QED LLC v. Faber Daeufer & Itrato, P.C.

Background

QED, LLC sued Faber Daeufer & Itrato, P.C., Kenneth Itrato, and David Nicolaisen for civil conspiracy to defraud. QED was an investor in Level Solar, Inc.; the defendants were Level Solar’s attorneys. QED alleged that the defendants conspired with Level Solar founder, chief executive officer, and co-director Richard Keiser to conceal the deletion of language in an Amended and Restated Investor Rights Agreement that had allowed the Common Director to be removed “for cause.” QED alleged that it would not have invested $9.3 million in Level Solar had it known that Keiser could not be removed for cause.

Ronald J. Friedman, acting as Chapter 11 Trustee of Level Solar, voluntarily dismissed his claims against the defendants. QED’s conspiracy claim was therefore the only remaining claim addressed in the opinion.

Motion to Take Judicial Notice

The defendants asked the court to take judicial notice of nine exhibits. Judicial notice allows a court to accept certain facts without formal proof when those facts are not reasonably disputable and are generally known or readily verifiable from reliable sources.

The court denied the motion as to all nine exhibits. It held that the contents of the emails and other documents were not facts suitable for judicial notice. The court nevertheless considered Exhibits A, B, C, E, F, and G in deciding the motion to dismiss because they were either integral to the complaint or incorporated into it by reference. The court did not consider Exhibits D, H, and I.

Statute of Limitations

The court held that Connecticut’s three-year statute of limitations applied. Under New York’s borrowing statute, the court applied the shorter limitations period between New York and the state where the claim accrued. The court stated that QED resided in Connecticut and that the alleged economic injury therefore accrued there. Connecticut’s limitations period for tort claims was three years, while New York’s period for fraud-based claims was six years.

The alleged wrongful act—the deletion of the “for cause” language—occurred on September 10, 2014. QED filed the action on April 2, 2020, almost six years later. The court added that the claim would still be untimely even if February 2, 2015, when QED signed the agreement, were used as the relevant date.

QED argued that fraudulent concealment extended the deadline. The court rejected that argument. It held that QED had received the revised agreement nearly five months before signing it and therefore had the information needed to identify the deletion and pursue a claim. The court found that QED had constructive notice of the agreement’s contents and that the allegations did not show that the defendants prevented or discouraged QED or its counsel from reviewing the agreement. The court also stated that QED did not adequately allege intentional concealment or concealment intended to delay filing the lawsuit.

Failure to State a Claim

The court also held that the claim would fail even if it were timely. Under New York law, civil conspiracy is not an independent tort; it must be based on an adequately pleaded underlying tort. QED relied on alleged fraud by Keiser.

The court explained that a fraud claim requires a false material statement or omission, knowledge of its falsity, an intent to induce reliance, justifiable reliance, and injury. Federal Rule of Civil Procedure 9(b) additionally requires fraud to be pleaded with particularity, including identifying the allegedly fraudulent statements, their speaker, when and where they were made, and why they were fraudulent.

The court found that QED did not identify any specific misrepresentation by Keiser or anyone else. QED also did not adequately allege that Keiser failed to disclose the changes, because QED received the revised agreement five months before signing it and did not allege that Keiser prevented QED or its counsel from reviewing or comparing the documents. The court noted that QED also failed to adequately allege reasonable reliance.

The court further stated that QED’s conspiracy allegations were conclusory. The defendants’ email to Keiser did not show an agreement to defraud QED, and alleged failures to recognize, prevent, or disclose Keiser’s conduct did not constitute an overt act supporting a civil-conspiracy claim.

Disposition

The court denied the defendants’ motion to take judicial notice and granted their motion to dismiss. It dismissed the case and directed the Clerk of Court to close all open motions and terminate the case. The opinion does not state that the dismissal was with or without prejudice.