10-1581-cv Int’l Strategies Grp., Ltd. v. Ness
**UNITED STATES COURT OF APPEALS** 1 2 **FOR THE SECOND CIRCUIT** 3 4 August Term, 2010 5 6 7 (Argued: April 8, 2011 Decided: July 15, 2011) 8 9 Docket No. 10-1581-cv 10 11 - - - - - - - - - - - - - - - - - - - - -x 12 13 INTERNATIONAL STRATEGIES GROUP, LTD. , 14 15 Plaintiff-Appellant , 16 17 - v.- 18 19 PETER S. NESS , 20 21 Defendant-Appellee

. 22 23 - - - - - - - - - - - - - - - - - - - -x 24 25 Before: JACOBS, Chief Judge , CABRANES, Circuit 26 Judge , KRAVITZ, District Judge

. * 27 28 Plaintiff-Appellant International Strategies Group, 29 Ltd. appeals from a March 31, 2010 judgment of the United 30 States District Court for the District of Connecticut 31 (Chatigny, J. ), granting Defendant-Appellee Peter Ness’s 32 motion to dismiss the complaint as untimely. The claims, 33 alleging breach of fiduciary duty, intentional 34

* The Honorable Mark R. Kravitz, of the United States District Court for the District of Connecticut, sitting by designation.misrepresentation, negligent misrepresentation, and 1 conspiracy to commit those three offenses , arose from the 2 loss of a $4 million investment that the plaintiff made with 3 Ness’s employer. We agree with the district court that the 4 claims are untimely and that tolling is unwarranted. 5
AFFIRMED. 6

KATHLEEN C. S TONE , Boston, MA , for 7 Plaintiff-Appellant

. 8 9 R OBERT C. E. L ANEY , (Claire E. 10 Ryan, on the brief ), Ryan Ryan 11 Deluca LLP, Stamford, CT , for 12 Defendant-Appellee

. 13 14 DENNIS JACOBS, Chief Judge : 15 16 Plaintiff International Strategies Group, Ltd. (“ISG”) 17 appeals from a March 31, 2010 judgment of the United States 18 District Court for the District of Connecticut (Chatigny, 19
J. ), granting Defendant Peter Ness’s motion to dismiss as 20 untimely ISG’s complaint, which alleges breach of fiduciary 21 duty, intentional misrepresentation, negligent 22 misrepresentation, and conspiracy to commit those three 23 offenses

. ISG’s claims arose from the loss of a $4 million 24 investment it made with Ness’s employer, Corporation of the 25 BankHouse (“BankHouse”). The district court ruled that 26 tolling of the untimely claims, on the basis of Ness’s 27

2continuing concealment, was unwarranted. We affirm on the 1 ground that this lawsuit, commenced in April 2004, arises 2 from an injury suffered no later than June 2000, and is 3 therefore barred by the applicable statute of repose, Conn. 4 Gen. Stat. § 52-577. 5 6
**BACKGROUND** 7 We recount only the facts that bear upon the issues 8 necessary to decide the appeal, and assume (as we must) that 9 all plausible allegations in ISG’s first amended complaint 10 are true. Where appropriate, we take judicial notice of 11 filings from ISG’s related lawsuits. See Scherer v. 12 Equitable Life Assurance Soc’y of the U.S. , 347 F.3d 394, 13 402 (2d Cir. 2003). 14 The defendant, Peter S. Ness, was the Vice President 15 of Corporate Finance at BankHouse, as well as an in-house 16 counsel and the head of the Greenwich office. Ness was one 17 of a core group of senior executives for entities controlled 18 by James F. Pomeroy, II. BankHouse, and several other 19 Pomeroy-controlled entities, purported to offer a 20 sophisticated investment opportunity but was in essence a 21 Ponzi scheme. 22

3Around April 1998, Pomeroy enticed ISG to invest $4 1 million with BankHouse by promising guaranteed profits of $2 2 million every twelve daysfor three months, 1with an express 3 covenant that invested funds would not be depleted. 4 Although Pomeroy assured ISG that profits were accruing as 5 expected, ISG’s funds were soon depleted through various 6 unauthorized transfers. 7 BankHouse prolonged the scheme by tantalizing ISG with 8 some or all of its notional profits--in the form of a $9 9 million promissory note. Around October 1998, Ness and 10 Pomeroy proposed that ISG forgo the payment by note and 11 instead participate in another investment opportunity. ISG 12 knew nothing about this proposed investment, 2but agreed 13

1See App. at 68 (Funds Management Agreement). Although ISG did not attach the Funds Management Agreement to its complaint or its opposition to Ness’s motion to dismiss, it “reli[ed] on the terms and effect of [the agreement] in drafting the complaint” by alleging that the investment created fiduciary duties, see Chambers v. Time Warner, Inc. , 282 F.3d 147, 153 (2d Cir. 2002); it also filed the agreement in its suit against BankHouse, see Barber Aff. Ex. A, Int’l Strategies Grp., Ltd. v. Corp. of the BankHouse, Inc. , No. 02-cv-10532 (D. Mass. May 15, 2002). The agreement may therefore be considered in this appeal.

2ISG’s pleadings are inconsistent as to whether it knew that funds would be transferred to another entity. Compare First Am. Compl. ¶ 25 (“[ISG] agreed to allow what it believed to be an augmented investment amount to be transferred to another entity, Swan Trust, for further
4nevertheless. BankHouse then transferred $19 million of its 1 clients’ money to a foreign entity, Swan Trust, which 2 included any remnant of ISG’s investment. 3
The funds that BankHouse transferred to Swan Trust were 4 swiftly distributed (unlawfully) to third-party bank 5 accounts. BankHouse concealed the depletion from ISG for a 6 time: In January 1999, Ness sent a memorandum informing 7 Chris Barber, a Managing Director of ISG, that funds 8 invested with Swan Trust were expected to yield profits of 9 200% to 300%, which would be disbursed to BankHouse by the 10 end of the month. 3At some point prior to June 2000, 11 however, ISG learned that Swan Trust had dissipated the 12 funds. (ISG’s filings reflect an unimportant inconsistency 13 on the timing. 4 ) 14

investment.”), withPl.’s Opp. to Def.’s Mot. to Dis. at 6 (“At the time, ISG had no knowledge of Swan Trust . . . .”).

3This and subsequent communications from Ness are properly considered because they were referenced (either specifically or as a course of conduct) in the complaint and were attached by ISGto its opposition to Ness’s motion to dismiss. First Am. Compl. ¶ 29; Pl.’s Opp. to Def.’s Mot. to Dis. Ex. E; cf. Chambers , 282 F.3d at 153.

4ISG’s complaint concedes knowledge of the dissipation only as of June 2000. First Am. Compl. ¶ 36. Its opposition to Ness’s motion to dismiss, however, admits knowledge since August 1999. Pl.’s Opp. to Def.’s Mot. to Dis. at 10; see alsoComplaint ¶ 90, Int’l Strategies Grp., Ltd. v. Corp. of the BankHouse, Inc. , No. 02-cv-10532 (D.
5The complaint alleges that BankHouse undertook (or 1 pretended to undertake) efforts to recover the funds from 2 Swan Trust, as a ploy to dissuade ISG from bringing a claim. 3 As part of the deception, ISG cites two memoranda that Ness 4 co-wrote to it in October 1999 (“the October 1999 5 Memoranda”), which optimistically described the recovery 6 efforts conducted by BankHouse’s attorneys and its “recovery 7 specialists,” but stressed the need for confidentiality. 8
SeePl.’s Opp. to Def.’s Mot. to Dis. Exs. F, G. ISG was 9 lulled: Although the memoranda suggested an imminent 10 recovery, ISG waited for months while the recovery efforts 11 unfolded. 12 Approximately nine months later, ISG (and other 13 investors) accepted BankHouse’s suggestion to grant a power 14 of attorney to BankHouse’s outside counsel, A. John 15 Pappalardo, to act on its behalf in the recovery efforts. 16 Efforts by Pappalardo continued from mid-2000 through the 17 fall of 2001, during which time (as ISG alleges generally) 18 BankHouse and “its employees and agents” deceived ISG by 19 insisting “that they were doing everything feasible to 20

Mass. Mar. 22, 2002). The discrepancy is unimportant because the result is the same even if the June 2000 date is used.
6recover the funds” and that independent action would 1 “interfere with [BankHouse’s] ability to recover on behalf 2 of the investors.” First Am. Compl. ¶ 43. 3 On August 15, 2001, nearly two years after the October 4 1999 Memoranda he co-drafted, Ness faxed a single-page, 5 handwritten note (the “August 2001 Fax”) to Chris Barber of 6 ISG, in evident response to an inquiry by ISG: 7 Chris-- 8 9 • Discussed your letter with Jim [Pomeroy] 10 11 • Will get letter to you ASAP from me (with 12 John [Pappalardo] OK) or from John--- 13 14 • We are proceeding with first steps of 15 litigation --- 16 17 Peter 18 Pl.’s Opp. to Def.’s Mot. to Dis. Ex. H. ISG claims that it 19 first realized that the recovery efforts were futile (or 20 perhaps fictitious) after the promises in this fax went 21 unfulfilled. 22 After a few more months, ISG hired its own counsel to 23 recover its funds through litigation. Several additional 24 months later, on March 22, 2002, ISG commenced a suit 25 against BankHouse, Pomeroy, and various other Pomeroy26

7controlled entities to recover its investment funds. 5Ness 1 was not named a defendant or mentioned in the complaint. 2 The defendants answered, but later ceased to defend. After 3 more than two years of litigation, ISG won a default 4 judgment of over $10 million in damages and penalties. 6 5 ISG’s inability to collect on its judgment triggered 6 additional lawsuits. This suit was filed on April 27, 2004 7 in the United States District Court for the District of 8 Connecticut. Three days later, a nearly identical suit was 9 filed in the United States District Court for the District 10 of Massachusetts against Stephen Heffernan, the Chief 11 Financial Officer of BankHouse, alleging (among other 12 claims) the same six causes of action as alleged in this 13 suit. 7Ness was not mentioned in the complaint. The suit 14 against Heffernan was dismissed as untimely. 8 15

5See Complaint, Int’l Strategies Grp., Ltd. v. Corp. of the BankHouse, Inc. , No. 02-cv-10532 (D. Mass. Mar. 22, 2002).

6See Amended Judgment, Int’l Strategies Grp., Ltd. v. Corp. of the BankHouse, Inc. , No. 02-cv-10532 (D. Mass. June 3, 2004).

7See Complaint, Int’l Strategies Grp., Ltd. v. Heffernan , No. 04-10863 (D. Mass. Apr. 30, 2004).

8See Memorandum of Decision, Int’l Strategies Grp., Ltd. v. Heffernan , No. 04-10863 (D. Mass. July 30, 2004), ECF No. 11; App. at 60-63. The court ruled that the repose
8While this suit (against Ness) and the suit against 1 Heffernan were pending, ISG began suing third parties 2 involved in the transactions. In May and June 2004, ISG 3 sued two banks involved in the transfers. 9 In September 4 2004, ISG sued Pappalardo and his current and prior law 5 firms, claiming malpractice in connection with the power of 6 attorney it granted him. 10 Pappalardo and the firms 7 prevailed on summary judgment: Each claim was held either 8 meritless (because no attorney-client relationship was 9 formed) or untimely. 11 10

period began in 1999, when ISG knew all the facts giving rise to its claim (after BankHouse and its CEO represented to ISG that its funds were about to be returned); under Massachusetts law, ISG’s knowledge that its funds were dissipated precluded tolling.

9 See Complaint, Int’l Strategies Grp., Ltd. v. ABN AMRO Bank N.V. , No. 04-601604 (Sup. Ct. N.Y. County May 27, 2004); Complaint, Int’l Strategies Grp., Ltd v. ABN AMRO Bank N.V. , No. 04-601731 (Sup. Ct. N.Y. County June 7, 2004). Ness is mentioned in only one paragraph in each complaint (concerning the $9 million promissory note). The cases, which were consolidated, have apparently been dismissed pursuant to a stipulated order.

10 See Complaint, Int’l Strategies Grp., Ltd. v. Greenberg Traurig, LLP , No. 04-cv-12000 (D. Mass. Sept. 16, 2004). Ness was mentioned once in the complaint, in connection with the August 2001 Fax.

11See Int’l Strategies Grp., Ltd. v. Greenberg Traurig, LLP , 482 F.3d 1 (1st Cir. 2007), aff’g on other grounds No. 04-cv-12000, 2006 U.S. Dist. LEXIS 3401 (D. Mass. Jan. 30, 2006). 9After the other suits had concluded, the district court 1 in this case granted Ness’s motion to dismiss the action as 2 untimely, ruling that the limitations period began to run by 3 June 2000 and that tolling was unwarranted. 4
5

**DISCUSSION** 6 We review de novoa district court’s dismissal of an 7 action under Fed. R. Civ. P. 12(b)(6) for failure to state a 8 claim. Selevan v. N.Y. Thruway Auth. , 584 F.3d 82, 88 (2d 9 Cir. 2009). To avoid dismissal, ISG’s allegations “must be 10 enough to raise a right to relief above the speculative 11 level.” Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555 12 (2007). Assuming all “well-pleaded factual allegations” to 13 be true and drawing all reasonable inferences in ISG’s 14 favor, we “determine whether [the allegations] plausibly 15 give rise to an entitlement to relief.” Ashcroft v. Iqbal , 16 129 S. Ct. 1937, 1950 (2009). 17 18

**I** 19 Tort actions under Connecticut law are (with exceptions 20 not relevant here) subject to the three-year statute of 21 repose that “begins with the date of the act or omission 22

10complained of, not the date when the plaintiff first 1 discovers an injury.” Piteo v. Gottier , 112 Conn. App. 441, 2 445 (App. Ct. 2009) (internal quotation marks omitted); see 3 Conn. Gen. Stat. § 52-577; Barrett v. Montesano , 269 Conn. 4 787, 794 (2004) (noting that Conn. Gen. Stat. § 52-577 is 5 among the statutes that the Connecticut Supreme Court has 6 referred to as “statutes of limitations” even though they 7 “technically function more like statutes of repose”). 8 ISG’s funds were unlawfully dissipated by June 2000, 9 the point by which ISG concedes knowledge of the dissipation 10 in the present complaint. See First Am. Compl. ¶ 36. The 11 present suit was filed on April 27, 2004, nearly four years 12 later. ISG argues that its claims are nevertheless timely, 13 because Ness’s actions amounted to a “continuing course of 14 conduct” through August 2001, thereby “allowing [it] to 15 commence [its] lawsuit at a later date.” 12Sherwood v. 16 Danbury Hosp. , 252 Conn. 193, 203 (2000) (internal quotation 17

12To the extent that ISG argues that Ness’s actions from 1999 to 2001 give rise to separate causes of action for misrepresentation and breach of fiduciary duty, it is duplicative of the “continuing course of conduct” argument. In any event, ISG did not raise this argument before the district court, and “[i]n general, a federal appellate court does not consider an issue not passed upon below.” See Booking v. Gen. Star Mgmt. Co. , 254 F.3d 414, 418 (2d Cir. 2001) (internal quotation marks omitted).
11marks omitted). 1 At the threshold, Ness argues that a course of conduct 2 cannot toll the repose period beyond the plaintiff’s 3 discovery of the injury. See, e.g. , Rosato v. Mascardo , 82 4 Conn. App. 396, 405 (App. Ct. 2004). The cases he cites 5 interpret a different statute of limitations (Conn. Gen. 6 Stat. § 52-584), one that contains a separate two-year 7 limitation triggered when an injury is “first sustained or 8 discovered.” However, at least one Connecticut trial court 9 has indicated that this proposition from Rosato is 10 nevertheless equally applicable to § 52-577, and the 11 knowledge of the injury may well deny a plaintiff (with a 12 claim subject to that provision) the benefit of the 13 continuous course of conduct doctrine. See Coss v. Stewart , 14 Civ. No. 08-5007541-S, 2010 WL 1050534, at *6 n.1 (Conn. 15 Super. Ct. Feb. 11, 2010), aff’d , 126 Conn. App. 30 (App. 16 Ct. 2011). It is possible that the wording in Rosato may 17 signify only that the separate two-year limitation will 18 already have begun running at that point. But we need not 19 resolve the issue, because even if the continuous course of 20 conduct doctrine were available for the period following the 21 discovery of the actionable harm, ISG has not plausibly 22

12alleged facts warranting its application. 1 “To support a finding of a ‘continuing course of 2 conduct’ . . . there must be evidence of the breach of a 3 duty that remained in existence after commission of the 4 original wrong related thereto.” Fichera v. Mine Hill 5 Corp. , 207 Conn. 204, 209 (1988). A plaintiff can show a 6 “duty that remained in existence” by establishing: (A) “a 7 special relationship between the parties giving rise to such 8 a continuing duty,” or (B) “some later wrongful conduct of a 9 defendant related to the prior act.” Id. at 209-10. 10
11

**A** 12 ISG’s conclusory claim that BankHouse’s “superior 13 knowledge, skill and expertise” and acceptance of ISG’s 14 funds created a fiduciary bond with Nessis not a plausible 15 allegation of a “special relationship between the parties” 16 giving rise to a continuing duty. Id. at 210; see First Am. 17 Compl. ¶ 14. The Connecticut Supreme Court recognizes that 18 “not all business relationships implicate the duty of a 19 fiduciary,” and that “certain relationships, as a matter of 20 law, do not impose upon either party the duty of a 21 fiduciary.” Hi-Ho Tower, Inc. v. Com-Tronics, Inc. , 255 22

13Conn. 20, 38 (2000). Because the present suit is against 1 Ness in his personal capacity, the inquiry must focus on 2 ISG’s dealings with Ness rather than its dealings with other 3 BankHouse agents, or with the firm itself. 4 ISG does not allege that Ness had any role in the 5 solicitation of ISG’s investment, First Am. Compl. ¶ 13, or 6 that he presented himself as an investment manager. ISG 7 merely claims that “from time to time” Ness “held himself 8 out as having experience and expertise in financial and 9 investment matters.” First Am. Compl. ¶ 4. Nor does ISG 10 claim that Ness offered to perform a key role in its 11 investing relationship with BankHouse or that he purported 12 to have superior knowledge about investments made by 13 BankHouse or ISG. See Beverly Hills Concepts, Inc. v. 14 Schatz & Schatz, Ribicoff & Kotkin , 247 Conn. 48, 57 (1998). 15 Absent a representation that Ness had “superior knowledge, 16 skill or expertise” or that he “sought the plaintiff’s 17 special trust,” there can be no breach of fiduciary duty 18 under Connecticut law. Id. Whether or not BankHouse owed a 19 fiduciary duty to ISG, Ness’s fiduciary duties--if any--ran 20 to BankHouse by virtue of his officership. See First Am. 21 Compl. ¶ 11. 22

141

**B** 2 ISG has also not plausibly alleged that tolling is 3 warranted on account of “some later wrongful conduct . . . 4 related to the prior act” by Ness . Fichera , 207 Conn. at 5 210. Conclusory allegations are made about BankHouse and 6 its “employees and agents,” but the only alleged 7 misrepresentations attributed to Ness after 1999 are stray 8 remarks from the August 2001 Fax, most notably that “We are 9 proceeding with first steps of litigation.” (Ness’s failure 10 to inform ISG of the repose period cannot establish a course 11 of conduct because, as discussed above, Ness had no special 12 relationship with ISG.) 13 A single-page, handwritten fax sent twenty months after 14 any other alleged misrepresentation by Ness does not 15 plausibly link up to form a continuous course of conduct. 16 If a plaintiff’s miscellaneous, discontinuous interactions 17 with a defendant over an extended period of time alone 18 justified tolling, it “would render the repose part of [a] 19 statute of limitations a nullity,” Nieves v. Cirmo , 67 Conn. 20 App. 576, 587 (App. Ct. 2002), and “would, in effect, allow 21 the plaintiff to acquiesce in the defendant’s conduct for as 22

15long as convenient to the plaintiff, contrary to one of the 1 purposes of statutes of limitations, which is to prevent the 2 unexpected enforcement of stale claims concerning which the 3 persons interested have been thrown off their guard by want 4 of prosecution,” Rivera , 45 Conn. Supp. at 160 (internal 5 quotation marks omitted). 6 Moreover, Ness’s fax was not unprompted: It was 7 apparently in response to an inquiry by ISG. App. at 164 8 (reflecting Ness’s assurance that he “[d]iscussed [ISG’s] 9 letter with Jim [Pomeroy]”). A plaintiff does not have a 10 unilateral option to extend the repose period of its claims 11 merely by making an inquiry that can be expected to elicit a 12 reply. Cf. Sanborn v. Greenwald , 39 Conn. App. 289, 297 13 (App. Ct. 1995) (“A plaintiff should not be allowed to keep 14 a legal malpractice action alive after the lawyer-client 15 relationship has ended by telephoning the attorney every 16 three years to obtain verification that something the 17 attorney had drafted previously would not cause the 18 plaintiff harm.”). 19 20

**II** 21 ISG argues that even if its claims were untimely, Ness 22

16should be equitably estopped from asserting a repose defense 1 because he discouraged ISG from pursuing its remedies. Ness 2 cites our dicta concerning the unavailability of equitable 3 tolling under Conn. Gen. Stat. § 52-577 as establishing a 4 “well-settled” principle that equitable estoppel is 5 inapplicable as well. Ness Br. at 11; Gerena v. Korb , 617 6 F.3d 197, 206 (2d Cir. 2010). But that argument ignores the 7 differences between equitable tolling and equitable 8 estoppel. See Bennett v. United States Lines , 64 F.3d 62, 9 65-66 (2d Cir. 1995). In any event, a recent Connecticut 10 Appellate Court case indicates that equitable estoppel may 11 be available under § 52-577. See Coss v. Steward , 126 Conn. 12 App. 30, 41-45 (App. Ct. 2011). 13 Equitable estoppel in Connecticut has two elements: (1) 14 “the party against whom estoppel is claimed must do or say 15 something calculated or intended to induce another party to 16 believe that certain facts exist and to act on that belief”; 17 and (2) “the other party must change its position in 18 reliance on those facts, thereby incurring some injury.” 19 Connecticut Nat’l Bank v. Voog , 233 Conn. 352, 366 (1995) 20 (internal quotation marks omitted). “[A] person who claims 21 an estoppel must show that he has exercised due diligence to 22

17know the truth, and that he not only did not know the true 1 state of things but also lacked any reasonably available 2 means of acquiring knowledge.” Id. at 367 (internal 3 quotation marks omitted). 4 ISG has not plausibly alleged that it exercised due 5 diligence or changed its position based on Ness’s 6 representations. The August 2001 Fax was vague, cursory, 7 informal, and otherwise without indicia of reliability. A 8 diligent party would not have depended on it, at least not 9 without demanding reliable confirmation. Moreover, the (at 10 least) twenty-month gap between the fax and Ness’s previous 11 alleged misrepresentations defeat any claim that ISG relied 12 upon Ness for periodic status updates to assess whether to 13 forbear bringing suit. (To the contrary, ISG was relying on 14 Pappalardo to execute its recovery efforts through the power 15 of attorney it granted him.) 16 Under Connecticut law, ISG’s knowledge by June 2000 17 that its funds were dissipated necessarily informed it that 18 Ness’s earlier representations were untrue. First Am. 19 Compl. ¶¶ 29, 32, 36. ISG’s credulous faith in Ness’s 20 subsequent assurances fell well short of diligence; 14 there 21

14ISG argues that the district court improperly found facts concerning (inter alia ) ISG’s sophistication, and
18is “no reason to encourage investors who suspect something 1 amiss to rely solely on their [advisor’s] advice and to 2 refrain from seeking outside advice.” Piteo v. Gottier , 112 3 Conn. App. 441, 449 (App. Ct. 2009). ISG “cannot seek the 4 safe harbor of equitable estoppel due to [its] own failure 5 to recognize that [it] w[as] required to pursue [its] 6 action.” Celentano v. Oaks Condo. Ass’n , 265 Conn. 579, 615 7 (2003). 8 9 For the foregoing reasons, the judgment of the district 10 court is affirmed

. 11

prematurely required it to prove due diligence. Since the record supports no plausible inference of due diligence (without regard to ISG’s level of sophistication), these arguments need not be reached.
19