FIH, LLC v. Foundation Capital Partners, LLC.

920 F.3d 134
CourtCourt of Appeals for the Second Circuit
DecidedApril 1, 2019
DocketDocket 18-357-cv; August Term, 2018
StatusPublished
Cited by71 cases

This text of 920 F.3d 134 (FIH, LLC v. Foundation Capital Partners, LLC.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Second Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
FIH, LLC v. Foundation Capital Partners, LLC., 920 F.3d 134 (2d Cir. 2019).

Opinion

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 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.

FACTUAL BACKGROUND 1

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 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.

In February 2014, Foundation gave FIH access to due diligence materials, which identified fourteen specific targets delineated by their code names: "Projects Lake, Apex, Corvette, Granite, Breakout, Pilot, Centaur, Pound, Tensor, Mainstay, Yale, Halo, Gun, and Bronco." App'x at 146. The targets were identified only by code names, ostensibly to protect the confidentiality of Foundation's negotiations. Thus, at this stage of Foundation's solicitation of FIH, FIH had no opportunity to verify Foundation's claims by contacting the purported target hedge funds. The due diligence materials explained that these targets were "the current representative [Foundation] Pipeline, including those with which the firm was in active discussion," and that "this pipeline has become increasingly active in recent months as a result of industry recovery, manager interest, regulatory reform and the presence of relatively few buyers." Id. These materials also "represented that non-disclosure agreements had been signed with the target hedge funds in Projects Lake and Granite." Id.

In addition, in an email to FIH on December 30, 2013, Barr represented that Foundation had four "possible transactions in the works," referencing Projects Bronco, Corvette, Lake, and Centaur. Id. On January 22, 2014, Barr emailed FIH to update it on Project Apex, and represented that "I believe we can move expeditiously on this deal." Id. And on February 3, 2014, Barr again emailed FIH to give an update on Project Pilot, representing that "[w]e have some reasonably good intel that suggests that this offer would be given serious consideration." Id.

Through due diligence, FIH also learned that Barr was in the process of divorcing Meehan's sister-in-law. At that time, Barr was the managing partner of Foundation and Meehan was the Chief Operating Officer of Foundation. Barr and Meehan were each also managing principals of Foundation, and each held equal 46.175% interests in the company. FIH specifically asked the two men if they would be able to continue working well together following a potential investment by FIH in Foundation. Barr and Meehan each represented that they could "work together" professionally in spite of the divorce, and that they could "keep their professional and personal lives separate." Id . at 910. Barr represented to FIH that the divorce was "under control," "getting better," and "amicable," and was thus "not material" to FIH's decision to invest in Foundation. Id. Barr also told FIH that "there was nothing FIH needed to know about [his] personality and there *138 were no other matters FIH should know about [him]." Id. at 913.

On February 11, 2014, FIH and Foundation executed a document entitled "Foundation Managing Member LLC Subscription Agreement" (the "Subscription Agreement"), 2 concretizing FIH's investment in Foundation. The Subscription Agreement identifies FIH as the "Subscriber" and Foundation as the "Company," and provides inter alia that FIH:

tenders this subscription for a membership interest in the Company on the terms and subject to the conditions set forth in the Company Agreement (as defined below) as amended through the Seventh Amendment to the Company Agreement dated as of the date of this Subscription Agreement[.]

Id . at 586.

The Subscription Agreement also contains the following provision within a section entitled "Representations and Warranties of the Subscriber":

The Subscriber has such knowledge and experience in financial and business matters that the Subscriber is capable of evaluating the merits and risks of an investment in the Interest, and of making an informed investment decision, and the Subscriber has consulted and relied solely upon the advice of its own counsel, accountant and other advisers with regard to such legal, investment, tax and other considerations regarding such investment and on that basis believes that an investment in an Interest is suitable and appropriate for such Subscriber. The Subscriber has had, either individually or through its duly authorized officers, employees or agents, an opportunity to (i) ask questions of and receive answers from the Company and its management concerning the terms and conditions of the Interests and the proposed operation of the Company and (ii) obtain information necessary to verify the accuracy of the information provided.

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Barr v. MFI Management, Inc.
235 Conn. App. 1 (Connecticut Appellate Court, 2025)
Daley v. Gomez
S.D. New York, 2025
Doe v. Hotchkiss School
D. Connecticut, 2024
Welch v. City of Peekskill
S.D. New York, 2024
Williams v. Hernandez
S.D. New York, 2023
Marcus v. Annucci
S.D. New York, 2023
Siler v. Monroe
S.D. New York, 2023
Tolliver v. Jordan
S.D. New York, 2023
Stark v. City of New York
Second Circuit, 2023
Marom v. Town of Greenburgh
S.D. New York, 2022

Cite This Page — Counsel Stack

Bluebook (online)
920 F.3d 134, Counsel Stack Legal Research, https://law.counselstack.com/opinion/fih-llc-v-foundation-capital-partners-llc-ca2-2019.