17‐1375‐cv Giunta, et al. v. Dingman, et al.
UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT
August Term 2017
(Argued: November 8, 2017 Decided: June 19, 2018)
Docket No. 17‐1375‐cv
RYAN GIUNTA, ERIK H. GORDON, Plaintiffs‐Appellants,
v.
JAMES T. DINGMAN, BAHAMEX LTD., OUT WEST HOSPITALITY LTD., ISLAND SMOKE HOUSE LTD., THE TRAVELLERʹS RESTAURANT LTD., 25 NORTH LTD.,
Defendants‐Appellees.*
ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
Before: LEVAL, LIVINGSTON, AND CHIN, Circuit Judges.
* The Clerk of Court is directed to amend the official caption to conform to the above. Appeal from a judgment of the United States District Court for the
Southern District of New York (Buchwald, J.), dismissing the action for lack of
subject matter jurisdiction. The district court concluded that plaintiffs‐appellants
had failed to sufficiently allege a ʺdomestic transactionʺ under section 10(b) of
the Securities Exchange Act of 1934 (the ʺExchange Actʺ). As that was the only
federal claim and diversity jurisdiction was lacking, the district court dismissed
the case.
VACATED AND REMANDED.
FRANKLIN B. VELIE (Harry H. Rimm, on the brief), Sullivan & Worcester LLP, New York, New York, for Plaintiffs‐Appellants.
Jeffrey A. Mitchell, Judith R. Cohen, Browne George Ross LLP, New York, New York, for Defendants‐Appellees.
CHIN, Circuit Judge:
This is an appeal by plaintiffs‐appellants Ryan Giunta and Erik H.
Gordon from a judgment of the district court dismissing this action against
defendants‐appellees James T. Dingman, BahaMex Ltd., Out West Hospitality
Ltd., Island Smoke House Ltd., the Travellerʹs Restaurant Ltd., and 25 North
Ltd., for lack of subject matter jurisdiction. The district court concluded that ‐2‐
plaintiffs had not sufficiently alleged a ʺdomestic transactionʺ under section 10(b)
of the Securities Exchange Act of 1934 (the ʺExchange Actʺ). As that was the only
federal claim and diversity jurisdiction was lacking, the district court dismissed
the case. For the reasons set forth below, we vacate the judgment of dismissal
and remand for further proceedings.
BACKGROUND
A. The Facts
For purposes of this appeal, the facts alleged in plaintiffsʹ first
complaint and proposed second amended complaint (the ʺSACʺ) are assumed to
be true.1
Gordon met defendant‐appellee Dingman through Giunta, their
mutual friend, in or around late 2011.2 In April 2013, Dingman invited Gordon
to visit him in the Bahamas where he showed him the Travellerʹs, a restaurant
that was part of Dingmanʹs hospitality venture and operated by his purported
holding company, Out West Hospitality Ltd. (ʺOWHʺ). In November 2013,
Dingman asked Gordon about investing in OWH.
1 The district court treated the SAC as the ʺoperative complaint.ʺ Sp. App. 4. 2 Giunta is also a named plaintiff‐appellant. His claims, however, do not involve the question presented on appeal as to whether there is a cognizable Exchange Act claim. ‐3‐
From around November 1 to November 22, 2013, Gordon and
Dingman met regularly for lunch in Manhattan and had several phone calls
initiated by Dingman that Gordon took in Manhattan. They also met at least
once at Dingmanʹs family home in Manhattan. These New York meetings and
the telephone conversations which Gordon took in New York are collectively
referred to in the SAC and in this opinion as the ʺNovember 2013
Communications.ʺ Dingman made various material misrepresentations to
Gordon during the November 2013 Communications to induce him to invest in
OWH and/or its purported subsidiaries. It was also during the November 2013
Communications that Gordon accepted Dingmanʹs offer of a 50% equity stake in
the venture in return for Gordonʹs investment of capital (the ʺAgreementʺ).3 The
Agreement was not reduced to writing.
Dingman made the following misrepresentations during the
November 2013 Communications: (i) OWH was the parent company and 100%
owner of Travellerʹs and other purported subsidiaries; (ii) Dingman would issue
shares of OWH to Gordon worth up to 50% of OWHʹs equity; (iii) Dingman had
personally invested more than $600,000 in OWH; (iv) OWH and its purported
3 The equity breakdown was going to be 45% for Gordon, 45% for Dingman, and 10% for Giunta for services rendered (ʺsweat equityʺ). ‐4‐
subsidiaries were profitable; and (v) Gordon, Giunta, and Dingman were the
only equity stakeholders in OWH.
Pursuant to the Agreement, on November 22, 2013, Gordon wired
$100,000 from his personal bank account in New York to an account identified by
Dingman. In an acknowledgment letter on OWH letterhead, Dingman stated:
ʺThis letter is to acknowledge the receipt of 3 wires in the total amount
$100,000.00 USD made out to Travellerʹs Restaurant. [OWH] intends to use the
funds to purchase material and general operations. The investment will
represent a 10 percent stake in the holding company of Out west Hospitallity
[sic]. We appreciate your support and investment in the holding company.ʺ
App. 254.4
On December 17, 2013, Gordon wired another $150,000 from his
personal bank account in New York to Dingman. Dingman sent Gordon a nearly
identical acknowledgment letter on OWH letterhead that stated that the wire
was ʺmade out to Travellerʹs Restaurant,ʺ the funds were to be used for certain
operations, and the ʺ[t]he investment will represent a 10 percent stake in the
holding company of Out west Hospitallity [sic].ʺ App. 256. It further noted that
4 Although not alleged in the SAC, as Gordon explained in an affidavit, he received and read the letter in Manhattan. ‐5‐
on ʺJanuary 15th the company [OWH] will issue shares that will represent a total
investment of 250,000 USD.ʺ App. 256.5
From around January 2014 through April 2014, Dingman and
Gordon continued to meet regularly for lunch in Manhattan where Dingman
repeated the misrepresentations from the November 2013 Communications.
Dingman also made similar misrepresentations in emails, e.g., in a March 27,
2014 email from Dingman to Gordon where Dingman confirmed that ʺErik and I
have partnered up in The Bahamas in a fifty/fifty partnership.ʺ App. 258.
On March 7, 2014, at a lunch in California, Dingman asked Gordon
to wire $18,000 to him as a personal loan. Gordon did so from his New York
bank account. Dingman never repaid the loan, and told Gordon that the money
would count toward Gordonʹs equity. On or around March 12, 2014, Gordon
wired an additional $75,000 as an investment in OWH to Dingman, again from
his bank account in New York.
Gordon repeatedly requested financial records for OWH throughout
early 2014, but never received them. On September 9, 2014, Dingman sent a joint
letter to all OWH investors informing them that all businesses had been closed.
5 This letter also was received and read by Gordon in Manhattan. ‐6‐
The letter also stated that Dingman was doing a capital call to raise additional
funds that would dilute existing shares if the shareholders failed to invest more.
The existence of other equity holders came as a surprise to Gordon given
Dingmanʹs previous representations that Dingman and Gordon shared in 50/50
equity of OWH. In the following weeks, Dingman ignored Gordonʹs phone calls
and emails requesting operating and financial information and refused to return
Gordonʹs investment.
B. The Proceedings Below
This action was originally commenced by fourteen American and
Bahamian plaintiffs. Shortly after defendants filed a motion to dismiss for forum
non conveniens, eleven plaintiffs voluntarily dismissed their claims, leaving only
the two current American plaintiffs, Gordon and Giunta, and a company
allegedly owned by Giunta.
After the other plaintiffs dismissed their claims, the court directed
Gordon and Giunta to file an opposition to the motion to dismiss along with a
proposed amended pleading. Gordon and Giunta submitted the SAC, which
asserted subject matter jurisdiction on the basis of diversity of citizenship and
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federal question jurisdiction arising from Gordonʹs section 10(b) claim ‐‐ the only
remaining claim asserted under federal law.
At a February 16, 2017 hearing on the motion to dismiss, the district
court directed the parties to file submissions addressing whether Gordonʹs
section 10(b) claim was a cognizable ʺdomesticʺ securities claim under Morrison
v. National Australia Bank Ltd., 561 U.S. 247 (2010).
After considering the partiesʹ submissions and the allegations set
forth in the SAC, on March 29, 2017, the district court dismissed the case for lack
of subject matter jurisdiction. The court concluded that diversity jurisdiction was
lacking, and that Gordon had not sufficiently alleged a ʺdomestic transaction,ʺ as
required for a cognizable federal securities claim. Applying Rule 12(b)(6)
standards to the sufficiency of the federal securities claim, the district court
determined that the transaction was not domestic because Bahamian approval
was required for shares to be issued to Gordon.6 It reasoned that this ʺapprovalʺ
was a condition precedent that had to be satisfied before Dingman and Gordon
became ʺirrevocably boundʺ to effect the purchase and sale of the securities. The
6 Part III of Chapter 360 of the Bahamas Exchange Control Regulations provides that issuance of shares in a Bahamian company to a non‐resident foreign national requires the approval of both the Bahamian Investments Board and the Central Bank of the Bahamas before shares may be issued. ‐8‐
district court therefore concluded that a sufficient domestic transaction had not
been entered into at the time of the Agreement.7 Judgment was entered March
31, 2017.8 This appeal followed.
DISCUSSION
I. Domestic Transaction
A. Applicable Law
We review de novo a district courtʹs dismissal of a complaint under
Rule 12(b)(6), accepting all of the complaintʹs factual allegations as true and
drawing all reasonable inferences in the plaintiffsʹ favor. Forest Park Pictures v.
Universal Television Network, Inc., 683 F.3d 424, 429 (2d Cir. 2012). The complaint
must state a claim that is plausible on its face. Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007). ʺA claim has facial plausibility when the plaintiff pleads factual
7 The district court pointed out that the SAC alleged that ʺDingman stated to Gordon that his shares would be registered with the appropriate Bahamian authorities.ʺ SAC ¶ 24. 8 We note the district court erred in concluding that the court lacked subject matter jurisdiction. See Morrison, 561 U.S. at 253‐54. A complaint which alleges a violation of section 10(b) is within the federal question jurisdiction conferred by 28 U.S.C. § 1331. However, if the allegations fail to assert the facts necessary to sustain a claim for relief, the proper disposition is to dismiss the case on the merits under Fed. R. Civ. P. 12(b)(6). This constitutes an adjudication of the claim on the merits, not a dismissal for lack of subject matter jurisdiction. ‐9‐
content that allows the court to draw the reasonable inference that the defendant
is liable for the misconduct alleged.ʺ Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
Section 10(b) of the Exchange Act makes it unlawful ʺ[t]o use or
employ, in connection with the purchase or sale of any security . . . , any
manipulative or deceptive device or contrivance in contravention of such rules
and regulations as the Commission may prescribe as necessary or appropriate in
the public interest or for the protection of investors.ʺ 15 U.S.C. § 78j(b).
In Morrison, the Supreme Court held that section 10(b) does not
apply extraterritorially but only to ʺtransactions in securities listed on domestic
exchanges[ ] and domestic transactions in other securities.ʺ 561 U.S. at 267
(emphasis added). Morrison did not provide guidance as to what constitutes
ʺdomestic transactions in other securities.ʺ Id. In Absolute Activist Value Master
Fund Ltd. v. Ficeto, however, we explained that ʺdomestic transactions,ʺ are those
involving securities in which (1) irrevocable liability is incurred in the United
States, or (2) title passes within the United States. 677 F.3d 60, 62 (2d Cir. 2012).
With respect to the first category ‐‐ whether irrevocable liability is
incurred in the United States ‐‐ we explained that ʺit is sufficient for a plaintiff to
allege facts leading to the plausible inference that . . . the purchaser incurred
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irrevocable liability within the United States to take and pay for a security, or
that the seller incurred irrevocable liability within the United States to deliver a
security.ʺ Id. at 68. Irrevocable liability, for section 10(b) purposes, attaches
ʺwhen the parties become bound to effectuate the transaction,ʺ that is, when ʺthe
parties obligated themselves to perform what they had agreed to perform even if
the formal performance of their agreement is to be after a lapse of time.ʺ Id. at
67‐68 (quoting Radiation Dynamics, Inc. v. Goldmuntz, 464 F.2d 876, 891 (2d Cir.
1972)); see also Plumbersʹ Union Local No. 12 Pension Fund v. Swiss Reinsurance Co.,
753 F. Supp. 2d 166, 177 (S.D.N.Y. 2010) (holding that a purchase of securities is
ʺdomesticʺ if the purchaser ʺincur[s] an irrevocable liability to take and pay for
the stockʺ in the United States (quoting Blau v. Ogsbury, 210 F.2d 426, 427 (2d Cir.
1954)).
To determine whether irrevocable liability was incurred within the
United States, courts look to the terms, timing, and place of the partiesʹ
contracting and liabilities thereunder. See Absolute Activist, 677 F.3d at 68‐69.
Relevant ʺfacts concerning the formation of the contracts, the placement of
purchase orders, . . . or the exchange of moneyʺ should be considered. Id. at 70.
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At the pleading stage, it is sufficient for the plaintiff ʺto allege facts leading to the
plausible inferenceʺ of a domestic transaction. Id. at 68.
B. Application
As OWHʹs shares were not listed on a domestic exchange, Gordon
had to sufficiently allege that the Agreement involved a ʺdomestic transaction,ʺ
meaning that Gordon (the purchaser) incurred irrevocable liability within the
United States to take and pay for a security or Dingman (the seller) incurred
irrevocable liability within the United States to deliver a security. We conclude
that the complaint plausibly alleged that (1) the Agreement was a contract, and
thus Gordon and Dingman became obligated to take, pay for, and deliver a
security when they were in the United States; and (2) this liability was
irrevocable when they formed the Agreement, even though their obligations
were subject to a condition subsequent. Because the Agreement was made in the
United States, Gordon has adequately alleged a ʺdomestic transactionʺ for
purposes of the Exchange Act.
The SAC alleges that Dingman and Gordon agreed ʺthat Gordon
would invest capital in OWH and/or its subsidiaries in exchange for a fifty
percent equity stake in OWH.ʺ App. 269; see Express Indus. & Terminal Corp. v.
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N.Y. State Depʹt of Transp., 93 N.Y.2d 584, 589 (1999) (ʺGenerally, courts look to
basic elements of the offer and the acceptance to determine whether there is an
objective meeting of the minds sufficient to give rise to a binding and enforceable
contract.ʺ). Dingmanʹs offer, as alleged in the SAC, was ʺsufficiently definite . . .
such that its unequivocal acceptanceʺ gave ʺrise to an enforceable contract.ʺ
Express Indus., 93 N.Y.2d at 589‐90. Although the offer did not specify the total
amount of money Gordon would invest, Gordon subsequently wired $100,000 to
Dingman, and Dingman confirmed receipt of the funds and stated that the
investment would represent a 10% stake in the company. This ʺsubsequent
conductʺ ‐‐ following Gordonʹs transfer of funds ‐‐ makes the price of Gordonʹs
investment ʺsufficiently definite,ʺ 22 N.Y. Jur. 2d Contracts § 20, such that
Gordon and Dingman incurred liability in the United States with respect to a
security. See, e.g., United States v. Vilar, 729 F.3d 62, 78 (2d Cir. 2013) (ʺ[T]he
record contains facts ʹconcerning the formation of the contractsʹ and ʹthe
exchange of money,ʹ which are precisely the sort we indicated may suffice to
prove that irrevocable liability was incurred in the United States.ʺ).9
9 Dingman counters that the Agreement was not a binding contract because the Agreement specified that he would refund Gordonʹs investment if they could not agree to ʺa written document memorializing the terms of Gordonʹs investment.ʺ App. 269. He contends that this illustrates that the parties did ʺnot intend to be bound until their ‐13‐
The district court assumed that the Agreement was a binding
contract but nonetheless concluded that both partiesʹ liabilities were ʺrevocableʺ
because, had the Bahamian authorities refused to approve the issuance of shares,
Dingman ʺwas bound to return to Gordon all funds paid by Gordon.ʺ Sp. App.
22‐23. We disagree with the district court, however, and hold that irrevocable
liability was incurred when the parties entered into the Agreement.
In this Courtʹs recent decision in Choi v. Tower Research Capital LLC,
890 F.3d 60 (2d Cir. 2018) (amended opinion), we addressed whether irrevocable
liability was incurred in the United States where trades were ʺmatchedʺ with
counterparties in the United States, but ʺcleared and settledʺ in Korea the
following day. We rejected the contention that the parties had not incurred
irrevocable liability in the United States because the foreign exchange could
cancel or modify a trade at any time prior to the ʺclearing and settlementʺ
agreement [was] reduced to writing,ʺ and thus, the Agreement was not binding. Chatterjee Fund Mgmt., L.P. v. Dimensional Media Assocs., 260 A.D.2d 159, 159 (1st Depʹt 1999). Gordon and Dingmanʹs subsequent conduct belies this argument. Gordon would not have wired $100,000, and Dingman would not have confirmed it as an investment, unless both understood the Agreement to be a binding investment contract. See Restatement (Second) of Contracts § 4 (1981) (ʺA promise . . . may be inferred wholly or partly from conduct.ʺ); see also Richbell Info. Servs. Inc. v. Jupiter Partners, L.P., 309 A.D.2d 288, 297 (1st Depʹt 2003) (ʺThe intention to commit an agreement to writing will not prevent contract formation prior to execution.ʺ). ‐14‐
abroad. We explained that ʺ[w]hether the exchange can cancel or modify trades
. . . says nothing about whether either trading party is free to revoke its . . .
acceptance of a tradeʺ after matching, and ʺthat the exchange has the power to
rectify errors in the partiesʹ contracts does not render those contracts ʹrevocableʹ
in any meaningful sense.ʺ Id. at 68.
As in Choi, the fact that the partiesʹ obligations were ultimately
subject to a condition subsequent does not mean that either party was effectively
ʺfree to revoke its . . . acceptance,ʺ or change its mind until the approval of the
shares abroad. Id. Nor does the fact Dingman could have been required to
return Gordonʹs investment render Gordonʹs obligation to pay Dingman in
exchange for OWH equity freely ʺʹrevocableʹ in any meaningful sense.ʺ Id.
Gordon was committed to the transaction when Dingman offered, and Gordon
agreed to purchase, a 50% interest in OWH through funds wired to Dingmanʹs
accounts. That Agreement occurred in New York.
A number of district courts within this Circuit have similarly found
that, under Absolute Activist, irrevocable liability may be incurred despite the
existence of conditions necessary to closing the transaction abroad, including
foreign approval. See, e.g., Liberty Media Corp. v. Vivendi Universal SA, 861 F.
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Supp. 2d 262, 269 (S.D.N.Y. 2012). Other courts have held that liability was
irrevocable when the party ʺno longer had the discretion to revoke acceptance,ʺ
notwithstanding that the transaction was not completed until other conditions
were met abroad. Arco Capital Corps., Ltd. v. Deutsche Bank AG, 949 F. Supp. 2d
532, 543 (S.D.N.Y. 2013) (plaintiffs plausibly alleged that irrevocable liability was
incurred when funds were delivered to New York even though the purchase
involved a Cayman Islandsʹ purchaser and Cayman Islandsʹ issuer, and was
completed only upon acceptance by the Issuer in the Cayman Islands); see also
Atlantica Holdings, Inc. v. Sovereign Wealth Fund Samruk‐Kazyna JSC, 2 F. Supp. 3d
550, 561 (S.D.N.Y. 2014) (plaintiffs‐purchasers of a Kazakhstani bankʹs securities
incurred irrevocable liability in the United States because whether they could
revoke their purchases depended on circumstances ʺout of their control,ʺ that is,
they could revoke only if the bank took certain ʺadverseʺ actions up until the
restructuring was approved by the creditors and the Kazakhstani court).
As in Atlantica, whether the circumstances allowing Gordon to
ʺrevokeʺ his purchase would come to pass was an outcome entirely out of
Gordonʹs control and depended solely on subsequent actions taken by the
Bahamian authorities. See Atlantica Holdings, 2 F. Supp. 3d at 561. Therefore, as a
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practical matter, Gordon was contractually obligated and he could not, on his
own accord, revoke the Agreement. This is sufficient to satisfy the test for
irrevocable liability set forth in Absolute Activist. See Absolute Activist, 677 F.3d at
68 (ʺ[I]t is sufficient for a plaintiff to allege facts leading to the plausible inference
that . . . the purchaser incurred irrevocable liability within the United States to
take and pay for a security.ʺ).
On the facts alleged in the SAC, the Agreement was entered into in
New York, and irrevocable liability was incurred in the United States.
Accordingly, we conclude that Gordon plausibly alleged a domestic transaction
cognizable under section 10(b).
II. Predominately Foreign
In Parkcentral Global HUB Ltd. v. Porsche Automobile Holdings SE, we
qualified the scope of the Absolute Activist decision. 763 F.3d 198 (2d Cir. 2014)
(per curiam). We held that while the presence of a ʺdomestic transactionʺ in a
security is a necessary element of a section 10(b) claim (unless the transaction is
in a security listed on a domestic exchange), it is not necessarily sufficient to
make the invocation of section 10(b) appropriately domestic. Id. at 215. In
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certain cases, the facts may be so predominantly foreign as to render the
application of section 10(b) impermissibly extraterritorial. See id.
In Parkcentral, we cautioned that this Court ʺdo[es] not purport to
proffer a test that will reliably determine when a particular invocation of § 10(b)
will be deemed appropriately domestic or impermissibly extraterritorial.ʺ Id. at
217. Rather, ʺcourts must carefully make their way with careful attention to the
facts of each case.ʺ Id. ʺThe potential for incompatibility between U.S. and
foreign law is just one form of evidence that a particular application of a statute
is extraterritorial. It is neither a safe harbor nor the only relevant consideration
in the extraterritoriality analysis.ʺ Id. at 216‐17.
Dingman argues that even assuming the Agreement was a ʺdomestic
transaction,ʺ it cannot serve as the basis of a section 10(b) claim because Gordon’s
claims are so predominantly foreign as to render them ʺimpermissibly
extraterritorial.ʺ Id. at 216.
We disagree. Parkcentral involved securities‐based swap agreements
and the foreign company defendant was not a party to the agreements. The
swaps were pegged to the price of shares traded only on European exchanges.
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The allegedly fraudulent conduct involved statements made primarily in
Germany with respect to stock in a German company, and such misconduct was
already the basis of several foreign investigations and enforcement actions.
Accordingly, we found that the application of section 10(b) to the Parkcentral
defendants ʺso obviously implicate[d] the incompatibility of U.S. and foreign
lawsʺ that Congress could not have intended it in ʺa manner consistent with the
presumption against extraterritoriality.ʺ Id.
The facts in this case, however, do not present nearly the same level
of foreign entanglement as presented in Parkcentral. Defendants point to the
following: Dingman is a permanent resident of the Bahamas; the venture
involved development and operation of restaurants, bars, and hotels in the
Bahamas; the entities were incorporated in the Bahamas by a Bahamian lawyer;
witnesses and the books and records are in the Bahamas; and ʺa United States
court cannot direct Dingman or Out West to issue shares to Gordon in
contravention of Bahamian regulations.ʺ Def.‐Appelleeʹs Br. at 26‐28.
We are not persuaded that the foreign components present in this
dispute render the claims impermissibly extraterritorial. As discussed above, the
SAC alleges substantial domestic contacts. The Agreement was entered into in
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New York; Dingman continued to press Gordon for further investments in New
York; Dingman and Gordon were both U.S. citizens; the wire transfers originated
from New York; and the confirmation letters were sent to New York. The only
foreign component present in the formation of the Agreement was the eventual
registration of the shares ʺwith the appropriate Bahamian authorities,ʺ an act that
Dingman agreed to undertake per the Agreement. See SAC ¶ 24. Accordingly,
we reject the argument that the Agreement is so predominately foreign as to be
impermissibly extraterritorial.
CONCLUSION
For the foregoing reasons, the judgment of the district court is
VACATED and the case is REMANDED for further proceedings.
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