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United States Court of Appeals for the Second Circuit
March 8, 2019, Argued; April 1, 2019, Decided
Docket No. 18-357-cv
[*136] Gerard E. Lynch, Circuit Judge:
FIH, LLC ("FIH") appeals from a grant of summary judgment against it, entered by the United States District Court for the District of Connecticut (Arterton, J.), in its action against Foundation Capital Partners, LLC ("Foundation"), the general partner in a private equity fund set up to invest in minority interests in general partnerships of large hedge funds, and its member-partners (collectively, "defendants"). FIH alleged that it had purchased a membership interest in Foundation on the basis of misrepresentations by defendants, and asserted claims against them under § 10(b) of the Securities Exchange Act of 1934, the Connecticut Securities Act, and Connecticut common law. The alleged misrepresentations [**3] are that Foundation had an active pipeline of investments and that two of Foundation's key partners were able to work together notwithstanding one partner's embittered divorce of the other's sister-in-law. The district court held that a merger clause in Foundation's LLC agreement, incorporated into the subscription agreements by which FIH invested in Foundation, precluded FIH's reasonable reliance on the alleged misrepresentations as a matter of law. For the reasons that follow, we VACATE and REMAND.
Foundation was formed to act as general partner in Foundation Capital Partners, L.P. (the "Fund"), a private equity fund formed to invest in minority interests in general partnerships of large hedge funds. Rather than directly invest in assets under management by such hedge funds, the [*137] Fund was to receive a portion of the annual management and performance fees taken in by the hedge fund partnerships. Foundation was operated by four partners, Dean Barr, Joseph Meehan, Joseph Elmlinger, and Thomas Ward.
In the Fall of 2013, Foundation solicited FIH to invest directly in it—rather than in the Fund. As part of its solicitation of FIH, Foundation provided FIH with an offering [**4] memorandum entitled "Foundation Managing Member LLC Disclosure Statement November 13, 2013" (the "Offering Memo"). The Offering Memo represented that the Fund was "in active negotiations" with two hedge funds that it planned to invest in, codenamed "Granite" and "Lake," and highlighted the Fund's "Current Transaction Pipeline" of 23 supposed potential transactions relating to investment in other hedge funds. FIH alleges that "[r]epresentations about active transaction negotiations in the pipeline were key to [its] investment decision, because Foundation needed to close its first acquisition of a hedge fund minority interest to start generating substantial income." Appellant's Br. at 4.
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920 F.3d 134 *; 2019 U.S. App. LEXIS 9456 **; Fed. Sec. L. Rep. (CCH) P100,388
FIH, LLC, Plaintiff-Appellant, - v. - FOUNDATION CAPITAL PARTNERS LLC, FKA FOUNDATION MANAGING MEMBER LLC, DEAN BARR, JOSEPH MEEHAN, THOMAS WARD, JOSEPH ELMLINGER, Defendants-Appellees,
Prior History: [**1] FIH, LLC ("FIH") appeals from the district court's grant of summary judgment dismissing its federal securities law claims against Foundation Capital Partners, LLC ("Foundation"), Dean Barr, Joseph Meehan, Thomas Ward, and Joseph Elmlinger (collectively "defendants"). FIH argues that it had reasonably relied on material misrepresentations by defendants in deciding to invest in Foundation, and that defendants are therefore liable under federal and state law. The district court concluded as a matter of law that FIH could not have reasonably relied on the alleged misrepresentations, because such reliance was precluded by a general merger clause in Foundation's LLC agreement, incorporated by reference into the subscription agreements by which FIH had invested in Foundation. Concluding that the merger clause did not as a matter of law preclude FIH's reasonable reliance on the alleged misrepresentations, we VACATE the judgment of the district court and REMAND for further proceedings.
FIH, LLC v. Found. Capital Partners LLC, 2018 U.S. Dist. LEXIS 16787 (D. Conn., Jan. 31, 2018)
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