Court Opinion

ID: 9410974
Source: CourtListenerOpinion
Date Created: 2023-07-25 15:00:28.540642+00
Date Added: 2024-06-11T17:21:01.903330
License: Public Domain

21-2023-cv
FAT Brands Inc. v. Ramjeet et al.

                                In the
          United States Court of Appeals
                     For the Second Circuit
                                ________

                          AUGUST TERM 2022

                      ARGUED: OCTOBER 27, 2022
                       DECIDED: JULY 25, 2023

                             No. 21-2023-cv

                           FAT BRANDS INC.,
                           Plaintiff-Appellant,

                                    v.

  WESLEY RAMJEET, SJ GLOBAL INVESTMENTS WORLDWIDE, LTD., SJ
 GLOBAL INVESTMENTS, LTD., PETER SAMUEL, NEIL WALSH, KRISTINA
                    FIELDS, MICKEY EDISON,
                      Defendants-Appellees,

     ROYAL GULF CAPITAL CORPORATION, KARL DOUGLAS, ONUR
            TATLIADIM, PPMT CAPITAL ADVISORS, LTD.,
                          Defendants.
                           ________

            Appeal from the United States District Court
              for the Southern District of New York.
                             ________

Before: WALKER, LEE, and ROBINSON, Circuit Judges.
                            ________
                                                       No. 21-2023-cv

      This appeal stems from a failed financing deal. As alleged, the
defendants engaged in a conspiracy to defraud Plaintiff-Appellant
FAT Brands Inc. by misleading it as to the source and certainty of deal
funding. On appeal, FAT Brands Inc. argues that the district court
(Furman, J.) erred by dismissing claims against Defendants-Appellees
Kristina Fields and Mickey Edison for lack of personal jurisdiction
pursuant to Federal Rule of Civil Procedure 12(b)(2); claims against
Defendants-Appellees SJ Global Investments Worldwide, Ltd., SJ
Global Investments, Ltd., Peter Samuel, and Neil Walsh for failure to
state a claim pursuant to Rule 12(b)(6); and separate claims against
Defendant-Appellee Wesley Ramjeet for failure to state a claim.

      For the reasons that follow, we VACATE in part and AFFIRM
in part the district court’s decision, and REMAND for proceedings
consistent with this opinion.

                                  ________

                   RUSSELL L. BOGART (Stuart Kagen, on the brief),
                   Kagen Caspersen & Bogart PLLC, New York, NY,
                   for Plaintiff-Appellant FAT Brands Inc.

                   STUART L. MELNICK, Law Offices Stuart L. Melnick,
                   LLC, New York, NY, for Defendant-Appellee Wesley
                   Ramjeet.

                   SARAH T. HADDAD, Pendulum Legal, New York,
                   NY, for Defendant-Appellee Mickey Edison.

                   NEIL WALSH, pro se, for Defendant-Appellee Neil
                   Walsh.

                                   2
                                                            No. 21-2023-cv

                    Defendants-Appellees     SJ    Global     Investments
                    Worldwide, Ltd., SJ Global Investments, Ltd., and
                    Samuel Fields were unrepresented.

                                   ________

JOHN M. WALKER, JR., Circuit Judge:

      This appeal stems from a failed financing deal. As alleged, the
defendants engaged in a conspiracy to defraud Plaintiff-Appellant
FAT Brands Inc. by misleading it as to the source and certainty of deal
funding. On appeal, FAT Brands Inc. argues that the district court
(Furman, J.) erred by dismissing claims against Defendants-Appellees
Kristina Fields and Mickey Edison for lack of personal jurisdiction
pursuant to Federal Rule of Civil Procedure 12(b)(2); claims against
Defendants-Appellees SJ Global Investments Worldwide, Ltd., SJ
Global Investments, Ltd., Peter Samuel, and Neil Walsh for failure to
state a claim pursuant to Rule 12(b)(6); and separate claims against
Defendant-Appellee Wesley Ramjeet for failure to state a claim.

      For the reasons that follow, we VACATE in part and AFFIRM
in part the district court’s decision, and REMAND for proceedings
consistent with this opinion.

                             BACKGROUND

      Plaintiff-Appellant FAT Brands is a United States-based
restaurant franchiser with over 400 locations worldwide. 1 It brought

      1  Unless otherwise noted, the following facts are drawn from the
allegations contained in or incorporated by the amended complaint, which
we accept as true for the purposes of this appeal. See Noto v. 22nd Century

                                     3
                                                      No. 21-2023-cv

this suit alleging that the defendants defrauded it when they
promised to arrange a loan and equity investment that never
materialized.

      During the relevant period, Defendant Karl Douglas was the
managing partner and chief investment officer (CIO) of PPMT Capital
Advisors, Ltd. (PPMT), a New York corporation that represented
itself as a successful money manager for investors in the Middle East
and Asia. PPMT is one of over a dozen related entities bearing the
PPMT moniker. Defendant-Appellee Wesley Ramjeet served as CEO
of each of these entities except for PPMT itself, for which he was CFO
and treasurer.

      In July 2018, after learning that FAT Brands had recently sought
financing, Douglas approached the company with an offer to arrange
a substantial loan. Douglas told FAT Brands that he represented the
Qatari royal family, which, he said, would fund the loan through its
investment entity Royal Gulf Capital Corp. (Royal Gulf). 2 These were
lies. Douglas did not represent the Qatari royal family, and Royal
Gulf was a New York corporation controlled by Douglas without the
capital to fund the deal.

      The next month, PPMT and FAT Brands signed a letter of intent
setting out a complex transaction through which Royal Gulf would
lend FAT Brands up to $60 million.       FAT Brands paid PPMT a
$100,000 due diligence fee and provided PPMT with confidential

Grp., Inc., 35 F.4th 95, 99 (2d Cir. 2022).
        2 When we use the term “PPMT Defendants,” we are referring to

Douglas, PPMT, and Royal Gulf collectively.

                                  4
                                                         No. 21-2023-cv

financial information.    Relying on Douglas’s assurances that the
Qatari royal family was committed to the transaction, FAT Brands
advised its existing lenders and investors about the pending deal.

      The parties agreed to close the deal in December 2018. FAT
Brands and PPMT signed the necessary agreements on December 20,
2018, but PPMT never transferred the funds.

      The truth was that neither the Qatari royal family nor any of its
entities had agreed to fund the transaction. Instead, Douglas had
been secretly negotiating for funding from Defendant-Appellee SJ
Global Investments Worldwide, Ltd. (SJ Global WW). SJ Global WW,
a British corporation, represented itself as the private equity arm of
the $50 billion “SJ Global Trust.” Defendant-Appellee Kristina Fields,
who is not a U.S. citizen, served as SJ Global WW’s CFO and as a
director.   Defendant-Appellee Mickey Edison, who resides in
Switzerland, was represented as a trustee of the SJ Global Trust.
Defendant-Appellee Neil Walsh was a part owner and the managing
director of SJ Global WW, and Defendant-Appellee Peter Samuel was
a part owner and director of SJ Global WW and represented himself
as chairman of the SJ Global Trust. 3

      In the fall of 2018, unbeknownst to FAT Brands, PPMT and SJ
Global WW formed a partnership through which SJ Global WW
would invest in deals arranged by PPMT. The partners created
several new entities through which SJ Global WW would finance FAT
Brands with a loan and equity investment. Most relevant here, the

      3  Where appropriate, we refer to the SJ Global family of companies
and its principals as “SJ Global Defendants.”

                                    5
                                                         No. 21-2023-cv

partners created PPMT Fund I LP and Defendant-Appellee SJ Global
Investments, Ltd. (SJ Global US). SJ Global US was to serve as SJ
Global WW’s remittance agent, effectuating the transfer of funds from
SJ Global WW to PPMT Fund I LP, the entity that signed the credit
agreement with FAT Brands. FAT Brands was told nothing of SJ
Global WW’s involvement in the transaction, but was instructed to
list PPMT Fund I LP as the counterparty in the credit agreement.

      Finally, in January 2019, after repeated delays in funding the
transaction, Douglas disclosed to FAT Brands that SJ Global WW
would be the true source of the promised funds. Later that month,
FAT Brands CEO Andrew Wiederhorn met in Zurich with Douglas
and SJ Global WW’s Samuel, Walsh, and Edison.             “During the
meeting, SJ Global [falsely] claimed that it had never committed in
writing or otherwise to PPMT to invest in FAT through its PPMT
Fund. SJ Global further claimed that it did not approve of the deal’s
structure and would be interested instead in a ‘direct deal’ with FAT.”
App’x 150.

      After the meeting, SJ Global WW acceded to FAT Brands’s
demand for proof that it had the means to fund the transaction. SJ
Global WW’s CFO, Fields, sent FAT Brands a receipt purporting to
show that SJ Global WW held $19 billion in thirty-eight $500 million
Federal Reserve bearer bonds. She represented to FAT Brands that
these bonds were only a fraction of the firm’s total assets under
management. FAT Brands quickly determined that the receipt was a
forgery and Fields’s boast a lie. The deal fell apart.

      In November 2019, FAT Brands filed this action in the Southern
District of New York. It brought two claims against the SJ Global

                                    6
                                                         No. 21-2023-cv

Defendants, one for fraud and conspiracy to commit fraud (Count IV)
and another for tortious interference with contract (Count VII). It also
advanced three claims against Ramjeet for liability under a
partnership    agreement    with   Douglas     (Count   IX),   negligent
supervision (Count X), and apparent authority (Count XI). Last, it
brought fraud and contract claims against the PPMT Defendants,
which included Douglas, all of which have been resolved and are not
at issue in this appeal.

      Fields and Edison moved to dismiss on the grounds that they
lacked sufficient contacts with New York State to subject them to the
court’s jurisdiction, and both the SJ Global Defendants and Ramjeet
moved to dismiss for failure to state a claim. The district court
granted the motions and dismissed all remaining claims.

      This appeal followed. FAT Brands asks this court to reverse the
district court’s order dismissing Count IV for fraud and conspiracy to
commit fraud against the SJ Global Defendants. Specifically, it argues
that the district court erred by determining that it lacked jurisdiction
over Fields and Edison, and that the district court erred by holding
that the amended complaint fails to state a claim against the
remaining SJ Global Defendants. FAT Brands also asks this court to
reverse the district court’s order dismissing Counts IX and X against
Ramjeet for liability under a partnership agreement with Douglas and
for negligent supervision, respectively.

                             DISCUSSION

      “We review the grant of a motion to dismiss de novo, accepting
as true all factual claims in the complaint and drawing all reasonable
inferences in the plaintiff’s favor.” Fink v. Time Warner Cable, 714 F.3d

                                    7
                                                              No. 21-2023-cv

739, 740–41 (2d Cir. 2013) (per curiam). “Dismissal is inappropriate
unless it appears beyond doubt that the plaintiff can prove no set of
facts which would entitle him or her to relief.” Sweet v. Sheahan, 235
F.3d 80, 83 (2d Cir. 2000).       Specifically with respect to personal
jurisdiction, we review the district court’s decision “for clear error on
factual holdings and de novo on legal conclusions.” Mario Valente
Collezioni, Ltd. v. Confezioni Semeraro Paolo, S.R.L., 264 F.3d 32, 36 (2d
Cir. 2001).    We review a dismissal pursuant to Rule 12(b)(6) to
determine whether a complaint contains “sufficient factual matter . . .
to ‘state a claim to relief that is plausible on its face.’” Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007)).

I.      Whether the District Court Has Personal Jurisdiction Over
        Fields and Edison

        FAT Brands appeals the district court’s order dismissing Count
IV against Fields and Edison for lack of personal jurisdiction. It
argues that the district court erred when it failed to consider whether
it had jurisdiction over the pair under its conspiracy-based theory of
jurisdiction. We agree. Upon considering this theory, we hold that
the district court has jurisdiction over both Fields and Edison because
the jurisdictional contacts of their co-conspirators may be imputed to
them.

        In diversity cases such as this one, personal jurisdiction is
governed by the law of the forum state and is limited by federal due
process requirements. See D.H. Blair & Co. v. Gottdiener, 462 F.3d 95,
104 (2d Cir. 2006). Applicable here, New York’s long-arm statute
provides for personal jurisdiction over a non-domiciliary who, inter

                                       8
                                                          No. 21-2023-cv

alia, “commits a tortious act within the state” personally “or through
an agent.” N.Y. C.P.L.R. § 302(a)(2). We have recognized that New
York law defines “agent” broadly for purposes of personal
jurisdiction, explaining that “an agency relationship will be held to
exist under section 302(a)(2)” provided “a showing [is] . . . made that
the alleged agent acted in New York for the benefit of, with the
knowledge and consent of, and under some control by, the
nonresident principal.” Grove Press, Inc. v. Angleton, 649 F.2d 121, 122
(2d Cir. 1981). Thus, “‘agent’ . . . include[s] not only a defendant’s
formal agents, but also, under certain circumstances, a defendant’s co-
conspirators.” Chrysler Cap. Corp. v. Century Power Corp., 778 F. Supp.
1260, 1266 (S.D.N.Y. 1991) (collecting cases); accord Berkshire Bank v.
Lloyds Banking Grp. plc, No. 20-1987-CV, 2022 WL 569819, at *3 (2d Cir.
Feb. 25, 2022) (summary order), cert. denied, No. 21-1503, 2022 WL
4657220 (U.S. Oct. 3, 2022) (noting that “New York courts have long
recognized [that] allegations of a conspiracy can satisfy [§ 302(a)(2)]
and a co-conspirator can be considered an agent so that ‘[t]he acts of
a co-conspirator may . . . be attributed to a defendant for the purpose
of obtaining personal jurisdiction over that defendant’” (quoting
Reeves v. Phillips, 388 N.Y.S.2d 294, 296 (N.Y. App. Div. 1976))).

      To establish personal jurisdiction over a co-conspirator under
an agency theory of jurisdiction, a plaintiff must allege: first, that the
defendant was “a part of a conspiracy involving . . . overt . . . acts in
New York,” Lawati v. Montague Morgan Slade Ltd., 961 N.Y.S.2d 5, 7
(N.Y. App. Div. 2013); and, second, that:

      (a) the defendant had an awareness of the effects in New
      York of its activity; (b) the activity of the co-conspirators
      in New York was to the benefit of the out-of-state

                                    9
                                                        No. 21-2023-cv

      conspirators; and (c) the co-conspirators acting in New
      York acted at the direction or under the control, or at the
      request of or on behalf of the out-of-state defendant.

Berkshire Bank, 2022 WL 569819, at *3 (quoting Lawati, 961 N.Y.S.2d at
7). FAT Brands’s amended complaint meets these requirements.

      A.     Conspiracy

      FAT Brands plausibly alleges that Fields and Edison
participated in a conspiracy that involved overt acts in New York.
The amended complaint states that the defendants undertook to
defraud FAT Brands, identifies several in-state overt acts that
furthered the conspiracy—including a September 2018 meeting
between FAT Brands and PPMT at PPMT’s New York office—and
details FAT Brands’s resulting losses. See Kashi v. Gratsos, 790 F.2d
1050, 1055 (2d Cir. 1986) (setting out the elements of a conspiracy).

      The amended complaint specifically alleges that Fields joined
and actively participated in the conspiracy. Most significant is the
complaint’s allegation that, after meeting with FAT Brands in Zurich,
Fields sent FAT Brands a forged receipt as proof that SJ Global WW
could fund the deal. The “receipt” she furnished indicated that SJ
Global WW held $19 billion of Federal Reserve bearer bonds. Fields
also promised FAT Brands that these bonds were “just a taster.”
App’x 150. FAT Brands persuasively shows that the receipt was a
forgery and Fields’s representation dishonest. This conduct was, FAT
Brands alleges, in furtherance of the broader scheme to defraud it.
The amended complaint alleges that Fields participated in the
conspiracy in other ways as well, including by “advis[ing] Walsh on

                                  10
                                                       No. 21-2023-cv

the structuring of the deals and the negotiations with PPMT and FAT
Brands.” App’x 161.

      FAT Brands similarly alleges that Edison “played an integral
role” in the conspiracy. App’x 161. Specifically, Edison “issued false
representations directly to FAT and PPMT,” advised other SJ Global
Defendants on the FAT Brands deal, and “encouraged, solicited and
participated in the other SJ Global Defendants issuing false
representations to FAT and PPMT regarding the bona fides of SJ
Global . . . along with proffering patently false excuses for the
repeated delaying of the closing of the transaction.” App’x 161–62.

      B.     Awareness, Benefit, and Direction or Control

      Having determined that FAT Brands plausibly alleges a
conspiracy in which both Fields and Edison joined and participated,
we turn to the three additional requirements to establish personal
jurisdiction over a co-conspirator under New York law (awareness,
benefit, and direction or control). See Berkshire Bank, 2022 WL 569819,
at *3. We find that all three are satisfied.

      First, the allegations support the inference that both Fields and
Edison were aware of the effects of their activity in New York. As to
Fields, the amended complaint alleges that SJ Global WW, for which
Fields served as CFO, agreed to do business with New York-based
Douglas and PPMT. SJ Global WW “directed PPMT to form entities
to be operated from New York which would serve as ‘transfer or
remittance agents’” for it. App’x 135. SJ Global WW’s role was to
contribute capital to the resulting entity, New York-based PPMT
Fund I LP, which was FAT Brands’s counterparty in the funding
agreement. This fund was rendered “insolvent and unable to fulfill

                                    11
                                                            No. 21-2023-cv

its   contractual     obligations   to    FAT   [Brands]”     by   Fields’s
“misrepresentations regarding [SJ Global WW’s] intent and ability to
provide $100 million in financing.” App’x 136.

       With regard to Edison, the amended complaint alleges that he
was deeply involved in the New York-based fraud. Among other
things, Edison “issued directives to PPMT and Douglas directly and
exerted control over th[e] scheme,” advised other SJ Global
Defendants, and “issued false representations directly to FAT and
PPMT.” App’x 136, 161–62. The amended complaint further alleges
that Edison’s misrepresentations rendered the New York-based
PPMT funding vehicle insolvent. We therefore infer that Edison, like
Fields, was aware of the impact of his conduct in New York.

       Second, the amended complaint plausibly alleges that the New
York-based co-conspirators acted to benefit Fields and Edison. It
states that the defendants sought to persuade FAT Brands to enter
into a financing agreement with an entity in which Fields held a
substantial stake. It follows that Fields stood to benefit financially
from her co-conspirators’ efforts to further the fraud. Although the
amended complaint is silent as to the precise nature of Edison’s
interest in the deal, it does state that he “served as a financial advisor
to the other SJ Global Defendants and advised on deal terms relating
to the FAT Brands transaction.” App’x 161. It is reasonable to infer
that Edison would be paid for his services and thus also stood to
benefit from the fraud.

       The    third     requirement—that        the   New      York-based
co-conspirators acted at the direction or under the control of the
out-of-state defendant—may be satisfied by an allegation that the

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                                                           No. 21-2023-cv

out-of-state defendant was “aware of the torts being committed by”
co-conspirators in New York. Berkshire Bank, 2022 WL 569819, at *3;
see also Lawati, 961 N.Y.S.2d at 8 (noting that this requirement is
satisfied where a plaintiff alleges “that the out-of-state co-conspirator
has knowledge of the tortious acts being perpetrated in New York”).
Here, the amended complaint alleges more than knowledge; it alleges
that Fields and Edison participated directly in the scheme being
executed by, among others, New York-based co-conspirators.
Accordingly, we easily infer that they were aware of the torts being
committed in New York.

      In sum, the district court erred by failing to consider whether
the jurisdictional contacts of Fields and Edison’s co-conspirators
could be attributed to them for purposes of establishing personal
jurisdiction. 4 Applying New York’s broad approach to agency in this
context, we hold that FAT Brands carried its burden of plausibly
alleging personal jurisdiction. Accordingly, we vacate the district
court’s order dismissing Count IV against Fields and Edison.

      4 We disagree with the district court to the extent that it found that
the “principal-agent relationship between SJ Global WW and the PPMT
Defendants had arguably broken down” by the time of the January 2019
Zurich meeting. App’x 265. We note FAT Brands’s allegation that Douglas
congratulated Edison and Samuel after the Zurich meeting and stated his
continued willingness to collaborate with the SJ Global Defendants. App’x
163–64.

                                     13
                                                        No. 21-2023-cv

II.   Whether FAT Brands States a Claim Against the Remaining
      SJ Global Defendants

      Next, FAT Brands argues that the district court erred by
dismissing Count IV—fraud and conspiracy to commit fraud—
against the remaining SJ Global Defendants for failure to state a claim.
The district court held that the amended complaint does not state a
claim for fraud because it does not allege that FAT Brands relied on
the statements that the SJ Global Defendants made to it directly. The
district court then held that the PPMT Defendants’ statements to FAT
Brands, which did induce detrimental reliance, could not “support a
claim against the SJ Global Defendants” because neither Douglas nor
PPMT was “acting as [the SJ Global Defendants’] agent[] in making
them.” App’x 268. FAT Brands points out that the district court did
not address whether the amended complaint states a claim against the
SJ Global Defendants for conspiracy to commit fraud and, by
extension, for the primary fraud tort perpetrated by their
co-conspirators, the PPMT Defendants. We agree and hold that FAT
Brands states a claim against the SJ Global Defendants both for
conspiracy and fraud.

      To state a claim for conspiracy to commit fraud, a plaintiff must
allege both a primary fraud tort as well as the four elements of
conspiracy.   Kashi, 790 F.2d at 1055.      The amended complaint
indisputably alleges a primary fraud perpetrated by the PPMT
Defendants. Thus, it states a claim for conspiracy to commit fraud
against the SJ Global Defendants so long as it plausibly alleges that
they conspired with Douglas and PPMT to commit the primary tort.
The amended complaint does this.

                                   14
                                                           No. 21-2023-cv

      FAT Brands plausibly alleges that each SJ Global Defendant
collaborated with the PPMT Defendants to defraud it. They “engaged
in a criminal scheme to harm Plaintiff [by] issuing a series of
misrepresentations regarding the origins, legitimacy and financial
wherewithal of SJ Global WW to fund the FAT transaction” arranged
by Douglas. App’x 151. The amended complaint specifies various
overt acts taken in furtherance of the scheme, and it identifies
significant monetary damages FAT Brands sustained as a result. We
therefore conclude that FAT Brands states a claim for conspiracy to
commit fraud against the SJ Global Defendants.

      It follows that FAT Brands also states a claim for fraud against
the SJ Global Defendants. This is so because, under New York law,
defendants are liable for the torts of their co-conspirators. See Grove
Press, 649 F.2d at 123; Original Ballet Russe, Ltd. v. Ballet Theatre, Inc.,
133 F.2d 187, 189 (2d Cir. 1943) (“[A]llegations of conspiracy . . . . show
that [a] wrong was committed jointly by the defendants so that the
acts of one may be imputed to the others because of their common
purpose and intent.”); Green v. Davies, 182 N.Y. 499, 504 (1905). FAT
Brands unquestionably states a claim for fraud against the PPMT
Defendants.    Because FAT Brands adequately alleges that the SJ
Global Defendants conspired with the PPMT Defendants to commit
the fraud, it states a claim against the SJ Global Defendants for the
primary fraud tort as well.

      Accordingly, we vacate the district court’s order dismissing
Count IV against the remaining SJ Global Defendants.

                                     15
                                                          No. 21-2023-cv

III.   Whether FAT Brands States a Claim Against Ramjeet

       FAT Brands also challenges the district court’s holding that it
fails to state a claim against Ramjeet with respect to Count IX,
partnership liability, and Count X, negligent supervision.

       A.    Partnership Liability

       First, the district court held that FAT Brands fails to state a
claim for partnership liability because it does not allege an agreement
to share losses, as required of partnerships.        The district court
explained that the potential losses that FAT Brands identified as
shared did not suffice because they were only “the value of . . .
services rendered in connection with a collaborative business effort.”
App’x 254 (internal quotation marks omitted).          On appeal, FAT
Brands argues for the first time that New York law does not require a
shared loss agreement if co-venturers do not reasonably anticipate the
risk of losses. And, according to FAT Brands, Ramjeet and Douglas
did not expect to sustain losses.

       Ramjeet objects that FAT Brands did not raise this argument in
the district court. It is true, as a general matter, that this court “will
not consider . . . an argument [that] has not been raised before the
district court.” Mago Int’l v. LHB AG, 833 F.3d 270, 274 (2d Cir. 2016)
(internal quotation marks omitted). We may, however, consider new
issues in order “to avoid manifest injustice” or “where the issue is
purely legal and there is no need for additional fact-finding.” Readco,
Inc. v. Marine Midland Bank, 81 F.3d 295, 302 (2d Cir. 1996).

       Both circumstances are present here. Whether FAT Brands
pleads facts sufficient to establish that Ramjeet and Douglas had no

                                    16
                                                        No. 21-2023-cv

expectation of losses is a question of law that can be resolved based
on the amended complaint without additional fact-finding.           The
equities also militate in favor of considering the new argument
because it appears from the amended complaint that Ramjeet either
had knowledge of Douglas’s fraud or disregarded obvious signs of it.
FAT Brands alleges that Ramjeet “subsidize[d], promote[d] and
legitimize[d]” Douglas’s operation by providing it with office space,
allowing it to “represent[] it[self] to be part of the [Ramjeet-
controlled] PPMT family of companies,” and serving as its CFO and
treasurer. App’x 164–66. The amended complaint also plausibly
alleges that Ramjeet took part directly in the fraud by attending a
meeting with FAT Brands at which he “corroborated Douglas’[s]
boasts that he had procured a firm commitment from the Royal
Family of Qatar to invest in FAT Brands and in other deals.” App’x
168. Because the amended complaint plausibly alleges that Ramjeet
was an active participant in the fraud, avoidance of manifest injustice
allows us to consider FAT Brands’s new argument.

      We find FAT Brands’s new argument persuasive. Under New
York law, a joint venture can be formed without loss-sharing where
“there was no reasonable expectation of losses.” Don v. Singer, 939
N.Y.S.2d 363, 364 (N.Y. App. Div. 2012); accord Cobblah v. Katende, 713
N.Y.S.2d 723, 724 (N.Y. App. Div. 2000). This rule also applies to
partnerships because “joint ventures are governed by the same legal
rules as partnerships” in New York. Scholastic, Inc. v. Harris, 259 F.3d
73, 84 (2d Cir. 2001) (citing Tehran-Berkeley Civ. & Env’t Eng’rs v.
Tippetts-Abbett-McCarthy-Stratton, 888 F.2d 239, 243 (2d Cir. 1989)).

      We can reasonably infer that Douglas and Ramjeet did not
anticipate losses.   The amended complaint outlines in detail the

                                   17
                                                           No. 21-2023-cv

business arrangement between Ramjeet and Douglas. It explains that
the enterprise’s business model did not include assuming credit risk
or, indeed, any losses other than unrecouped overhead expenses.
Reading these allegations in the light most favorable to FAT Brands,
we conclude that Ramjeet and Douglas did not anticipate the risk of
losses. We therefore vacate the district court’s dismissal of Count IX.
We do not, however, opine on whether FAT Brands properly pleads
the other elements necessary to establish the existence of a
partnership, a question that the district court did not address. On
remand, the district court must determine whether the amended
complaint states a claim for partnership liability in light of the other
partnership factors it previously identified and in light of our ruling
that loss sharing is not indispensable to FAT Brands’s claim.

      B.      Negligent Supervision

      As to Count X, the district court held that FAT Brands fails to
state a claim for negligent supervision because the amended
complaint does not allege an employer-employee relationship
between Ramjeet and Douglas. On appeal, FAT Brands argues that
such a relationship is not necessary for a negligent supervision claim
where      “special   circumstances”     indicative   of   a   supervisory
relationship exist. FAT Brands’s argument is unpersuasive because,
even assuming that such an exception exists, the amended complaint
does not allege such circumstances.

      Under New York law, a negligent supervision claim generally
requires, among other things, that a plaintiff establish that “the
tortfeasor    and     defendant   were     in   an    employee-employer
relationship.” Papelino v. Albany Coll. of Pharmacy of Union Univ., 633

                                   18
                                                         No. 21-2023-cv

F.3d 81, 94 (2d Cir. 2011) (citing Ehrens v. Lutheran Church, 385 F.3d
232, 235 (2d Cir. 2004) (per curiam)). Although we have never held
that supervisory liability can attach outside the context of the
employer-employee relationship, and, indeed, we have suggested the
opposite, see, e.g., Rich v. Fox News Network, LLC, 939 F.3d 112, 129 (2d
Cir. 2019), FAT Brands points to several New York courts that, it says,
have recognized such an exception. We need not engage with this
potential conflict, however, because the state court cases cited by FAT
Brands involve relationships in which defendants exercised a high
degree of control over the principal tortfeasors, an allegation that is
absent from the amended complaint.

      FAT Brands cites, for example, Krystal G. v. Roman Catholic
Diocese of Brooklyn. 933 N.Y.S.2d 515 (N.Y. Sup. Ct. 2011). In that case,
the court held that a pastor could be held liable for negligently
supervising an assistant pastor. Id. at 522–23. The court inferred that
the pastor was responsible for supervising his assistant from the fact
that the pastor “was responsible for day-to-day operations” and
“oversight” of the church. Id. at 523. Similarly, in Reitano v. Nilsen, a
school principal and superintendent were liable for negligently
supervising a teacher who was “under their supervision.” 2006 NYLJ
LEXIS 4124, at *8 (N.Y. Sup. Ct. Aug. 16, 2006). Still other cases cited
by FAT Brands suggest that an even higher level of control over the
principal tortfeasor is required: that of a custodial relationship. See
Purdy v. Pub. Adm’r of Cnty. of Westchester, 72 N.Y.2d 1, 8 (1988);
D’Amico v. Christie, 71 N.Y.2d 76, 88–89 (1987).

      Here, by contrast, FAT Brands does not allege facts from which
we can plausibly infer that Ramjeet supervised or controlled Douglas.
To be sure, it alleges that Ramjeet participated in the fraud and

                                   19
                                                         No. 21-2023-cv

supported Douglas, but these allegations fall short of the type of
control present in those cases in which New York courts have found
that supervisory liability attaches outside of the employer-employee
context. Rather, FAT Brands’s allegations are more consistent with a
partnership relationship than a supervisory one. See, e.g., Appellant
Br. 52 (noting that the amended complaint “alleges that Ramjeet
discussed the status of . . . negotiations . . . with Douglas . . . . and
agreed to share any profits” with him).

      None of the allegations specified by FAT Brands supports an
inference that Ramjeet supervised Douglas. These allegations include
that Ramjeet legitimized Douglas by allowing him to use the PPMT
name, “represented to FAT [Brands] that he exercised supervisory
authority over Douglas,” and was Douglas’s “supervisor in fact” by
virtue of his role as PPMT’s CFO and treasurer. Appellant Br. 54.
First, Ramjeet’s lending the imprimatur of the PPMT brand does not
indicate that he controlled Douglas. Second, the allegation regarding
Ramjeet’s representation to FAT Brands is both conclusory and only
modestly relevant to whether he did in fact supervise Douglas. While
Ramjeet may have “held himself out . . . as exercising supervisory
authority over Douglas,” App’x 165, nothing in the amended
complaint suggests that he actually did exercise such authority.
Third, it is illogical to conclude that Ramjeet’s subordinate position as
CFO and treasurer of PPMT relative to Douglas, the managing
partner and CIO, gave him supervisory authority over Douglas.
Contrary to FAT Brands’s unwarranted assertion, control over the
ability to “cut checks” does not transform a financial officer into a
“supervisor in fact” of all other corporate officers. Appellant Br. 54.

                                   20
                                                      No. 21-2023-cv

      Because the amended complaint does not allege the requisite
control relationship between Ramjeet and Douglas, FAT Brands fails
to state a claim for negligent supervision. Even if we were to accept
FAT Brands’s view that negligent supervision claims under New
York law are cognizable outside of the employer-employee context,
we would reach the same result. Accordingly, we affirm the district
court’s order dismissing Count X.

                            CONCLUSION

      For the forgoing reasons, we VACATE the district court’s order
dismissing Counts IV and IX and AFFIRM its order dismissing Count
X. The case is REMANDED to the district court for proceedings
consistent with this opinion.

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