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Keywords

plaintiffdefendantattorneystatuteappealpleafiduciarystatute of limitationsfiduciary dutybreach of fiduciary dutyunjust enrichment
plaintiffdefendantattorneystatuteappealpleafiduciarystatute of limitationsfiduciary dutybreach of fiduciary duty

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ESG Capital Partners, LP v. Stratos, 828 F.3d 1023, Fed. Sec. L. Rep. P 99,227, 16 Cal. Daily Op. Serv. 7335, 2016 Daily Journal D.A.R. 6973

Facts

ESG Capital Partners, L.P. was formed to purchase pre-IPO Facebook shares and negotiated with a man named 'Ken Dennis,' who was actually Troy Stratos, an alleged con artist. Venable LLP represented 'Dennis' and attorney Meyer assured ESG Capital that the deal was legitimate, leading them to wire over $11 million for the purchase. However, the funds were misappropriated, and ESG Capital did not learn of the fraud until much later, prompting them to file suit against Stratos, Venable LLP, and attorney Meyer.

ESG Capital Partners, L.P. was formed to purchase pre-IPO Facebook shares and negotiated with a man named 'Ken Dennis,' who was actually Troy Stratos, an alleged con artist.

Issue

Did ESG Capital sufficiently plead its claims for federal securities fraud and various state law claims against Venable LLP and attorney Meyer?

Did ESG Capital sufficiently plead its claims for federal securities fraud and various state law claims against Venable LLP and attorney Meyer?

Rule

To state a federal securities fraud claim under § 10(b), a plaintiff must show: (1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.

To state a federal securities fraud claim under § 10(b), a plaintiff must show: (1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the misrepresentation or omission; (5) economic loss; and (6) loss causation.

Analysis

The court found that ESG Capital had adequately alleged material misrepresentations made by attorney Meyer, including false assurances about the legitimacy of the transaction and the identity of 'Ken Dennis.' The court also determined that ESG Capital had established a causal connection between the alleged fraud and the securities transaction, as they relied on attorney Meyer's representations when making their wire transfers. The court concluded that the claims for conversion, unjust enrichment, and unfair competition were sufficiently pled and not barred by the statute of limitations.

The court found that ESG Capital had adequately alleged material misrepresentations made by attorney Meyer, including false assurances about the legitimacy of the transaction and the identity of 'Ken Dennis.'

Conclusion

The Court of Appeals affirmed in part, reversed in part, and remanded the case, allowing ESG Capital's claims to proceed except for the breach of fiduciary duty claim, which was barred by the statute of limitations.

The Court of Appeals affirmed in part, reversed in part, and remanded the case, allowing ESG Capital's claims to proceed except for the breach of fiduciary duty claim, which was barred by the statute of limitations.

Who won?

ESG Capital Partners, L.P. prevailed in part as the appellate court found that they had sufficiently pled their claims for federal securities fraud and various state law claims.

ESG Capital Partners, L.P. prevailed in part as the appellate court found that they had sufficiently pled their claims for federal securities fraud and various state law claims.

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