Kravitz v. Tavlarios ( 2021 )

20-2579-cv
Kravitz v. Tavlarios, et al.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007 IS PERMITTED AND IS GOVERNED BY
FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN
CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE
EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION
“SUMMARY ORDER”). A PARTY CITING TO A SUMMARY ORDER MUST SERVE A COPY OF IT ON
ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit, held at
the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York,
on the 18th day of November, two thousand twenty-one.
PRESENT:
AMALYA L. KEARSE,
SUSAN L. CARNEY,
Circuit Judges. *
_________________________________________
PETER KRAVITZ, AS TRUSTEE OF THE AEGEAN LITIGATION TRUST,
Plaintiff-Appellant,
v. No. 20-2579-cv
E. NIKOLAS TAVLARIOS, PETER C. GEORGIOPOLOUS,
JOHN P. TAVLARIOS, AND GEORGE KONOMOS,
Defendants-Appellees.
_________________________________________
FOR PLAINTIFF-APPELLANT: P. JASON COLLINS (Scott D. Saldaña,
Jeffrey E. Gross, and Ben A. Barnes on the
brief), Reid Collins & Tsai LLP, New York,
NY.
* Judge Robert A. Katzmann, who was a member of the original panel in this case, died before the panel
issued a decision. This appeal is decided by the two remaining members of the panel, who are in agreement.
See 2d Cir. IOP E(b).
FOR DEFENDANTS-APPELLEES: JOSHUA A. GOLDBERG (Jeffrey F. Kinkle,
on the brief), Patterson Belknap Webb &
Tyler LLP, New York, NY (for E. Nikolas
Tavlarios).
MICHAEL TREMONTE (Amanda Ravich, on
the brief), Sher Tremonte LLP, New York,
NY (for Peter C. Georgiopoulos).
JONATHAN S. ABERNETHY (Sophia
Soejung Kim, on the brief) Cohen &
Gresser, LLP, New York, NY (for John P.
Tavlarios).
JONATHAN BACH (Eric Olney, on the brief),
Shapiro Arato Bach LLP, New York, NY
(for George Konomos).
Appeal from an order and judgment of the United States District Court for the
Southern District of New York (Buchwald, J.).
UPON DUE CONSIDERATION WHEREOF, IT IS HEREBY ORDERED,
ADJUDGED, AND DECREED that the order entered on July 8, 2020, and judgment of
dismissal entered on July 9, 2020, are AFFIRMED.
Aegean Marine Petroleum Network, Inc. (the “Company,” or “Aegean”) filed for
bankruptcy in November 2018, shortly after disclosing that Dimitris Melisanidis, Aegean’s
founder, former Chief Executive Officer, and former chairman of the board, defrauded the
Company of several hundred million dollars. The United States Bankruptcy Court for the
Southern District of New York confirmed a reorganization plan establishing the Aegean
Litigation Trust, administered by trustee Peter Kravitz (the “Trustee”), and assigned to the
Trust potential legal claims belonging to Aegean. Subsequently, the Trustee brought suit
against Defendants-Appellees (all of them former officers or directors of Aegean), alleging
against each a claim for breach of fiduciary duty. We assume the parties’ familiarity with the
underlying facts, procedural history, and arguments on appeal, to which we refer only as
necessary to explain our decision to affirm.
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We review de novo a district court’s order dismissing a complaint pursuant to Federal
Rule 12(b)(6), construing the complaint liberally and accepting all factual allegations in the
complaint as true and drawing all reasonable inferences in the plaintiff’s favor. Sullivan-
Mestecky v. Verizon Commc’ns Inc., 961 F.3d 91, 97 (2d Cir. 2020).1 We review for abuse of
discretion both a district court’s decision to take judicial notice of facts and a district court’s
denial of leave to amend a complaint. Staehr v. Hartford Fin. Servs. Grp., Inc., 547 F.3d 406, 424
(2d Cir. 2008); McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 200 (2d Cir. 2007).
1. The Trustee’s breach of fiduciary duty claims against Defendants are governed by
Delaware law, as adopted by the Republic of the Marshall Islands. 2 On de novo review, we
hold that the District Court properly dismissed the Trustee’s claims. 3
The Trustee’s complaint is based on the theory that “Defendants had a duty to exercise
oversight and to monitor the corporation’s operational viability, legal compliance, and financial
performance.” Compl. ¶ 29 (emphasis added). See also id. ¶¶ 1, 6, 29, 43-45, 67-68. On
appeal, the Trustee makes this same argument, arguing that Defendants breached the
fiduciary duties that Delaware law imposed on them as officers and directors “by failing to
take required actions to implement appropriate internal controls and failing to respond to
red flags relating to fraudulent schemes.” Appellant’s Br. 4.
This type of claim based on Defendants’ alleged failure to oversee or monitor
corporate operations is known by Delaware courts as a “Caremark claim.” See In re Caremark
1 Unless otherwise noted, in quoting caselaw this Order omits all alterations, citations, footnotes, and
internal quotation marks.
2Aegean’s claims are governed by the Business Corporations Act of the Republic of the Marshall Islands,
which, like the parties, we treat as identical to the laws of Delaware for the purposes of this litigation. See
52 Marsh. Is. Rev. Code Part I (Business Corporations Act), §§ 13, 61; see also F5 Cap. v. Pappas, 856 F.3d 61,
71 n.8 (2d Cir. 2017).
3 On appeal, the Trustee argues that the District Court incorrectly applied a heightened pleading standard to
the complaint. In reviewing the District Court’s decision, we find no such error. The District Court was clear
that it reviewed the Trustee’s complaint under the ordinary plausibility standard set forth by Ashcroft v. Iqbal,
556 U.S. 662 (2009), and Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007). See Kravitz v. Tavlarios, et al., No. 19
CIV. 8438 (NRB), 2020 WL 3871340, at *5 (S.D.N.Y. July 8, 2020). Regardless, on de novo review, applying
the plausibility standard governing Federal Rule 8, and for the reasons discussed herein, we conclude that the
District Court did not err in dismissing the Trustee’s complaint.
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Int’l Inc. Deriv. Litig., 698 A.2d 959 (Del. Ch. 1996). As the Delaware Supreme Court has
explained, to survive Defendants’ motion to dismiss a Caremark claim, the Trustee must
plausibly plead that either “(a) [Defendants] utterly failed to implement any reporting or
information system or controls; or (b) having implemented such a system or controls,
[Defendants] consciously failed to monitor or oversee its operations thus disabling
themselves from being informed of risks or problems requiring their attention.” Stone ex rel.
AmSouth Bancorporation v. Ritter, 911 A.2d 362, 370 (Del. 2006) (emphasis in original).
To satisfy either of these two conditions, a complaint must also plausibly allege that a
defendant “had actual or constructive knowledge that [his or her] conduct was legally
improper.” City of Birmingham Ret. & Relief Sys. v. Good, 177 A.3d 47, 55 (Del. 2017). In light
of these stringent requirements, “a Caremark claim is possibly the most difficult theory in
corporation law upon which a plaintiff might hope to win a judgment.” Id. See also Marchand
v. Barnhill, 212 A.3d 805, 821 (Del. 2019) (“[O]ur case law gives deference to boards and has
dismissed Caremark cases even when illegal or harmful company activities escaped detection,
when the plaintiffs have been unable to plead that the board failed to make the required
good faith effort to put a reasonable compliance and reporting system in place.”).
As did the District Court, we conclude that the Trustee failed to plead a Caremark
claim for liability. As mentioned above, to state such a claim under the first Caremark
condition, the complaint would have had to allege that Aegean “utterly failed to implement
any reporting or information system or controls,” Stone, 911 A.2d at 370 (emphasis added), or
that Defendants “made no effort to put in place a board-level compliance system,” Marchand,
212 A.3d at 821 (emphasis added). While the complaint contained factual allegations as to
cost-overruns on various projects, it alleged conclusorily that Defendants had “utterly
disregard[ed] their fiduciary duties” and had exhibited bad faith through a “conscious failure
to attempt to assure a reasonable information and reporting system” (Compl. ¶ 29). In
contrast to such conclusory evaluations of Defendants’ management, the complaint alleged
that Melisanidis, who headed corporate development for Aegean, was required to report to
Aegean’s president and board of directors (see Compl. ¶ 25); that the board had in place an
“Audit Committee from November 2008 through June 4, 2018,” and for that entire period
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board director defendant George Konomos was its chairman (Compl. ¶ 16); that the board
engaged the independent auditing firm PricewaterhouseCoopers to examine Aegean’s
operations and report to the board (see, e.g., Compl. ¶ 53); and that after being alerted by the
auditors, the board engaged outside counsel to investigate (see id.).
The complaint’s assertion that the system put in place by Defendants was not
“reasonable” (Compl. ¶ 29) did not meet the above standard stated in the Delaware cases.
The complaint’s acknowledgment that Aegean’s board in fact had an in-place audit
committee at the relevant times, that throughout that period the committee was chaired by a
member of the board, that the board required reporting by Melisanidis, and that the board
engaged independent auditors and counsel to examine and report on Aegean’s operations
meant that to the extent that the complaint asserted that the Defendants did “nothing” and
that there was an “utter[]” failure to implement “any” information or reporting system
(Compl. ¶¶ 6, 43), those assertions were simply not plausible.
The District Court also correctly found that the Trustee’s complaint failed to satisfy
the second, alternative condition for a Caremark claim, under which a defendant may be
subject to oversight liability if he or she “consciously failed to monitor or oversee [the]
operations” related to an established system of controls. Stone, 911 A.2d at 370. The
Trustee’s allegations come closer to successfully pleading this condition. The complaint
alleged that Melisanidis, who was allegedly forced to resign from the board of the Company
because of his “checkered background” (Compl. ¶ 28), improperly played an influential role
in Defendants’ appointment to leadership positions at Aegean. It also alleged that
Defendants’ pre-existing business relationships with Melisanidis resulted in lax oversight of
his continued activities within the Company. And the complaint alleged that Defendants
should have been aware of “numerous . . . red flags” that should have alerted them to
Melisanidis’s efforts to “denude the Company of value.” (Compl. ¶ 6.)
Under Delaware law, however, “red flags are only useful when they are either waved
in one’s face or displayed so that they are visible to the careful observer.” Wood v. Baum, 953
A.2d 136, 143 (Del. 2008); see, e.g., Oklahoma Firefighters Pension & Ret. Sys. v. Corbat, No. CV
12151-VCG, 2017 WL 6452240, at *16 (Del. Ch. Dec. 18, 2017) (rejecting Caremark claim
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because there was no allegation that the board “consciously did nothing in response to the
red flags”). In the present case, the complaint alleged that Melisanidis, in order “to mask”
and “provide cover for his illicit activity,” and to “further conceal his pillaging of the
Company” (Compl. ¶ 5), “engineered a massive accounting fraud” (id.) using, inter alia, “shell
entities,” (id. ¶¶ 47, 49) “sham entities,” (id. ¶ 5) “fake invoices,” (id. ¶ 38) and “Fake Trade
Receivables” that were made to “appear legitimate” (id. ¶¶ 56, 66). In light of the complaint’s
recognition that Melisanidis worked effectively to conceal his schemes to defraud the
Company and that the Company (under Defendants’ leadership) took affirmative steps to
address operational issues when they were identified, we conclude that the Trustee’s
allegations fall short of supporting a plausible inference that Defendants consciously
disregarded their fiduciary duties in a manner subjecting them to potential liability under the
second condition for a Caremark claim.
Accordingly, because the Trustee’s allegations did not show that the Defendants
were “informed of potential unlawful acts in a way that puts them on notice of systematic
wrongdoing,” Corbat, 2017 WL 6452240, at *1, we agree with the District Court that the
Trustee’s claim that Defendants breached the duty of care must be dismissed.
2. In addition to challenging the District Court’s legal conclusions, the Trustee also
argues that the District Court committed reversible error when it took judicial notice of
publicly available filings made with the U.S. Securities and Exchange Commission that were
cited by Defendants in their motion to dismiss but were not attached to the Trustee’s
complaint. We disagree. District Courts may take judicial notice of facts “not subject to
reasonable dispute” when they “can be accurately and readily determined from sources
whose accuracy cannot reasonably be questioned.” Fed. R. Evid. 201(b)(2). These sources
include SEC filings. Kleinman v. Elan Corp., plc, 706 F.3d 145, 152 (2d Cir. 2013).
Consequently, we identify no abuse of discretion in the District Court’s reliance on SEC
filings cited by Defendants in their motion to dismiss.
3. We also discern no abuse of discretion in the District Court’s denial of the
Trustee’s request for leave to amend his complaint. Although the Federal Rules of Civil
Procedure provide that leave to amend “should be freely given when justice so requires,”
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Fed. R. Civ. P. 15(a)(2), district courts operate well within their discretion when they deny
motions for leave to amend a complaint that lack an explanation as to how the movant
intends to cure defects found in the original complaint. See, e.g., Porat v. Lincoln Towers Cmty.
Ass’n, 464 F.3d 274, 275-76 (2d Cir. 2006). Under this standard and in light of the Trustee’s
rejection of an invitation by the District Court to file an amended complaint in response to
Defendants’ pre-motion letter, we see no injustice in the District Court’s denial of the
Trustee’s request for leave to amend his complaint.
* * *
We have considered all of the arguments raised by the Trustee on appeal and find in
them no basis for reversal. For the reasons stated above, the District Court’s order and
judgment of dismissal are AFFIRMED.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk of Court
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