United States District Court, D. Connecticut
RULING ON MOTION TO DISMISS
Michael P. Shea, U.S.D.J.
Plaintiff
NovaFund Advisors, LLC (“NovaFund”) brings this
suit against Defendant Capitala Group, LLC
(“Capitala”) in connection with Capitala's
alleged breach of an agreement whereby NovaFund agreed to
assist Capitala with its capital-raising efforts. NovaFund
asserts claims for breach of contract, breach of the implied
covenant of good faith and fair dealing, unjust enrichment,
and violation of the Connecticut Unfair Trade Practices Act
(“CUTPA”), Conn. Gen. Stat. § 42-110b. (ECF
No. 1 (hereinafter “Compl.”).) Capitala now moves
to dismiss the complaint for lack of personal jurisdiction,
improper venue, lack of subject-matter jurisdiction under the
Colorado River doctrine, and failure to state a claim. (ECF
No. 24.) For the following reasons, Capitala's motion to
dismiss is DENIED.
I.
Factual Background
A.
Allegations
The
facts below are drawn from the complaint and, where relevant,
documents incorporated therein or of which the Court may take
judicial notice.
NovaFund
is a Delaware limited liability company focused on delivering
capital-raising and advisory services to private fund
managers. (Compl. ¶ 1.) Its principal place of business
is in Darien, Connecticut and its members are Connecticut
residents. (Id.) Until November 2016, NovaFund was a
division of non-party Columbus Advisory Group, LTD.
(“Columbus”), a member of FINRA/SIPC.
(Id.) After that, NovaFund became a division of
non-party MD Global Partners, LLC, also a member of
FINRA/SIPC. (Id.) Capitala is a North Carolina
limited liability company with a principal place of business
in North Carolina and whose members are not citizens of
Delaware or Connecticut. (Compl. ¶ 2.)
In May
2016, NovaFund and Capitala entered into an agreement by
which Capitala retained NovaFund as its exclusive placement
agent in connection with raising capital for Capitala Private
Credit Fund V, LP (hereinafter, “Fund V”).
(Compl. ¶ 5.) The agreement, titled a “Term Sheet
Proposal” (hereinafter the “Term Sheet”),
set forth the following definition of the
“Advisor” who would provide these services:
Advisor: NovaFund Advisors, a Division of Columbus Advisory
Group LTD, member FINRA and SIPC (collectively,
“NovaFund”).
(ECF No. 31-1 at 2.)[1] Under the Term Sheet, NovaFund agreed to
make best efforts to place partnership interests in Fund V
with North American, European, and Asian investors, called
the “Target Investors, ” as well as providing
other specified services. (Id.) In exchange, the
Term Sheet obligated Capitala to pay NovaFund compensation in
several ways. First, Capitala was required to pay a monthly
retainer fee, up to certain limits not relevant here. (ECF
No. 31-1 at 3; Compl. ¶ 14.) Second, Capitala was
required to pay a “Success Fee, ” or a certain
percentage of the amount of equity capital that any Target
Investor committed to Fund V or a “separately managed
account.” (Compl. ¶ 7; ECF No. 31-1 at 3.) And
third, Capitala was also required to pay a “Tail
Fee” based on a percentage of capital commitments from
Target Investors that closed into Fund V to a subsequent
Capitala-sponsored successor fund with a “substantially
similar [investment] strategy.” (Id.) The
parties agreed that no fee would be payable on certain carved
out investors, but only up to $125 million in commitments.
(Id.) The Term Sheet provided that among those
carved out investors were “investors previously known
to Capitala, ” which were set forth in an attached
schedule. (ECF No. 31-1 at 3, 5-7.) The Term Sheet was signed
by representatives of three entities: “NovaFund
Advisors, “Capitala Group LLC, ” and
“Columbus Advisory Group, Ltd.” (ECF No. 31-1 at
4.)
On
April 24, 2017, Capitala and NovaFund entered into an
“Advisors Addendum” (the “Addendum”).
(Compl. ¶¶ 10-12; ECF No. 31-3 at 2.)[2] In the Addendum,
the parties agreed that Capitala could retain additional
placement agents “focused on non-North American limited
partners, ” and that capital commitments obtained from
those jurisdictions would generally not entitle NovaFund to a
Success Fee. (Id.) Nonetheless, Capitala reaffirmed
its obligations to pay a Success Fee to NovaFund for capital
commitments obtained from non-North American investors
originally solicited by NovaFund prior to the execution of
the Addendum. (Id.) In addition, the parties agreed
that either party could terminate the relationship on or
after September 1, 2017, but that Capitala would nonetheless
owe NovaFund a Success Fee “on capital commitments from
investors introduced to Capitala by Nova either through
conference calls or in-person meetings.” (Id.)
The Addendum does not mention Columbus Advisory Group, Ltd.
and is signed by Brian Kelley, who is a member and Managing
Director of NovaFund, and Joseph B. Alala, who is Chairman
and Chief Executive Officer (“CEO”) of Capitala.
(ECF No. 31-3 at 2; see also ECF No. 31-7,
Declaration of Bryan D. Kelley (“Kelley Decl.”);
ECF No. 25-1, Declaration of Joseph B. Alala, III
(“Alala Decl.”).)
NovaFund
performed its obligations under the Term Sheet, both
originally and as amended by the Addendum (collectively, the
“Agreement”). (Compl. ¶ 8, 13.) However,
Capitala engaged in conduct that “frustrated or
prevented” NovaFund's performance. (Compl. ¶
14.) In particular, Capitala's Chairman and CEO, Joseph
B. Alala, threatened to fire and sue NovaFund in early 2017,
which had a negative effect on fund-raising activities for
the first part of 2017. (Id.) Capitala also became
non-communicative (making it difficult to arrange meetings
with potential investors), stopped paying the required
monthly retainer to NovaFund, and, in one instance, excluded
NovaFund from a meeting with a consultant related to
potential capital commitments for Fund V. (Id.)
Although
Capitala announced an “anchor closing” on Fund V
in September 2016, it refused to have additional closings for
Fund V. (Compl. ¶¶ 9, 15.) Instead, Capitala
abandoned Fund V in favor of a new venture, Capital Specialty
Lending Corp. (hereinafter, the “Successor
Fund”), which had a substantially similar investment
strategy as Fund V. (Compl. ¶ 16.) NovaFund alleges that
Capitala's refusal to have additional closings on Fund V
was in bad faith and for the purpose of depriving NovaFund of
the benefit of the Agreement. (Compl. ¶ 15.) Capitala
also took capital commitments from Target Investors, which
were “obtained, sourced, and/or identified by NovaFund,
” and “caused those Target Investors to commit
capital to the Successor Fund.” (Compl. ¶ 19.)
However, Capitala never formally terminated the parties'
relationship and refused to pay NovaFund for its services
under the Agreement. (Compl. ¶¶ 17, 18.)
NovaFund
asserts four claims against Capitala. (Compl. ¶¶
21-44.) NovaFund's first count for breach of contract
alleges that Capitala's conduct breached the Agreement
and that NovaFund is entitled to the full amount of either
the Success Fee or the Tail Fee due under the Agreement.
(Compl. ¶¶ 21-23.) NovaFund's second count
alleges that Capitala's bad faith conduct breached the
implied covenant of good faith and fair dealing in the
Agreement. (Compl. ¶¶ 24-27.) NovaFund's third
count is for unjust enrichment, asserted in the alternative.
(Compl. ¶¶ 28-34.) NovaFund alleges that Capitala
benefitted from NovaFund's introductions to investors and
potential investors in Capitala funds and by virtue of the
capital commitments NovaFund obtained for Fund V and
Successor Fund. (Compl. ¶¶ 29-30.) NovaFund alleges
that it was harmed because “it expended time and
resources laboring for the benefit of Capitala, ” and
Capitala refused to pay. (Compl. ¶ 32.) NovaFund's
fourth count alleges a violation of Connecticut's Unfair
Trade Practices Act, Conn. Gen. Stat. § 42-110b. (Compl.
¶¶ 35-44.) NovaFund alleges the following conduct
as the basis for CUTPA claim: that “Capitala, in bad
faith and without justification, wrongfully abandoned [Fund
V]” (Compl. ¶ 37); that “[u]nbeknownst to
NovaFund, Capitala formed the Successor Fund while NovaFund
was continuing its performance under the Agreement” and
“Capitala later falsely told NovaFund that the
Successor Fund did not have the same or similar investment
strategy as [Fund V]” (Compl. ¶ 38); that
Capitala's failure to pay any fees to NovaFund “in
connection with capital commitments to the Successor Fund. .
. constitutes a purposeful effort to deprive NovaFund of the
fees to which it is entitled” (Compl. ¶ 39); and
finally that “Capitala's false statements were
purposefully made to dissuade NovaFund from enforcing its
rights under the Agreement.” (Compl. ¶ 40.)
NovaFund seeks compensatory damages, lost profits, punitive
damages, attorney's fees and costs under CUTPA, and
statutory pre-judgment and post-judgment interest. (Compl. at
8.)
B. The
North Carolina Action
On May
17, 2018, Capitala filed a lawsuit in North Carolina Superior
Court, Mecklenburg County, No. 18-CVS-8247 (hereinafter the
“North Carolina action”), seeking a declaratory
judgment that Capitala is not required to pay fees to
Columbus under the Agreement and damages resulting from
Columbus's breach of contract, unfair trade practices,
and fraud. (ECF No. 25-1, Alala Decl. ¶ 19; ECF No.
25-2.) NovaFund filed the suit in this Court against Capitala
on June 15, 2018. (ECF No. 1.) As a result, Capitala filed an
amended complaint in the North Carolina action on July 5,
2018, adding NovaFund as a defendant and revising its claims
to address NovaFund in the alternative. (ECF No. 25-1, Alala
Decl. ¶ 22; ECF No. 25-4.) On December 3, 2018 (after
briefing on this motion was complete), the court in the North
Carolina action dismissed Capitala's amended complaint
for lack of personal jurisdiction over NovaFund and Capitala.
(ECF No. 42-1.)
C. The
Parties' Affidavits
The
following facts are relevant for the purposes of the
Court's personal jurisdiction and venue determination,
and so I draw them from the affidavits submitted by the
parties, construing doubts in plaintiff's favor.
Capitala's
primary headquarters are in North Carolina, and it does not
have an office or property in Connecticut. (ECF No. 25-1,
Alala Decl. ¶ 6; ECF No. 34-1, Second Declaration of
Joseph B. Alala, III (“Alala Reply Decl.”) ¶
6.) Columbus is a corporation organized under the laws of the
State of New York with its principal place of business in New
York, New York. (ECF No. 31-8, Declaration of Michael Murphy
(“Murphy Decl.”) ¶ 3.) All of NovaFund's
employees are in Connecticut, and all of NovaFund's
corporate records are in Connecticut. (ECF No. 31-7, Kelley
Decl. ¶ 30.) NovaFund and Columbus are, and have always
been, separate entities. (ECF No. 31-7, Kelley Decl. ¶
3; ECF No. 31-8, Murphy Decl. ¶ 5; but see ECF
No. 25-1, Alala Decl. ¶ 11 (“The Term Sheet
entered with Columbus represents that ‘NovaFund'
was a division of Columbus.”).)
In the
first week of January 2016, a Capitala Vice President
contacted a Managing Director of NovaFund at its Darien,
Connecticut office. (ECF No. 31-7, Kelley Decl. ¶ 4.)
They and other representatives from NovaFund and Capitala met
in New York the following week and at Capitala's offices
in North Carolina in February 2016 to discuss a relationship,
but not the terms of any engagement or agreement. (ECF No.
31-7, Kelley Decl. ¶¶ 5-6; but see ECF No.
34-1, Alala Reply Decl. ¶¶ 4-5 (disputing the
substance of these meetings).) Capitala then reached out to
NovaFund and requested a draft written proposal, which
NovaFund sent from its Connecticut offices. (ECF No. 31-7,
Kelley Decl. ¶ 7.) Over the next several months,
NovaFund negotiated the terms of the agreement with Capitala
by telephone and email from NovaFund's Connecticut
offices. (Id.) Representatives from Capitala and
NovaFund again met in New York in April 2016 to discuss the
final details for the engagement and marketing strategy for
Fund V. (ECF No. 31-7, Kelley Decl. ¶ 8.) Columbus did
not participate in any of the negotiations between NovaFund
and Capitala regarding the Term Sheet. (ECF No. 31-8, Murphy
Decl. ¶ 7.) When the parties executed the Term Sheet in
May 2016, NovaFund executed the Term Sheet first from its
offices in Connecticut, Capitala executed next, and Columbus
signed the Term Sheet last from its New York offices. (ECF
No. 31-7, Kelley Decl. ¶ 11; ECF No. 31-8, Murphy Decl.
¶ 8.) At the time the Term Sheet was executed, Columbus
was providing broker-dealer services to NovaFund. (ECF No.
31-7, Kelley Decl. ¶ 17; ECF No. 31-8, Murphy Decl.
¶ 9.) Representatives from Columbus never met anyone
from Capitala at any point. (ECF No. 31-8, Murphy Decl.
¶ 10.)
In
November 2016, NovaFund switched broker-dealers from Columbus
to MD Global Partners, LLC. (ECF No. 31-7, Kelley Decl.
¶ 18; ECF No. 31-8, Murphy Decl. ¶ 14.) Capitala
signed a letter from “NovaFund Advisors, LLC”
dated November 21, 2016 agreeing to this change and affirming
that all other parts of the Agreement remained the same. (ECF
No. 31-2 at 2; ECF No. 31-7, Kelley Decl. ¶ 18.)
Once
engaged, NovaFund began performing the services under the
Agreement and contacted over 500 potential investors,
approximately 15 of whom were based in Connecticut. (ECF No.
31-7, Kelley Decl. ¶ 14.) Virtually all of the services
NovaFund performed under the Agreement were performed from
NovaFund's offices in Darien, Connecticut. (ECF No. 31-7,
Kelley Decl. ¶ 15.) During the engagement, Capitala
representatives visited Connecticut at least twice to meet
with representatives of a potential investor that NovaFund
had introduced to it. (ECF No. 31-7, Kelley Decl. ¶ 29;
but see ECF No. 34-1, Alala Reply Decl. ¶ 12
(disputing whether NovaFund made the introduction to this
investor).) Capitala and NovaFund also met with two other
potential investors in Connecticut introduced by NovaFund:
one in Glastonbury, Connecticut and one in Norwalk,
Connecticut. (ECF No. 31-7, Kelley Decl. ¶ 29; but
see ECF No. 34-1, Alala Reply Decl. ¶ 11, 13
(disputing meeting with Norwalk investor).) Capitala also met
with NovaFund in NovaFund's offices in Connecticut on at
least two occasions. (ECF No. 31-7, Kelley Decl. ¶ 29;
but see ECF No. 25-1, Alala Decl. ¶ 16
(asserting that only one meeting took place).) Capitala paid
NovaFund's monthly retainer fee to Columbus in New York,
as directed in NovaFund's invoice. (ECF No. 34-1, Alala
Reply Decl. ¶ 9; see also ECF No. 34-5 at 2
(invoicing fees to Columbus in New York).) Finally, while the
Agreement was in effect, Capitala also engaged in numerous
telephone conversations and sent numerous emails NovaFund in
Connecticut, including an April 2018 email informing NovaFund
that it was not owed any fees as a result of the Successor
Fund. (ECF No. 31-7, Kelley Decl. ¶¶ 21, 29.)
II.
Legal Standard
A. Rule
12(b)(1)
A
“case is properly dismissed for lack of subject matter
jurisdiction under Rule 12(b)(1) when the district court
lacks the statutory or constitutional power to adjudicate
it.” Nike, Inc. v. Already, LLC, 663 F.3d 89,
94 (2d Cir. 2011) (internal quotation marks omitted). The
party “asserting subject matter jurisdiction has the
burden of proving by a preponderance of the evidence that it
exists.” Luckett v. Bure, 290 F.3d 493, 497
(2d Cir. 2002). “In resolving a motion to dismiss for
lack of subject matter jurisdiction under Rule 12(b)(1), a
district court . . . may refer to evidence outside the
pleadings.” Makarova v. United States, 201
F.3d 110, 113 (2d Cir. 2000). The court construes the
complaint liberally and accepts all factual allegations as
true. See Ford v. D.C. 37 Union Local 1549, 579 F.3d
187, 188 (2d Cir. 2009).
B. Rule
12(b)(2)
In a
motion to dismiss for lack of personal jurisdiction under
Rule 12(b)(2), the “plaintiff bears the burden of
showing the court has jurisdiction over the defendant,
” and the “burden is apportioned based on how far
the case has progressed.” ., 242 F.3d 364, at *2 (2d
Cir. 2000) (summary order). “The district court has
considerable procedural leeway in deciding 12(b)(2) motions,
and it may accept affidavits if it so chooses.”
Id. (internal quotation marks omitted).
“[W]here . . . the district court relies solely on the
pleadings and supporting affidavits, the plaintiff need only
make a prima facie showing of jurisdiction.”
Id. “[W]here the issue is addressed on
affidavits, all allegations are construed in the light most
favorable to the plaintiff and doubts are resolved in the
plaintiff's favor.” Whitaker v. Am.
Telecasting, Inc., 261 F.3d 196, 208 (2d Cir. 2001);
see also A.I. Trade Fin., Inc. v. Petra
Bank, 989 F.2d 76, 79-80 (2d Cir. 1993) (“But
where the issue is addressed on affidavits, all allegations
are construed in the light most favorable to the plaintiff
and doubts are resolved in the plaintiff's favor,
notwithstanding a controverting presentation by the moving
party.”).
C. Rule
12(b)(3)
A court
applies the same standard of review in Rule 12(b)(3)
dismissals as Rule 12(b)(2) dismissals for lack of personal
jurisdiction. See Gulf Ins. Co. v.
Glasbrenner, 417 F.3d 353, 355 (2d Cir. 2005). The
“plaintiff has the burden of showing that venue in the
forum district is proper.” MacCallum v. New York
Yankees P'ship, 392 F.Supp.2d 259, 262 (D. Conn.
2005) (citation omitted). “If the court chooses to rely
on pleadings and affidavits, the plaintiff need only make a
prima facie showing of [venue].” Gulf Ins. Co., 417
F.3d at 355 (citation omitted). “In analyzing whether
the plaintiff has made the requisite prima facie showing that
venue is proper, we view all the facts in a light most
favorable to plaintiff.” Phillips v. Audio
Active Ltd., 494 F.3d 378, 384 (2d Cir. 2007).
D. Rule
12(b)(6)
On a
motion to dismiss under Rule 12(b)(6), I take the
plaintiff's factual allegations in the complaint
“to be true and draw[] all reasonable inferences
in” its favor. Harris v. Mills, 572 F.3d 66,
71 (2d Cir. 2009). “To survive a motion to dismiss, a
complaint must contain sufficient factual matter, accepted as
true, to state a claim to relief that is plausible on its
face.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (citation and quotation marks omitted). “A claim
has facial plausibility when the plaintiff pleads factual
content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct
alleged.” Id. A court need not accept legal
conclusions as true and “[t]hreadbare recitals of the
elements of a cause of action, supported by mere conclusory
statements, do not suffice.” Id.
“In
adjudicating a motion to dismiss [under Rule 12(b)(6)], a
court may consider only the complaint, any written instrument
attached to the complaint as an exhibit, any statements or
documents incorporated in it by reference, and any document
upon which the complaint heavily relies.” In re Thelen
LLP, 736 F.3d 213, 219 (2d Cir. 2013) (citation omitted).
“In most instances where this exception is recognized,
the incorporated material is a contract or other legal
document containing obligations upon which the
plaintiff's complaint stands or falls . . . .”
Glob. Network Commc'ns, Inc., 458 F.3d at 157.
In
addition, “[m]atters judicially noticed by the District
Court are not considered matters outside the
pleadings.” In re Thelen LLP, 736 F.3d at 219
(citation omitted). “A court may take judicial notice
of a document filed in another court not for the truth of the
matters asserted in the other litigation but rather to
establish the fact of such litigation and related
filings.” Glob. Network Commc'ns, Inc., 458 F.3d at
157 (citation omitted).
III.
Discussion
Capitala
moves to dismiss the complaint for lack of subject-matter
jurisdiction under the Colorado River doctrine, lack of
personal jurisdiction, improper venue, and failure to state a
claim. I address these arguments in turn, starting with the
Court's subject-matter jurisdiction.
A.
Colorado River Abstention
Capitala
argues that the Court should exercise its discretion to
dismiss this action under Rule 12(b)(1) under the doctrine of
abstention authorized by Colorado River Water
Conservation District v. United States,424 U.S. 800
(1976). (ECF No. 25 at 22-28.) But Colorado River applies
only where “state and federal courts exercise
concurrent jurisdiction simultaneously.” Vill. of
Westfield v. Welch's,170 F.3d 116, 120 (2d Cir.
1999). Capitala's argument for abstention is premised
exclusively on the existence of the North Carolina action
against Columbus and NovaFund. (ECF No. 25 at 22-28; ECF No.
34 at 5-7.) NovaFund filed a notice on the docket attaching a
decision by the judge in that case granting NovaFund's
and Columbus' motion to dismiss for lack of personal
jurisdiction because neither defendant in that case
“purposefully availed” itself of the privilege of
conducting activities in North Carolina under the Due Process
Clause. (See ECF No. 42-1 at 10-14.) The North
Carolina case therefore appears to have been dismissed in its
entirety. (ECF No. 42-1 at 14.) “[S]everal courts have
held when the parallel action in state court is dismissed,
the abstention doctrine is inapplicable.” Dunne v.
Doyle, No. 3:13-CV-01075 VLB, 2014 WL 3735287, at *9 (D.
Conn. July 28, 2014); see also Fisher v.
O'Brien, No. 09 CV 42 CBA LB, 2010 WL 1269793, at *4
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