Cambridge Capital LLC v. Ruby Has LLC

Background

Cambridge Capital LLC and Ruby Has LLC entered into a June 2020 letter of intent concerning a potential investment by Cambridge Capital in Ruby Has. Matthew Smalley and Benjamin Gordon were identified as principals of Cambridge Capital. Ruby Has alleged that the Cambridge Parties induced it to sign and extend the letter of intent through misrepresentations and that Cambridge Capital disclosed confidential information in violation of a nondisclosure agreement.

In an earlier round of this case, the court dismissed some fraud allegations and dismissed the nondisclosure-agreement counterclaim, while allowing Ruby Has to amend its pleadings concerning those claims. Ruby Has then filed Second Amended Counterclaims alleging fraud and breach of contract. The Cambridge Parties moved under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal for failure to state a legally sufficient claim.

Fraud counterclaim

The Cambridge Parties sought dismissal of the fraud allegations based on statements that Gordon was a successful investor with a pristine reputation that was his “crowning jewel,” and that Cambridge Capital worked with existing management rather than replacing it.

The court applied New York fraud law and the heightened pleading requirement in Rule 9(b). That rule requires a fraud claim to identify the allegedly false statement, who made it, when and where it was made, and why it was fraudulent.

The court held that describing Gordon as “successful” was not an actionable statement of fact. The court also held that describing him as having a “pristine reputation” was general promotional language, or “puffery,” too vague to support reasonable reliance, even though Ruby Has alleged facts concerning an SEC investigation and consent order involving Gordon and alleged that he was not on the board of the Hebrew Immigrant Aid Society.

The court separately held that the statements that Cambridge Capital was “founder friendly” and worked with existing management did not adequately plead fraud. Ruby Has alleged that two executives were later replaced, but the court found that later replacements did not show the statements were false when made. The allegation that Cambridge Capital was already replacing the executives when the statements were made was considered speculative and lacked identified supporting sources.

The court therefore dismissed the fraud counterclaim to the extent it was based on the two challenged groups of representations. The opinion noted that a separate fraud theory concerning Gordon’s alleged statements about an investment and related nondisclosure of SEC information was not challenged in this motion.

Nondisclosure-agreement counterclaim

The Cambridge Parties argued that Ruby Has had not adequately alleged formation of a new oral nondisclosure agreement or a meeting of the minds on its terms. Ruby Has alleged that, during a May 15, 2020 call, Gordon proposed protecting confidential information provided during due diligence and negotiations under terms matching the parties’ 2019 nondisclosure agreement. Ruby Has alleged that it agreed, and that Smalley later referred to the nondisclosure agreement in two July 2020 emails.

The court held that these allegations were sufficient to survive dismissal. The pleadings identified circumstances and a date for formation and incorporated the material terms of the earlier agreement. The court reasoned that the amended allegations described a new oral agreement with terms mirroring the earlier agreement, rather than an attempt to continue an agreement that had already expired. Because the earlier agreement included a one-year confidentiality period, the court found the alleged new agreement’s terms sufficiently definite to be determined.

Disposition

The court granted in part and denied in part the Cambridge Parties’ motion to dismiss. It dismissed the specified fraud allegations and denied dismissal of Ruby Has’s breach-of-contract counterclaim. The Clerk of Court was directed to close the motion.