FAT Brands Inc. v. PPMT Capital Advisors, Ltd.

Background

FAT Brands alleged that PPMT Capital Advisors, Ltd. (PPMT), Royal Gulf Capital Corporation, Karl Douglas, Wesley Ramjeet, and the SJ Global Defendants participated in a scheme to mislead it during a proposed financing transaction. FAT Brands alleged that PPMT represented that Middle Eastern family offices would provide a $60 million loan and later additional financing for a $40 million stock purchase. FAT Brands paid a $100,000 due-diligence fee, gave PPMT access to confidential financial information, and prepared transaction documents. The promised financing was never provided.

FAT Brands’s claims against the PPMT Defendants were not at issue in these motions. FAT Brands asserted fraud and conspiracy to commit fraud, and tortious interference with contract, against the SJ Global Defendants. It asserted claims against Ramjeet based on an alleged partnership with Douglas, negligent supervision, and apparent authority. Ramjeet and the SJ Global Defendants moved under Federal Rule of Civil Procedure 12 to dismiss the claims against them.

Ramjeet’s motion

The court dismissed all three claims against Ramjeet for failure to state a claim.

For the partnership claim, the court applied New York law, under which an alleged partnership requires, among other things, an agreement to share losses. FAT Brands alleged that Ramjeet subsidized Douglas’s business by providing office space, website services, and marketing support, and that Ramjeet could lose the value of those services if PPMT failed. The court held that these allegations did not show an agreement to share the business’s losses or to guarantee PPMT’s financial or contractual obligations.

For negligent supervision, the court applied Second Circuit precedent requiring an employer-employee relationship between the defendant and the person who committed the tort. The complaint did not allege such a relationship between Ramjeet and Douglas or PPMT. The court therefore dismissed this claim.

For apparent authority, a legal doctrine under which a principal’s words or conduct can make a third party reasonably believe that another person may act for the principal, the court held that FAT Brands had not alleged sufficient representations by Ramjeet. The allegation that Ramjeet conveyed that he exercised supervisory authority over PPMT did not plausibly show that Ramjeet represented that PPMT or Douglas was authorized to act on his behalf.

SJ Global Defendants’ motion

The SJ Global Defendants moved to dismiss for lack of personal jurisdiction and for failure to state a claim. Personal jurisdiction is the court’s authority over a particular defendant.

The court held that it could exercise personal jurisdiction over SJ Global WW, Walsh, and Samuel under New York’s long-arm statute. At the pleading stage, FAT Brands adequately alleged that PPMT and Douglas acted as agents of those defendants in New York. The allegations included that SJ Global WW and PPMT formed a partnership, SJ Global representatives participated in discussions about the transaction, SJ Global sought changes to the transaction documents, Walsh directed certain actions, and SJ Global representatives represented that funds would be provided. The court also held that exercising jurisdiction over those defendants was consistent with constitutional due-process requirements because they purposefully engaged in business connected to New York.

The court reached a different conclusion for Fields and Edison. The complaint alleged that Edison attended a meeting in Zurich and that Fields sent FAT Brands a photograph of a receipt purporting to show that SJ Global WW held $19 billion in bearer bonds. The court held that these allegations did not show that Fields and Edison personally engaged in relevant New York transactions or controlled SJ Global WW’s New York activities. The court dismissed FAT Brands’s claims against them under Rule 12(b)(2) for lack of personal jurisdiction.

The court dismissed the remaining claims against the SJ Global Defendants under Rule 12(b)(6) for failure to state a claim. For fraud and conspiracy to commit fraud, the court held that the January 2019 communications directly involving FAT Brands could not support reliance and causation because the financing was already overdue and FAT Brands questioned the purported proof of funds rather than relying on it. The court further held that statements made by Douglas or PPMT could be attributed to the SJ Global Defendants only if an agency relationship existed. Although the allegations were sufficient to support agency for personal-jurisdiction purposes, they did not show that the SJ Global Defendants authorized PPMT or Douglas to act on their behalf or bind them in transactions. The complaint also failed to identify the time, place, speaker, and content of an indirectly conveyed misrepresentation with the particularity required for fraud claims.

For tortious interference with contract, the court did not decide whether New York or California law applied because the claim failed under either state’s law. FAT Brands’s theory depended on Douglas’s knowledge and conduct, but the court held that those facts could not be attributed to the SJ Global Defendants. The complaint therefore did not adequately allege the required knowledge and intentional conduct by those defendants.

Disposition

Judge Jesse M. Furman granted the defendants’ motions. The court dismissed FAT Brands’s claims against Fields and Edison under Rule 12(b)(2) for lack of personal jurisdiction. It dismissed with prejudice the claims against Ramjeet, SJ Global WW, SJ Global US, Walsh, and Samuel under Rule 12(b)(6) for failure to state a claim. The court explained that the dismissal against Fields and Edison was technically without prejudice to refiling in a district where personal jurisdiction exists.

The court declined to give FAT Brands another opportunity to amend its complaint. It noted that FAT Brands had already amended once, did not request another amendment, did not identify additional facts that could cure the defects, and had previously been warned that it would not receive another opportunity to amend regarding the dismissal arguments. The court also denied as moot counsel’s motion to withdraw from representing the SJ Global Defendants because all claims against those defendants had been dismissed. The pretrial conference was reinstated for the remaining parties.