Kumaran v. Northland Energy Trading, LLC

Background

Samantha Siva Kumaran and The A Star Group, Inc., doing business as Timetrics, sued Northland Energy Trading, LLC, Hedge Solutions, Inc., Richard M. Larkin, Daniel Lothrop, and Domenic Bramante. The action involves alleged misappropriation of trade secrets, breach of contract, and fraudulent inducement. After the Second Circuit partially vacated an earlier dismissal, Larkin asserted counterclaims against Kumaran individually for common-law fraud, conversion, and violations of Sections 5(a) and 5(c) of the Securities Act.

Larkin alleged that Kumaran misrepresented the creation and operation of Nefertiti Asset Management, LLC, as well as her education and work history, and that he made payments based on those representations. He also alleged that Kumaran misappropriated the payments and made other misrepresentations about Timetrics and her business activities. Kumaran moved to strike the counterclaims and related allegations under Federal Rule of Civil Procedure 12(f), which permits a court to remove certain improper or immaterial material from a pleading. She separately sought sanctions under Rule 11 against Larkin and his attorneys.

Motion to Strike

The court granted Kumaran’s motion to strike Larkin’s Third Counterclaim, which alleged violations of the Securities Act. The court held that the claim was barred by the Securities Act’s three-year statute of repose. Larkin alleged that additional securities offerings occurred from approximately October 26, 2016, through June 22, 2020, but he did not assert the counterclaims until May 16, 2024. The court stated that the statute of repose could not be extended through equitable tolling or the relation-back rule.

The court denied Kumaran’s motion to strike the fraud and conversion counterclaims and the allegations supporting them. It found that allegations about Kumaran’s credentials and past business dealings could be relevant to Larkin’s fraud claim. It also held that arguments about the truth of those allegations, their evidentiary support, and possible prejudice were better addressed through discovery, a motion to dismiss, or summary judgment rather than a motion to strike.

The court likewise denied Kumaran’s requests to strike allegations concerning Timetrics, Nefertiti Asset Management, and the parties’ Agreement in Principle. It rejected her argument that Nefertiti Asset Management was a necessary party because Larkin’s allegations concerned Kumaran’s individual statements and actions. It also held that the statute of frauds, a rule requiring certain agreements to be written, did not bar documents and communications supporting a fraud claim because Larkin was not seeking to enforce the proposed agreement as a contract. The court concluded that the fraud and conversion counterclaims were timely because they related back to the filing of Kumaran’s complaint.

Kumaran also asked the court to reinstate claims concerning the Agreement in Principle that had previously been dismissed. The court denied that request, explaining that a motion to strike was not the proper procedure for reinstating dismissed claims and that Kumaran would instead need to seek permission to amend her complaint.

Motion for Sanctions

Judge Lehrburger denied Kumaran’s Rule 11 motion for sanctions without prejudice as premature. The court explained that Rule 11 sanctions are intended for baseless filings and should not be used to test the legal sufficiency or factual merits of pleadings when other motions are available. Resolving Kumaran’s arguments would have required the court to make factual and merits determinations about Larkin’s counterclaims before the record was fully developed. The court therefore deferred that issue and denied Kumaran’s request for a pre-filing inquiry affidavit as well.

Disposition

The court ordered that Kumaran’s motion to strike the Securities Act counterclaim was granted; her motion to strike the remaining counterclaims and supporting allegations was denied; and her motion for sanctions was denied without prejudice.