Financial Technology Partners LP v. Circle Internet Financial Limited

Background

Financial Technology Partners LP and FTP Securities LLC, together called FT Partners, sued Circle Internet Financial Limited and four subsidiaries—Pluto Holdings, Inc., SeedInvest Technology LLC, SI Securities LLC, and SI Advisors I, LLC—in New York Supreme Court. The plaintiffs alleged that Circle and the subsidiaries breached the SeedInvest Agreement, violated the implied duty of good faith and fair dealing, and were unjustly enriched by failing to pay fees connected to advisory services and the later acquisition of SeedInvest.

The defendants removed the case to the Southern District of New York based on diversity jurisdiction, which generally allows a federal court to hear a case between citizens of different states when the amount in dispute exceeds $75,000. The parties did not dispute that the plaintiffs and the subsidiaries shared citizenship, which ordinarily defeated complete diversity. The plaintiffs therefore moved to remand, or return, the case to state court. Circle argued that the subsidiaries were fraudulently joined, a legal term for including parties against whom the complaint has no possible claim in order to defeat federal jurisdiction.

Court’s Analysis

The court applied New York law and examined the pleadings as they existed when the case was removed. Circle had to show by clear and convincing evidence that there was no possibility the plaintiffs could state a claim against the subsidiaries in state court. The court was required to resolve factual and legal issues in the plaintiffs’ favor when conducting this analysis.

For breach of contract, the court found that Circle and FT Partners were the only signatories to the SeedInvest Agreement and that the agreement imposed no contractual obligations on the subsidiaries. The complaint did not allege specific facts showing that the subsidiaries participated in negotiating or performing the agreement, assumed its obligations, were in a contractual relationship with FT Partners, intended to be bound, or were Circle’s alter egos. The court concluded that the plaintiffs could not state a breach-of-contract claim against the subsidiaries.

The court also found that the implied-covenant claim was duplicative of the breach-of-contract claim because both claims relied on the same allegations concerning termination of the agreement and unpaid transaction fees. Under New York law, the court said, a separate implied-covenant claim is not recognized when it is based on the same facts as a contract claim.

Finally, the court rejected the unjust-enrichment claim against the subsidiaries. The complaint alleged that Circle—not the subsidiaries—requested FT Partners’ advisory services. The plaintiffs alleged only an indirect benefit to the subsidiaries, which the court found insufficient to show that the subsidiaries were unjustly enriched by services performed for them.

Ruling

Judge Victor Marrero denied the plaintiffs’ motion to remand. The court held that the subsidiaries were fraudulently joined because the pleadings provided no possible basis for holding them liable on the asserted claims under New York law. The court dismissed Pluto Holdings, Inc., SeedInvest Technology LLC, SI Securities LLC, and SI Advisors I, LLC from the action, and directed the clerk to terminate pending motions.