Gordon v. Aizenberg

Background

Richard E. Gordon sued Salo Aizenberg and Maytal Asset Management, LLC, doing business as Downtown Investment Advisory, over the management of his discretionary investment account. Gordon alleged that he sought conservative management of inherited funds, but Aizenberg persuaded him to use a strategy involving substantial margin and represented that the strategy was relatively safe. Gordon alleged that the account was instead invested in high-risk, heavily margined positions, and that the defendants failed to follow his requests to liquidate the account. He alleged losses of approximately $1.3 million.

Gordon asserted claims for breach of fiduciary duty, negligence, negligent misrepresentation, and negligent supervision, as well as a claim under Section 20(a) of the Securities Exchange Act of 1934. The defendants moved to dismiss under Federal Rule of Civil Procedure 12(b)(6), which tests whether a complaint states a legally sufficient claim, and Rule 9(b), which requires fraud-related allegations to be stated with particular detail.

Court’s Analysis

Breach of fiduciary duty

The court held that Gordon had not sufficiently alleged a fiduciary relationship separate from the parties’ express investment advisory contract. Under the court’s understanding of New York law, a fiduciary duty distinct from a contract requires allegations that the defendants occupied a position of trust or special confidence. Gordon’s allegations that he trusted Aizenberg and believed Aizenberg would manage the account conservatively were insufficient. The court dismissed this claim without prejudice.

Negligence

The court held that Gordon had not sufficiently alleged a legal duty independent of the investment advisory contract. Because a breach of contract alone does not establish a tort claim when no separate legal duty is shown, the court dismissed the negligence claim without prejudice.

Negligent misrepresentation

The court found that Gordon’s allegations about false statements concerning the investments’ risk level were too vague to satisfy Rule 9(b)’s heightened pleading standard. The court dismissed the negligent-misrepresentation claim without prejudice.

Negligent supervision

Gordon brought this claim against Maytal Asset Management, LLC, alleging that it had a duty to supervise Aizenberg. The court dismissed the claim without prejudice because it had found that Gordon had not sufficiently pleaded negligence by Aizenberg.

Securities Exchange Act claim

The court dismissed Gordon’s Section 20(a) claim. Section 20(a) provides potential secondary liability for a person who controls someone liable for a securities-law violation; it does not create primary liability by itself. Because Gordon had not alleged a primary violation of the Securities Exchange Act, the court dismissed this claim.

Disposition

The court granted the defendants’ motion to dismiss. It dismissed all of Gordon’s claims without prejudice and granted him leave to file a Second Amended Complaint by October 24, 2022. The court stated that if Gordon failed to file on time, the claims dismissed without prejudice would be deemed dismissed with prejudice. The defendants’ responsive pleading was due November 14, 2022.