IMG Memorial Fund 1, LLC v. First Landing Fund, LLC

Background

The court had issued an earlier opinion denying the defendants’ motion to dismiss. That opinion found that the complaint sufficiently alleged securities fraud under § 10b(b) and Rule 10b-5 against Vantage, First Landing, Prophecy LP, and Prophecy GP. It also found that the complaint sufficiently alleged violations of § 20(a) against Finn, Schippers, and Spotts.

Prophecy LP, Prophecy GP, and Jeffrey Spotts, referred to together as the Prophecy Defendants, then moved for reconsideration. Reconsideration is a request for the same court to revisit an earlier ruling. In the alternative, they sought certification for an interlocutory appeal, meaning an appeal before the case is finished.

Reconsideration

The court explained that reconsideration is ordinarily available only when the moving party identifies an intervening change in controlling law, new evidence, or a clear error or manifest injustice that needs to be corrected. The Prophecy Defendants argued that the court’s earlier discussion of Prophecy’s alleged knowledge and role conflicted with Second Circuit decisions concerning when a company’s knowledge or intent may be attributed to it.

The court denied reconsideration because the Prophecy Defendants did not identify a change in controlling law, new evidence, or a clear error or injustice. The court also denied the motion on the merits. It distinguished the cited Second Circuit decisions, explaining that the earlier opinion had not treated Prophecy’s intent as established merely because of an employee’s rank, title, or corporate position. Instead, the phrase “by virtue of their roles” referred to Prophecy GP and Prophecy LP’s alleged active role in disseminating false information about the platform, their control over sub-advisers, and risks related to sub-advisers’ trading strategies. The court stated that allegations concerning Jeffrey Spotts’s email, the allegations in the Delaware lawsuit, and Prophecy’s motive together sufficiently alleged conscious misbehavior or recklessness and motive and opportunity to commit fraud.

Interlocutory Appeal

The court also denied certification for an interlocutory appeal. Under 28 U.S.C. § 1292(b), certification requires a controlling legal question, substantial disagreement about that question, and a determination that an immediate appeal may materially advance the end of the litigation. The court concluded that the Prophecy Defendants had not raised such a controlling legal question.

Disposition

The court ordered that the Prophecy Defendants’ motion for reconsideration and, alternatively, certification for interlocutory appeal, were DENIED. It lifted the stay of discovery, set an initial pretrial conference for June 1, 2022, and directed the parties to file a joint letter and proposed case-management plan. The Clerk was directed to close the motion at Docket No. 72.