Rise Development Partners, LLC v. Signature Bank

Background

Rise Development Partners, LLC; Rise Capital, LLC; Rise Capital US, LLC; Rise Concrete, LLC; Lawrence Rafalovich; and Barry Caldwell sued Signature Bank; Signature Financial, LLC; Signature Securities Group Corp.; and Signature Public Funding Corp. The plaintiffs alleged that a former Signature employee, Darshini Mahadeo, induced them to borrow money, lend money to another entity, and invest in other Signature customers. They asserted that the defendants fraudulently or negligently induced these transactions and failed in their duties.

The accountholder plaintiffs agreed to Signature’s Business Account Agreements and Disclosures booklet. That booklet limited their relief in actions against Signature to breach-of-contract relief, barred special, punitive, indirect, or consequential damages and litigation expenses, and required legal actions concerning an account or the agreement to begin within one year of the relevant event.

The plaintiffs’ allegations focused on a loan from HK Capital, LLC and loans to Atlantic Construction Co., LLC. They alleged that the HK Capital loan involved unlawful interest rates and that Atlantic later defaulted. Signature Bank was closed on March 12, 2023, and the Federal Deposit Insurance Corporation became its receiver. Flagstar acquired the Signature subsidiaries. The FDIC removed the case to federal court, and the case was transferred to the Southern District of New York.

Claims and Motions

The plaintiffs filed an amended complaint on March 4, 2024. It asserted claims labeled as negligence and gross negligence; negligent hiring, supervision, and retention; negligent detection, investigation, and prevention; fraud; derivative fraud; aiding and abetting; derivative aiding and abetting; professional malpractice; derivative professional malpractice; breach of fiduciary duties; derivative breach of fiduciary duties; breach of contract; conversion; unjust enrichment; and accounting. The complaint also labeled its request for compensatory and punitive damages as “Count 17,” although the court stated that a damages request is not a separate cause of action and that the complaint professed to assert seventeen causes of action while containing only fifteen claims.

The FDIC and Flagstar moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not state a legally sufficient claim. The plaintiffs did not oppose the motions despite receiving deadline extensions. The court nevertheless reviewed whether the amended complaint stated claims for relief and concluded that it did not.

Court’s Analysis

The court ruled that all claims by the accountholder plaintiffs were barred by the one-year deadline in the Signature booklet. The alleged events occurred between May 2018 and July 2019, but the plaintiffs did not begin the action until February 3, 2021. The court also held that the accountholder plaintiffs had waived every claim against Signature except breach of contract under the booklet.

The court dismissed the remaining breach-of-contract claim because the plaintiffs did not identify the contract provisions that the defendants allegedly breached. The court noted that the non-accountholder plaintiffs did not have contracts with Signature.

The court separately dismissed the other claims for failure to state a claim. For Counts 1 through 3, the plaintiffs did not adequately allege that the defendants knew or should have known about Mahadeo’s alleged misconduct, and the negligent-detection, investigation, and prevention claim was not recognized under New York law. The accountholder plaintiffs’ negligence claims were also duplicative of their contract claim.

Counts 4 and 5, alleging fraud, did not identify with the required detail who made the allegedly fraudulent statements, what was said, when and where it was said, or why it was fraudulent. Counts 6 and 7, alleging aiding and abetting, did not adequately allege a primary violation, actual knowledge, or substantial assistance. Counts 8 and 9 failed because the court stated that financial institutions are not professionals subject to malpractice claims.

Counts 10 and 11, alleging breach of fiduciary duty, failed because the plaintiffs made general and conclusory allegations and did not establish a fiduciary relationship. Counts 13 and 14, alleging conversion and unjust enrichment, were duplicative of the breach-of-contract claims. Count 16, alleging accounting, did not plead the elements of an equitable accounting claim. The court treated the damages demand labeled “Count 17” as a request for relief rather than a separate claim.

Disposition

The court granted the defendants’ motions to dismiss and dismissed the amended complaint with prejudice. Judge John G. Koeltl directed the Clerk of Court to close all pending motions and the case.