Court Opinion

ID: 6349506
Source: CourtListenerOpinion
Date Created: 2022-06-14 15:00:47.003535+00
Date Added: 2024-06-11T09:14:40.081941
License: Public Domain

21-2465-cv
     VeroBlue Farms USA Inc. v. Canaccord Genuity LLC

                               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.

 1         At a stated term of the United States Court of Appeals for the Second Circuit,
 2   held at the Thurgood Marshall United States Courthouse, 40 Foley Square, in the
 3   City of New York, on the 14th day of June, two thousand twenty-two.
 4
 5          PRESENT: ROSEMARY S. POOLER,
 6                           RAYMOND J. LOHIER, JR.,
 7                           WILLIAM J. NARDINI,
 8                                   Circuit Judges.
 9          ------------------------------------------------------------------
10          VEROBLUE FARMS USA INC.,
11
12                          Plaintiff-Appellant,
13
14                  v.                                                           No. 21-2465-cv
15
16          CANACCORD GENUITY LLC,
17
18                           Defendant-Appellee.
19          ------------------------------------------------------------------
20
21          FOR PLAINTIFF-APPELLANT:                                  JEFFREY R. BABBIN, Wiggin and
22                                                                    Dana LLP, New Haven, CT
23                                                                    (Michael Rondon, Wiggin and
24                                                                    Dana LLP, Hartford, CT,
 1                                                      Robert H. Lang, Thompson
 2                                                      Coburn LLP, Chicago, IL, on
 3                                                      the brief)
 4
 5         FOR DEFENDANT-APPELLEE:                      JOSEPH R. PALMORE, Morrison
 6                                                      & Foerster LLP, Washington,
 7                                                      DC (Adam L. Sorensen,
 8                                                      Morrison & Foerster LLP,
 9                                                      Washington, DC, Eric D.
10                                                      Lawson, Lena H. Hughes,
11                                                      Morrison & Foerster LLP, New
12                                                      York, NY, Anthony S. Fiotto,
13                                                      Morrison & Foerster LLP,
14                                                      Boston, MA, on the brief)
15
16         Appeal from a judgment of the United States District Court for the

17   Southern District of New York (John P. Cronan, Judge).

18         UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED,

19   AND DECREED that the judgment of the District Court is AFFIRMED.

20         VeroBlue Farms USA Inc. (“VBF”) appeals from the judgment of the

21   United States District Court for the Southern District of New York (Cronan, J.)

22   dismissing its claims that Canaccord Genuity LLC (“Canaccord”) concealed

23   flaws in VBF’s technology from VBF and its investors. We assume the parties’

24   familiarity with the underlying facts and the record of prior proceedings, to

25   which we refer only as necessary to explain our decision to affirm.

                                             2
 1         VBF, an indoor fish farm business, was founded by Leslie Wulf, Bruce

 2   Hall, James Rea, John “Ted” Rea, and Keith Driver (the “Founders”). 1 In 2015

 3   VBF retained Canaccord, an investment bank, as a placement agent to help it

 4   raise debt and equity. Thereafter, Canaccord and at least one of the Founders

 5   co-authored a marketing presentation about VBF’s business, which it sent to “an

 6   aquaculture consultant and investor who performed diligence on VBF in regards

 7   to a possible investment by his firm or other firms.” App’x 106. The

 8   consultant, who “had extraordinary expertise in the . . . aquaculture industry,”

 9   App’x 106, observed that the marketing presentation contained “multiple

10   significant errors in the numbers and weaknesses in the assumptions, all of

11   which over-inflate the economics and understate the risks,” App’x 292; see also

12   App’x 107. Canaccord forwarded these observations from the aquaculture

13   consultant to VBF’s Chief Executive Officer, who in turn forwarded them to the

14   other Founders.

15         VBF alleges that Canaccord joined with the Founders to conceal the errors

     1“The following facts are drawn from [VBF’s] complaint and are assumed to be true for
     purposes of our de novo review of the District Court’s judgment dismissing the
     complaint for failure to state a claim upon which relief can be granted.” Schlosser v.
     Kwak, 16 F.4th 1078, 1080 (2d Cir. 2021).
                                                  3
 1   identified by the consultant relating to VBF’s core technology and also sought to

 2   misrepresent VBF’s financial metrics and performance. VBF further alleges that

 3   the Founders separately misappropriated VBF’s assets by draining and looting

 4   the company. According to VBF, although Canaccord did not directly help the

 5   Founders misappropriate the company’s assets, the Founders “were able to

 6   procure these misappropriations because of the stream of fraudulent

 7   misrepresentations created or furthered by Canaccord and the Founders, and

 8   through the concealment of material facts by Canaccord and the Founders.”

 9   App’x 69.

10         In 2016 Canaccord demanded $4.3 million from VBF in connection with a

11   payment dispute relating to VBF’s retention of Canaccord. Thereafter,

12   Canaccord and VBF, each represented by counsel, entered into a settlement

13   agreement and mutual release (“Mutual Release”), governed by New York law,

14   that terminated an earlier engagement agreement, released Canaccord from

15   liability in connection with its work for VBF, and required VBF to pay Canaccord

16   $475,000. The Mutual Release broadly released Canaccord “from and against

17   any and all claims . . . of every nature, whether based upon tort, contract, or any

18   other theory of recovery, whether known or unknown . . . based upon . . . the

                                              4
 1   services that Canaccord provided to VeroBlue.” App’x 365.

 2         In the action before us, VBF filed a Fourth Amended Complaint asserting

 3   nine claims against Canaccord. 2 Canaccord moved to dismiss the claims against

 4   it, and both Canaccord and VBF moved for sanctions. The District Court

 5   granted Canaccord’s motion to dismiss, denied both sanctions motions, and

 6   denied VBF leave to amend.

 7         We conclude that the District Court correctly dismissed VBF’s claims as

 8   barred by the Mutual Release. 3 Under New York law, “a valid release

 9   constitutes a complete bar to an action on a claim which is the subject of the

10   release” and “may encompass unknown claims, including unknown fraud

11   claims, if the parties so intend and the agreement is fairly and knowingly made.”

12   Centro Empresarial Cempresa S.A. v. Am. Móvil, S.A.B. de C.V., 17 N.Y.3d 269,

     2 The nine claims were as follows: (1) Aiding and abetting the Founders’ breaches of
     fiduciary duties, (2) aiding and abetting the Founders’ fraudulent concealment, (3)
     aiding and abetting the Founders’ fraudulent misrepresentations, (4) conspiracy to
     breach the Founders’ fiduciary duties, (5) conspiracy to defraud VBF, (6) negligent
     misrepresentation, (7) fraudulent concealment, (8) unjust enrichment, and (9) rescission
     and/or a declaratory judgment. See App’x 242–68.

     3Because we affirm based on the Mutual Release, we do not consider the other grounds
     upon which the District Court dismissed VBF’s claims.

                                                5
 1   276 (2011) (quotation marks omitted).

 2         The Mutual Release is broad: it covers “any and all claims . . . of every

 3   nature . . . whether known or unknown” that relate to “the services that

4    Canaccord provided to VeroBlue.” App’x 365. The parties do not dispute that

 5   VBF’s claims fall within the scope of the release. 4 VBF argues, however, that the

 6   Mutual Release does not bar its claims because (1) there was a separate fraud by

7    the Founders on VBF that renders the release voidable, and (2) enforcing the

8    release would be inequitable. Both arguments fail.

 9         “[A] party that releases a fraud claim may later challenge that release as

10   fraudulently induced only if it can identify a separate fraud from the subject of

11   the release.” Centro, 17 N.Y.3d at 276. New York courts, however, require that

12   the “separate fraud” occur between the parties to the contract, not between a

13   party (here, VBF) and its own agents (here, the Founders). See Lodhi v.

14   Stewart’s Shops Corp., 861 N.Y.S.2d 160, 162 (3d Dep’t 2008) (“To invalidate a

15   contract, however, the alleged fraud must be between the parties to the contract

16   or release, not between a party and his or her agent.”); Nash v. Y & T Distribs.,

     4 Before the District Court, VBF argued that the Mutual Release did not cover its claims.
     VBF has abandoned that argument on appeal. See Cruz v. Gomez, 202 F.3d 593, 596
     n.3 (2d Cir. 2000).
                                                 6
 1   616 N.Y.S.2d 402, 403 (2d Dep’t 1994) (“[The alleged fraud] is not the type of

 2   fraud which would invalidate the settlement, since it is fraud between a party to

 3   the settlement and her agent, and not between the parties to the contract.”).

 4   Therefore, the Founders’ alleged fraud on VBF—which Canaccord was not

 5   directly involved with—cannot invalidate the release between Canaccord and

 6   VBF.

 7          VBF also argues that enforcing the Mutual Release is inequitable because

 8   of “overreaching or unfair circumstances.” Mangini v. McClurg, 24 N.Y.2d 556,

 9   567 (1969). VBF forfeited this argument by not raising it below. See Doe v.

10   Trump Corp., 6 F.4th 400, 409–10 (2d Cir. 2021). In any event, VBF and

11   Canaccord were sophisticated entities represented by counsel when they

12   executed the Mutual Release; VBF “made such investigation of the facts

13   pertaining to the releases . . . as it deem[ed] necessary,” App’x 365–66; and VBF

14   secured a benefit in exchange for its release, namely, it paid only a fraction of

15   Canaccord’s initial demand and it also obtained a release of claims by Canaccord.

16   And VBF has acknowledged that Canaccord did not directly aid, abet, or

17   conspire in the Founders’ misappropriations. Under New York law, and under

18   these circumstances, it was not inequitable to enforce the Mutual Release. See,

                                               7
 1   e.g., Electron Trading, LLC v. Morgan Stanley & Co., 69 N.Y.S.3d 633, 636 (1st

 2   Dep’t 2018).

 3         Finally, the District Court did not abuse its discretion when it denied VBF

 4   leave to amend. VBF already had an opportunity to amend its complaint in

 5   response to Canaccord’s defenses, but it fails to identify additional facts it could

 6   plead that would avoid the consequence of the Mutual Release. See Ruffolo v.

 7   Oppenheimer & Co., 987 F.2d 129, 131 (2d Cir. 1993).

 8         We have considered VBF’s remaining arguments and conclude that they

 9   are without merit. For the foregoing reasons, the judgment of the District Court

10   is AFFIRMED.

11                                          FOR THE COURT:
12                                          Catherine O’Hagan Wolfe, Clerk of Court

                                               8