SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: COMMERCIAL DIVISION
PROPOSED ORDER DENYING DEFENDANT'S MOTION TO DISMISS
The motion of Defendant Vantor Holdings Corp. ("Vantor" or "Defendant") to dismiss the Verified Complaint of Plaintiffs Ironside Capital Management LP, Ironside Credit Opportunities Fund LP, Ironside Structured Alpha Fund LP, and Ironside Special Situations Fund LP (collectively, "Ironside" or "Plaintiffs"), having come before this Court, and the Court having considered the submissions of the parties and the arguments of counsel, and for the reasons set forth below, it is hereby
ORDERED as follows:
RECITALS
WHEREAS, Plaintiffs filed a Verified Complaint in this action on January 21, 2025, asserting seven causes of action against Defendant arising out of Defendant's role as independent fund administrator for Plaintiffs' family of investment funds;
WHEREAS, Defendant Vantor Holdings Corp. filed a motion to dismiss the Verified Complaint in its entirety, together with a supporting memorandum of law and the affirmation of Gregory Dane, Esq. with exhibits, pursuant to CPLR § 3211(a)(1) (defense founded upon documentary evidence) and CPLR § 3211(a)(7) (failure to state a cause of action), said motion having been filed on February 28, 2025;
WHEREAS, Plaintiffs Ironside Capital Management LP, Ironside Credit Opportunities Fund LP, Ironside Structured Alpha Fund LP, and Ironside Special Situations Fund LP filed papers in opposition to Defendant's motion on March 21, 2025, consisting of a Memorandum of Law in Opposition to Defendant's Motion to Dismiss and the Affirmation of Yuki Nakamura, Esq. with fourteen (14) exhibits annexed thereto;
WHEREAS, Defendant filed a reply brief in further support of its motion to dismiss on April 4, 2025;
WHEREAS, the Court heard oral argument on Defendant's motion on April 14, 2025, at which Samuel Eklund, Esq. of Calderwood & Harkness LLP appeared on behalf of Plaintiffs and Gregory Dane, Esq. of Whitfield, Dane & Corcoran LLP appeared on behalf of Defendant;
WHEREAS, the Court has reviewed and carefully considered all papers submitted in connection with the motion, including the Verified Complaint filed January 21, 2025, the moving papers, the opposition papers, the reply papers, the exhibits annexed to each of the foregoing, and the arguments of counsel presented at oral argument; and
WHEREAS, for the reasons set forth in the rulings below, the Court finds that the motion to dismiss should be denied in all respects;
NOW, upon the foregoing, it is
ORDERED PROVISIONS
1. First Cause of Action — Common-Law Fraud
The branch of Defendant's motion seeking dismissal of the First Cause of Action for common-law fraud is DENIED.
The Verified Complaint pleads fraud with the particularity required under CPLR § 3016(b). Specifically, the Complaint sets forth the particular misrepresentations at issue, including (a) the systematic use of stale broker quotes that did not reflect current market conditions as inputs into net asset value calculations provided to Plaintiffs and their investors, (b) the application of internally generated "model adjustments" that had the effect of inflating marks by an average of 14.3% above observable market inputs without disclosure to Plaintiffs or authorization under the applicable valuation policies, and (c) the failure to apply the contractually required waterfall valuation procedures set forth in each fund's governing valuation policy and in the operative fund administration agreement. The Complaint further identifies the individuals responsible for the alleged misrepresentations, namely Nathan Orris, Senior Vice President, Valuation Services, and Deepa Rajaram, Vice President, Client Valuation Operations, both of whom are alleged to have had direct responsibility for the pricing and valuation work at issue. The Complaint specifies the time period over which the alleged misrepresentations occurred — the first quarter of 2021 through the third quarter of 2023, a span of eleven (11) consecutive quarters — and alleges resulting damages of approximately $287 million in aggregate overvaluation across the four Plaintiff funds.
The Court further finds that the fraud claims are not duplicative of the breach of contract claims asserted in the Fourth Cause of Action. Defendant argues that the fraud allegations are merely a repackaging of Plaintiffs' contract theory, but the Complaint alleges a duty independent of the Master Fund Administration Agreement dated June 15, 2017 (referenced internally as VHC-ICM-2017-0615) (the "FAA"). The gravamen of the fraud claim is not the failure to perform contractual obligations, but rather the affirmative misrepresentation of material facts — namely, the accuracy and reliability of portfolio valuations — made with scienter, upon which Plaintiffs and their investors relied to their detriment. Under well-established New York law, a fraud claim is not duplicative of a contract claim where, as here, it is premised on misrepresentations of present fact rather than on a mere failure to perform a future contractual promise. See Deerfield Commc'ns, Inc. v. Chesebrough-Ponds, Inc., 68 N.Y.2d 954, 956 (1986); GoSmile, Inc. v. Levine, 81 A.D.3d 77, 81 (1st Dep't 2010). Accordingly, the motion is denied as to the First Cause of Action.
2. Second Cause of Action — Fraudulent Concealment
The branch of Defendant's motion seeking dismissal of the Second Cause of Action for fraudulent concealment is DENIED.
The Complaint adequately alleges that Defendant concealed material information from Plaintiffs during the relevant period. Specifically, the Complaint alleges that Vantor (a) concealed internal emails and other internal communications documenting senior personnel's awareness that portfolio marks were inflated and did not reflect fair value under GAAP or the applicable fund valuation policies, (b) withheld material information regarding the use of stale pricing inputs — including information that certain broker quotes relied upon for Level 2 and Level 3 asset valuations had not been updated in periods exceeding ninety (90) days — and (c) provided a materially incomplete response to Ironside's written inquiry dated August 4, 2023, in which Ironside specifically requested twenty-three (23) pricing packages supporting the marks assigned to certain portfolio positions, and Vantor furnished only nine (9) of the requested twenty-three (23) packages without disclosing or explaining the basis for the omission of the remaining fourteen (14) packages. Taking these allegations as true, as the Court must on a motion to dismiss, Plaintiffs have stated a cause of action for fraudulent concealment. Accordingly, the motion is denied as to the Second Cause of Action.
3. Third Cause of Action — Negligent Misrepresentation
The branch of Defendant's motion seeking dismissal of the Third Cause of Action for negligent misrepresentation is DENIED.
Plaintiffs have adequately alleged the existence of a special relationship between Vantor and the Ironside funds sufficient to support a claim for negligent misrepresentation. The Complaint alleges that Vantor served as the independent fund administrator charged with the pricing and valuation of Level 2 and Level 3 assets — assets for which no readily available market quotations exist and for which valuation necessarily requires the exercise of professional judgment — under Section 4.2 of the FAA. In that capacity, Vantor held itself out as possessing expertise in the valuation of complex and illiquid financial instruments and undertook to provide Plaintiffs with net asset value calculations that Plaintiffs and their investors were entitled to rely upon for purposes of subscriptions, redemptions, fee calculations, and regulatory reporting. These allegations, taken as true, plausibly establish the kind of special relationship — one of confidence and trust in which the parties are not dealing at arm's length — recognized by the New York Court of Appeals in Kimmell v. Schaefer, 89 N.Y.2d 257, 263 (1996), and its progeny.
The Court further rejects Defendant's argument that the economic loss doctrine bars the negligent misrepresentation claim. Under New York law, the economic loss doctrine does not preclude a negligent misrepresentation claim where, as here, the plaintiff alleges the existence of a special relationship between the parties that gives rise to a duty independent of the underlying contract. See J.A.O. Acquisition Corp. v. Stavitsky, 8 N.Y.3d 144, 148 (2007). The allegations here satisfy that standard. Accordingly, the motion is denied as to the Third Cause of Action.
4. Fourth Cause of Action — Breach of Contract
The branch of Defendant's motion seeking dismissal of the Fourth Cause of Action for breach of contract is DENIED.
The Complaint sufficiently alleges that Vantor materially breached its obligations under Sections 3.1 and 4.2 of the FAA. Section 4.2 of the FAA required Vantor to perform fund valuations "in accordance with GAAP, the applicable fund's valuation policy, and the standard of care of a reasonably prudent professional fund administrator." The Complaint alleges, with specificity, that Vantor's valuations departed materially from each of these standards over the eleven-quarter period from Q1 2021 through Q3 2023, resulting in net asset value calculations that overstated the value of fund portfolios by an aggregate amount of approximately $287 million. These allegations are plainly sufficient to state a cause of action for breach of contract.
With respect to Defendant's argument that the contractual liability cap contained in Section 9.3 of the FAA operates to limit Plaintiffs' recoverable damages and thereby effectively forecloses their breach of contract claim, the Court holds that this argument is not properly resolved on a pre-answer motion to dismiss. Section 9.3 of the FAA limits Vantor's aggregate liability to a sum equal to two times the fees paid by Plaintiffs during the twelve-month period immediately preceding the claim, which Defendant calculates as 2 × $1,490,000.00 = $2,980,000.00. The enforceability and applicability of this liability cap is a merits question that requires factual development. Moreover, Plaintiffs have plausibly alleged that the liability cap is unenforceable as applied to claims sounding in fraud and willful misconduct, and the Complaint contains substantial allegations supporting an inference that Vantor's conduct constituted willful misconduct within the meaning of the FAA. Under New York law, exculpatory clauses and contractual limitations on liability are generally unenforceable to the extent they seek to insulate a party from liability for its own fraud or willful misconduct. See Kalisch-Jarcho, Inc. v. City of New York, 58 N.Y.2d 377, 384-85 (1983). Accordingly, the motion is denied as to the Fourth Cause of Action.
5. Fifth Cause of Action — Breach of Fiduciary Duty
The branch of Defendant's motion seeking dismissal of the Fifth Cause of Action for breach of fiduciary duty is DENIED.
Taking the allegations of the Verified Complaint as true, as the Court must at this stage, the Complaint plausibly alleges that Vantor's role in independently pricing portfolio positions — including the exercise of discretionary professional judgment in valuing forty-seven (47) illiquid credit and structured-product positions (consisting of CLO equity tranches, bespoke CDO mezzanine notes, and distressed loan participations) — gave rise to fiduciary obligations beyond those of a purely ministerial service provider. The Complaint alleges that Vantor was entrusted with the responsibility to exercise independent judgment in determining the fair value of assets for which no market price was readily available, and that the Ironside funds and their investors reposed trust and confidence in Vantor's exercise of that judgment. Whether Vantor in fact owed fiduciary duties to Plaintiffs — and if so, the scope and nature of those duties — is a factual question that is not amenable to resolution at this stage of the proceedings. See EBC I, Inc. v. Pinnacle National Bank, 5 N.Y.3d 11, 19-20 (2005). Accordingly, the motion is denied as to the Fifth Cause of Action.
6. Sixth Cause of Action — Aiding and Abetting Fraud
The branch of Defendant's motion seeking dismissal of the Sixth Cause of Action for aiding and abetting fraud is DENIED.
The Complaint alleges with sufficient particularity each of the elements of a claim for aiding and abetting fraud under New York law: (a) the existence of an underlying fraud, as set forth in the First and Second Causes of Action; (b) the actual knowledge of Vantor's corporate officers, including Raymond Kettler, Chief Executive Officer and Chairman, and Susan Hargrove, President and Chief Operating Officer, of the fraudulent misvaluations, as evidenced by the allegations regarding internal reports, escalation memoranda, and electronic communications referenced in the Complaint; and (c) the provision of substantial assistance in the furtherance of the fraud, in the form of the direction and supervision of the misvaluation scheme by senior corporate officers. See Oster v. Kirschner, 77 A.D.3d 51, 55 (1st Dep't 2010). At this stage of the litigation, where the Court must accept Plaintiffs' allegations as true and draw all reasonable inferences in Plaintiffs' favor, these allegations are sufficient. Accordingly, the motion is denied as to the Sixth Cause of Action.
7. Seventh Cause of Action — Unjust Enrichment
The branch of Defendant's motion seeking dismissal of the Seventh Cause of Action for unjust enrichment is DENIED.
Defendant argues that Plaintiffs' unjust enrichment claim must be dismissed because the FAA constitutes an express contract governing the subject matter of the dispute, and that a quasi-contractual claim cannot lie where an express agreement exists. While it is true that New York law generally does not permit recovery under a theory of unjust enrichment where the subject matter is governed by a valid and enforceable express contract, Plaintiffs have pled their unjust enrichment claim in the alternative pursuant to CPLR § 3014, which expressly authorizes alternative and inconsistent pleading. At this pre-answer stage, where the scope and validity of the FAA have not yet been established, and where questions remain as to whether the FAA covers the full scope of the conduct at issue, Plaintiffs are entitled to plead unjust enrichment in the alternative. See Corsello v. Ashgrove & Co. N.Y., Inc., 18 N.Y.3d 777, 790-91 (2012); IIG Capital LLC v. Archipelago, L.L.C., 36 A.D.3d 401, 404 (1st Dep't 2007). Defendant's argument that unjust enrichment is categorically precluded by the existence of the FAA is premature at this juncture. Accordingly, the motion is denied as to the Seventh Cause of Action.
8. Economic Loss Doctrine
To the extent Defendant's motion argues that the economic loss doctrine bars Plaintiffs' tort claims — specifically, the First Cause of Action (fraud), the Second Cause of Action (fraudulent concealment), the Third Cause of Action (negligent misrepresentation), the Fifth Cause of Action (breach of fiduciary duty), and the Sixth Cause of Action (aiding and abetting fraud) — the motion is DENIED.
New York law recognizes well-established exceptions to the economic loss doctrine for claims involving intentional torts, fraudulent misrepresentation, and negligent misrepresentation where a special relationship exists between the parties. See 532 Madison Ave. Gourmet Foods, Inc. v. Finlandia Ctr., Inc., 96 N.Y.2d 280, 315-16 (2001). Each of these exceptions is implicated by the allegations in the Verified Complaint. The fraud and fraudulent concealment claims allege intentional tortious conduct independent of the contractual relationship. The negligent misrepresentation claim alleges a special relationship, as discussed in Section 3 above. The breach of fiduciary duty claim alleges duties arising from the nature of the relationship rather than from the contract itself. And the aiding and abetting fraud claim is derivative of the underlying intentional fraud allegations. Accordingly, the economic loss doctrine does not compel dismissal of any of the tort claims at this stage.
9. Martin Act Preemption
To the extent Defendant raised arguments in its reply brief dated April 4, 2025 contending that certain of Plaintiffs' claims are preempted by the Martin Act (New York General Business Law, Article 23-A), these arguments are unavailing. The claims at issue in this action arise from Vantor's role as an independent fund administrator providing pricing, valuation, and net asset value calculation services. They do not arise from the purchase or sale of securities, from investment advisory activities, or from any other conduct falling within the scope of the Martin Act. The Martin Act does not preempt common-law claims that are not predicated on conduct within the Act's regulatory ambit. See Assured Guar. (UK) Ltd. v. Brightwater Trust Bank Inv. Mgmt. Inc., 18 N.Y.3d 341, 353 (2011). Accordingly, Defendant's Martin Act preemption arguments provide no basis for dismissal.
DIRECTIVE TO ANSWER
IT IS HEREBY FURTHER ORDERED that Defendant Vantor Holdings Corp. shall serve and file its Answer to the Verified Complaint within twenty (20) days of the date of this Order, in accordance with CPLR § 3211(f). The Answer shall respond to each of the eighty-seven (87) paragraphs of the Verified Complaint and shall include any affirmative defenses and counterclaims, if any, that Defendant intends to assert. Failure to timely serve and file an Answer may result in the entry of a default.
FURTHER PROCEEDINGS
IT IS HEREBY FURTHER ORDERED that the parties shall appear for a Preliminary Conference before this Court on a date to be scheduled by the Court following the filing of Defendant's Answer, for the purpose of addressing the scheduling of discovery and further proceedings in this matter. In advance of the Preliminary Conference, the parties are directed to meet and confer in good faith regarding a proposed discovery schedule, including proposed deadlines for the exchange of document requests, the completion of document production, the conduct of depositions, and the disclosure of expert witnesses, and to submit a joint proposed preliminary conference order to the Court no later than five (5) business days prior to the Preliminary Conference.
The parties are further reminded of their obligation under Commercial Division Rule 8 to make good-faith efforts to resolve discovery disputes before seeking the intervention of the Court.
SO ORDERED.
________________________________________
Hon. Richard Torrance, J.S.C. Justice, Supreme Court, Commercial Division New York County
Dated: ____, 2025 New York, New York
SUBMISSION NOTATION
This Proposed Order was respectfully submitted for the Court's consideration by:
CALDERWOOD & HARKNESS LLP Attorneys for Plaintiffs Ironside Capital Management LP, Ironside Credit Opportunities Fund LP, Ironside Structured Alpha Fund LP, and Ironside Special Situations Fund LP
51 West 52nd Street, 40th Floor New York, New York 10019 Telephone: (212) 558-4000 Facsimile: (212) 558-3588
Samuel Eklund, Esq. — Responsible Partner Yuki Nakamura, Esq. — Lead Associate
Prepared: March 20, 2025
IRONSIDE CAPITAL MANAGEMENT LP, IRONSIDE CREDIT OPPORTUNITIES FUND LP, IRONSIDE STRUCTURED ALPHA FUND LP, and IRONSIDE SPECIAL SITUATIONS FUND LP,
Index No. 650312/2025
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Assigned Justice:
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VANTOR HOLDINGS CORP.,
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