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Novafund Advisors, LLC v. Capitala Group, LLC

United States District Court, D. Connecticut

March 13, 2019



          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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