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Keystone Associates LLC v. Barclays Bank PLC

United States District Court, D. Delaware

January 9, 2020


          Timothy R. Dudderar, Jonathan A. Choa, Potter Anderson & Corroon LLP, Wilmington, Delaware. David J. Jordan, Michael R. Menssen, Stoel Rivers LLP, Salt Lake City, Utah. Counsel for Plaintiffs.

          Robert S. Saunders, Skadden, Arps, Slate, Meagher & Flom LLP, Wilmington, Delaware. Jeffrey Geier, Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York. Counsel for Defendant.



         Plaintiffs Keystone Associates LLC (“Keystone”) and Cable Mountain Partners LLC (“Cable Mountain, ” and collectively, “Plaintiffs”) have sued defendant Barclays Bank PLC (“Barclays”) for securities fraud, common law fraud, and negligent misrepresentation. Currently before the Court is Defendant's motion to dismiss the complaint pursuant to Rules 12(b)(1), [1]12(b)(6) and 9(b) of the Federal Rules of Civil Procedure as well as the Private Securities Litigation Reform Act of 1995, 15 U.S.C. § 78u-4. (“PSLRA”) (D.I. 8). The Court has subject matter jurisdiction over this action pursuant to 28 U.S.C. §§ 1331 and 1367. For the following reasons, Defendant's motion to dismiss is GRANTED.

         I. BACKGROUND

         In three separate transactions between February 18, 2016 and January 30, 2017, Plaintiffs invested $2, 500, 000 in Elkhorn Capital Group, LLC (“Elkhorn”) based on alleged misrepresentations about Elkhorn's relationship with Barclays. (D.I. 1 ¶ 19). The complaint provides no details regarding the transactions, such as which entity actually purchased the securities, on what dates, for how much, on what terms, and whether that entity still holds those securities today. Instead, the complaint simply states that the “three transactions all included the sale of non-registered securities.” (Id.). The complaint also does not allege that Barclays had any role in connection with the sale of Elkhorn securities or that Plaintiffs ever interacted with Barclays, either in connection with their purchases of Elkhorn securities or otherwise.

         According to the complaint, Plaintiffs engaged in all three transactions based on the same misrepresentation. Specifically, on February 6, 2016, Elkhorn sent Plaintiffs an email stating that Barclays committed to providing Elkhorn “a total of $5, 000, 000 in capital, ” with $3, 000, 000 being a 5-year interest only loan and the remainder being an annual marketing agreement for $500, 000 every May through 2018. (Id. ¶ 16). Elkhorn “prominently advertised its partnership with Barclays on its website.” (Id. ¶ 11). Elkhorn included a link on its website to the following statement Barclays made in a July 2015 press release about its partnership with Elkhorn:

This partnership allows us to offer our clients an expanded range of investment opportunities. We're enhancing efficiency in product delivery, and matching that with innovation in investment content. Elkhorn's multi-dimensional setup is very complementary to Barclay's business, and very aligned to investors' needs.

(Id. ¶ 9; D.I. 10, Ex. 1, “the Barclays Statement”).

         The complaint alleges that the annual $500, 000 marketing payment was contingent upon Elkhorn selling $100, 000, 000 of Barclays' products annually, and it was not, as they were led to believe, “guaranteed money.” (Id. ¶ 21). The complaint alleges that by time Plaintiffs made their first investment in Elkhorn in February 2016, Barclays knew that Elkhorn had no realistic possibility of meeting the contingency requirements and receiving the $500, 000 marketing payment. (Id. ¶ 22). Barclays also knew that the representations it made in its statement about Elkhorn were no longer true. (Id. ¶ 23). Yet, Barclays continued to allow Elkhorn to advertise their partnership. (Id.). Elkhorn is now insolvent, and Plaintiffs' investments are “essentially worthless.” (Id. ¶ 25).


         A. Rule 12(b)(6)

         “To survive a motion to dismiss, a civil plaintiff must allege facts that ‘raise a right to relief above the speculative level on the assumption that the allegations in the complaint are true (even if doubtful in fact).'” Victaulic Co. v. Tieman, 499 F.3d 227, 234 (3d Cir. 2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). Dismissal under Rule 12(b)(6) is appropriate if a complaint does not 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) (quoting Twombly, 550 U.S. at 570); see also Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009). A claim is facially plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678. The factual allegations do not have to be detailed, but they must provide more than labels, conclusions, or a “formulaic recitation” of the claim elements. Twombly, 550 U.S. at 555-56. The Court is not obligated to accept as true “bald assertions” or “unsupported conclusions and unwarranted inferences.” Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir. 1997); Schuylkill Energy Res., Inc. v. Pa. Power & Light Co., 113 F.3d 405, 417 (3d Cir. 1997). Instead, “[t]he complaint must state enough facts to raise a reasonable expectation that discovery will reveal evidence of [each] necessary element” of a plaintiff's claim. Wilkerson v. New Media Tech. Charter Sch. Inc., 522 F.3d 315, 321 (3d Cir. 2008) (internal quotation marks omitted). The court must accept all well-pleaded factual allegations in the complaint as true and draw all reasonable inferences in favor of the plaintiff. In re Rockefeller Ctr. Prop., Inc. Sec. Litig., 311 F.3d 198, 215 (3d Cir. 2002). The court's review is limited to the allegations in the complaint, exhibits attached to the complaint, and documents incorporated by reference. Procter & Gamble Co. v. Nabisco Brands, Inc., 697 F.Supp. 1360, 1362 (D. Del. 1988).

         B. Rule ...

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