Student Advantage Fund I LLC v. Kennedy Lewis Management LP
- P. Castel
- 1:19-cv-02401
- U.S. District Court · Southern District of New York
- 10
In Student Advantage Fund I LLC v. Kennedy Lewis Management LP, Judge Castel dismissed fraud and fair-dealing claims as duplicative or insufficiently pleaded.
Student Advantage Fund I LLC’s fraud and implied-covenant claims were dismissed; Kennedy Lewis Management LP obtained dismissal of those claims, while the opinion addressed only the claims targeted by its partial motion.
What happened
Student Advantage Fund I LLC v. Kennedy Lewis Management LP concerned an agreement protecting information that Student Advantage Fund shared while Kennedy Lewis considered investing in its education-financing business.
Student Advantage alleged that Kennedy Lewis obtained its confidential business information, then used it to compete with Student Advantage and contact its clients. It sued under New York law, including claims for breach of contract, fraud, and breach of the promise of good faith and fair dealing.
Judge P. Castel granted Kennedy Lewis’s partial motion to dismiss. He dismissed the fraud claim because it duplicated the contract claim and was not pleaded with enough detail, and dismissed the fair-dealing claim because it was based on the same conduct and damages as the contract claim.
The detailed version
- Student Advantage Fund I LLC v. Kennedy Lewis Management LP · No. 1:19-cv-02401
- P. Castel
- Nov. 18, 2019
Background
Student Advantage Fund I LLC (SAF) was formed to make investments involving income-share agreements, which finance education in exchange for a student’s agreement to repay a percentage of future income for a set period. SAF alleged that it had developed a proprietary business model and shared confidential information with Kennedy Lewis Management LP (KLM) while KLM evaluated a possible investment.
The parties signed a Confidentiality & Non-Circumvention Agreement on October 27, 2017. SAF alleged that it provided KLM with market research, its business model, and the identities of existing and prospective educational-institution clients. The parties discussed a possible investment, but KLM ended the discussions and did not invest. SAF alleged that KLM later approached Vemo Education, a SAF competitor, and used information obtained from SAF to compete with SAF and contact its clients.
SAF asserted seven causes of action under New York law. KLM moved under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal when a complaint does not state a legally sufficient claim, targeting only the fraud claim and the claim for breach of the implied covenant of good faith and fair dealing.
Fraud Claim
The court dismissed the fraud claim for two independent reasons. First, it held that the claim duplicated SAF’s breach-of-contract claim. Both claims were based on allegations that KLM requested SAF’s information while claiming to conduct due diligence, then used that information to compete with SAF. The fraud claim did not identify a duty separate from KLM’s contractual confidentiality obligation, a fraudulent statement separate from the contract, or damages different from those sought for the alleged contract breach.
Second, the court held that SAF had not pleaded fraud with the particularity required by Federal Rule of Civil Procedure 9(b). The complaint referred generally to statements by KLM principals Anthony Pasqua, Darren Richman, Niles Chura, and David Chene, but did not identify specific fraudulent statements or facts creating a strong inference that the speakers intended to deceive. The allegation concerning Griffin Dan’s December 27, 2017 information request likewise did not identify a fraudulent statement or facts supporting fraudulent intent.
Implied Covenant Claim
The court also dismissed SAF’s claim that KLM breached the implied covenant of good faith and fair dealing. That covenant is a promise, recognized in every contract, not to undermine the other party’s ability to receive the contract’s benefits. The court found that SAF’s claim was based on the same alleged use of confidential or proprietary information to compete with SAF as its breach-of-contract claim. The complaint also sought the same damages for both claims.
Disposition
The court granted KLM’s partial motion to dismiss and dismissed Counts Three and Four of the complaint. The opinion did not state that the dismissal was with or without prejudice. The Clerk was directed to terminate the motion.
Read the full 10-page opinion on CourtListener, the free public archive maintained by the Free Law Project.