United States District Court, D. Connecticut
SUSAN M. QUINN, Plaintiff,
STANLEY PETER FISHKIN, and LEE S. SHALOV, Defendants
For Susan M. Quinn, Plaintiff: James R. Denlea, Peter Newton Freiberg, LEAD ATTORNEYS, Jeffrey I. Carton, Denlea & Carton LLP, White Plains, NY.
Stanley Peter Fishkin, Defendant, Pro se, Chittenden, VT.
For Stanley Peter Fishkin, Defendant: Ryan Driscoll, Berchem, Moses & Devlin, P.C., Milford, CT.
For Lee S Shalov, Esq., Defendant: James L. Brawley, Morrison, Mahoney LLP-CT, Hartford, CT; Patrick J. Day, Morrison Mahoney LLP-Hartford, Hartford, CT.
RULING ON MOTION TO DISMISS
Alvin W. Thompson, United States District Judge.
The plaintiff, Susan Quinn (" Quinn" ), brings this action against defendants Stanley Fishkin (" Fishkin" ) and Lee Shalov (" Shalov" ). Quinn seeks an order that would permit her to declare a settlement agreement in a previous case before this court null and void, so that she may pursue claims against Fishkin, her former financial advisor, for breach of fiduciary duty, professional negligence, sale of securities bye an unregistered investment advisor, sale of securities by an unregistered broker-dealer, unjust enrichment, and imposition of a collective trust. Quinn also brings claims against Shalov, her former lawyer, for legal malpractice and breach of fiduciary duty. Although Quinn ultimately seeks to pursue her claims arising out of Fishkin's failed investment of Quinn's money and Shalov's representation of Quinn, the predicate claim that must be resolved in Quinn's favor first is her declaratory judgment claim.
Fishkin has moved, pursuant to Fed.R.Civ.P. 12(b)(2), 12(b)(3), 12(b)(6), and 12(b)(7), to dismiss the complaint. For the reasons set forth below, Fishkin's motion to dismiss is being denied.
I. FACTUAL AND PROCEDURAL BACKGROUND
The Complaint, " which [the court] must accept as true for purposes of testing its sufficiency," alleges the following circumstances.
Monsky v. Moraghan, 127 F.3d 243, 244 (2d Cir. 1997).
Quinn's claims against Fishkin, her former financial advisor and money manager, arise out of Fishkin's investment of $1.5 million on Quinn's behalf in the hedge fund Stewardship Credit Arbitrage Fund LLC (" Stewardship" ), which in turn invested in " short-term notes issued by Thomas J. Petters and Petters Group Worldwide, LLC, and its subsidiaries and affiliates (together, 'Petters')." (Complaint (Doc. No. 1) ¶ 21.) Quinn's investment " evaporated" when the federal government learned that the notes that Petters sold to Stewardship were part of a $3 billion Ponzi scheme. (Complaint ¶ 23.) Fishkin " [failed] to disclose the true risk of the investment, [and Fishkin] actively sought to preclude [Quinn] from obtaining this information by advising her not to read offering memoranda and other materials provided by Stewardship and, in some instances, by failing to even provide those materials to [Quinn]." (Complaint ¶ 24.)
In early 2009, Quinn retained Shalov, on a contingency basis, to represent her in recovering her losses. On April 9, 2009, Quinn and another investor, Marsha Wiggins, initiated a lawsuit against Fishkin and Crow Hill Capital, LTD, a company owned by Fishkin, in Connecticut Superior Court, asserting claims for breach of fiduciary duty, professional negligence, violations of investment advisory registration requirements, sale of securities by an unregistered broker-dealer, and unjust enrichment (the " Underlying Action" ). The defendants subsequently removed the Underlying Action to this court. (See Quinn, et al. v. Stanley Fishkin, et al., Civil Action No. 3:09-CV-845-JBA (D. Conn.).)
Fishkin sought to settle the Underlying Action because, among other things, the Underlying Action threatened to bankrupt him. During pre-mediation discovery, Fishkin produced approximately 5,000 pages of financial documents to Shalov.
One document indicated that he had total assets of approximately $468,000, liabilities of $1,313,067, and a net worth of negative $844,704 (the " July 31, 2009 Financial Statement" ). Shalov provided one page of the July 31, 2009 Financial Statement to Fishkin. On June 17, 2010, the parties executed a Contingent Confidential Settlement Agreement and General Release (the " Settlement Agreement" ), which provided:
The parties hereto represent and declare that in executing this Agreement they rely solely upon their own judgment, belief and knowledge and the advice and recommendations of their own independently chosen counsel, if any, concerning the nature, extent and duration of their rights and claims hereunder and that, except as provided herein, they have not been influenced to any extent whatsoever in executing this Agreement by any representations, statements, or omissions pertaining to any of the foregoing matters by the other party or any persons representing the other party except as to the material accuracy of the financial statement dated July 31, 2009 and related material of Fishkin provided to the Plaintiffs. In the event the financial statement and related materials are found by a court to have been materially inaccurate/incomplete, the Plaintiffs shall be permitted to declare this Agreement null and void and shall be permitted to reinstitute their lawsuit provided that it is filed before July 31, 2014 with the amount paid credited against any recovery, or returned to Defendant Fishkin if no recovery is received.
(Complaint ¶ 39 (quoting Settlement Agreement § 10).) As a result of the settlement, Quinn received $100,000 from the defendants, of which Shalov received $25,000. On July 7, 2010, after counsel reported that the Underlying Action had settled, the court dismissed the Underlying Action without prejudice, and set a deadline of August 6, 2010 for the parties to move to re-open the case. (See Order of Dismissal on Report of Settlement (Underlying Action, Doc. No. 48).)
Quinn alleges that the July 31, 2009 Financial Statement is materially inaccurate in that:
Fishkin did not disclose, or did not adequately disclose: (a) that he had formed the limited liability company Mountain Top Farm Consulting, LLC and was the only principal of that company; (b) that he had made an investment with Split Rock Ventures, LLC; and (c) that he had an ownership or partnership interest in various businesses such as Starlight, LP, Sanders Morris Harris, Inc., the Furman Selz Holdings Liquidating Trust, and Vantagepoint Communications Partners, LP. Furthermore, Fishkin did not disclose that he had a financial interest in Acorn Capital Group, which served as a financial conduit between Petters Group Worldwide, LLC and Stewardship, and that he was receiving revenue from Acorn Capital Group.
(Complaint ¶ 40.)
Quinn now seeks an order of the court determining that the financial statement and related material that Fishkin disclosed were materially inaccurate or incomplete, so that she can " reinstate" the Underlying Action. The court construes this as a claim for a declaratory judgment (the " Declaratory Judgment Claim" ). See 28 U.S.C. § 2201 (" In a case of actual controversy within its jurisdiction . . . any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought. Any such declaration shall have
the force and effect of a final judgment or decree and shall be reviewable as such." )
Quinn also brings claims against Shalov for legal malpractice and breach of fiduciary duty. Quinn alleges that Shalov pressured her to settle the Underlying Action for a fraction of her damages, withheld key information regarding Fishkin's finances and property holdings, and failed to obtain information relevant to Fishkin's financial condition.
II. LEGAL STANDARD
A. Fed.R.Civ.P. 12(b)(2)