section 349 of the New York General Business Law

Harbinger argues that the district court erred by dismissing its claim for

deceptive business practices under Section 349(a) of the New York General Business

Law. The district court properly dismissed this claim because, in this context, the

defendants ʹ alleged omissions ʺ d[id] not constitute consumer

‐ oriented conduct. ʺ See

N.Y. Univ. v. Cont ʹ l Ins. Co.

, 87 N.Y.2d 308, 320

‐ 21 (1995).

E. Equitable Estoppel

Harbinger appeals the district court ʹ s dismissal of its equitable estoppel

claim. Equitable estoppel ʺ precludes a party at law and in equity from denying or

asserting the contrary of any material fact which he has induced another to believe and

to act on in a particular manner. ʺ Holm v. C.M.P. Sheet Metal, Inc.

, 89 A.D.2d 229, 234

(4th Dep ʹ t 1982). Contrary to Harbinger ʹ s assertions, equitable estoppel ʺ does not

operate to create rights otherwise nonexistent; it operates merely to preclude the denial

of a right claimed otherwise to have arisen. ʺ Id. Given that Harbinger ʹ s claims have

failed on their merits, there are no defenses that defendants can be estopped from

pursuing. Therefore, the district court properly dismissed this claim.

* * *10 We have reviewed Harbinger ʹ s remaining arguments and conclude they

are without merit. Accordingly, we AFFIRM the judgment of the district court.

FOR THE COURT:

Catherine O ʹ Hagan Wolfe, Clerk