Case 1:20-cv-04394-JPC-RWL Document 397 Filed 09/01/21 Page 1 of 40
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`VEROBLUE FARMS USA INC.,
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`Plaintiff,
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`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
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`X
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`On October 9, 2020, Plaintiff VeroBlue Farms USA, Inc. (“VBF”) filed a Fourth Amended
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`20 Civ. 4394 (JPC)
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`OPINION AND ORDER
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`CANACCORD GENUITY LLC,
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`Defendant.
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`Complaint spanning 221 pages and 97 exhibits, alleging that Defendant Canaccord Genuity LLC
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`assisted VBF’s own founders’ fraudulent acts and fiduciary breaches. Now before the Court are
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`Canaccord’s motions to dismiss the Third and Fourth Amended Complaints under Rule 12(b)(6)
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`of the Federal Rules of Civil Procedure, as well as Canaccord’s motions for sanctions in connection
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`with both the Third and Fourth Amended Complaints. For the reasons that follow, the Court denies
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`Canaccord’s motion to dismiss the Third Amended Complaint as moot, grants Canaccord’s motion
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`to dismiss the Fourth Amended Complaint with prejudice, and denies Canaccord’s motions for
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`sanctions.
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`A. Factual Allegations
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`I. Background
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`Except as otherwise noted, the following facts are taken from the Fourth Amended
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`Complaint and from the documents attached thereto. Dkt. 335 (“FAC”); see Chambers v. Time
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`Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002) (noting that at the motion to dismiss stage, a court
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`may consider “any written instrument attached to [the complaint] as an exhibit or any statements or
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`Case 1:20-cv-04394-JPC-RWL Document 397 Filed 09/01/21 Page 2 of 40
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`documents incorporated in it by reference” as well as any documents “integral” to the complaint,
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`i.e., “where the complaint ‘relies heavily upon [the document’s] terms and effect’” (quoting Int’l
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`Audiotext Network, Inc. v. Am. Tel. & Tel. Co., 62 F.3d 69, 72 (2d Cir. 1995))).
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`VBF is an aquaculture, i.e., fish farming, business, that was founded in 2014 by Leslie A.
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`Wulf, Bruce A. Hall, James Rea, John E. “Ted” Rea, and Keith Driver (the “Founders”). FAC ¶ 1.
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`According to the Fourth Amended Complaint, the Founders were in complete control of VBF from
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`2014 to 2018. See id. ¶ 21. From May 1, 2014 until December 14, 2015, Wulf, Hall, James Rea,
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`and Ted Rea were the sole members of the VBF Board of Directors. Id. ¶ 22. After that point
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`several “Independent Board Members” joined VBF’s Board, see id. ¶¶ 24-32, but “the Founders
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`still controlled VBF,” id. ¶ 33. The Founders abused this control to (1) misappropriate “VBF cash
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`and other assets” and (2) make “fraudulent misrepresentations and conceal[] . . . material facts”
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`regarding the company’s technology and profitability. Id. ¶ 62. Specifically, the Founders
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`represented that VBF’s “Opposing Flows Technology” (“OFT”) provided a superior water
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`filtration and oxygenation water system for VBF’s fish tanks, when in fact it did not actually work.
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`Id. ¶ 2. In addition, the Founders lied about their production and profitability numbers to give the
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`false impression the business was high performing, when in fact the “application of the OFT was
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`fatally flawed.” Id. ¶¶ 2, 121.
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`Canaccord, an investment banking company, allegedly assisted the Founders in making
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`these fraudulent misrepresentations.1 In February 2015, VBF hired Canaccord to raise debt for
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`VBF’s parent company, VBF Canada. Id. ¶¶ 3, 47-48; id., Exh. 95 (“Engagement Agreement”).2
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`1 VBF does not allege that Canaccord was involved in the Founders’ misappropriations.
`See FAC ¶ 63.
`2 Although VBF attached the Engagement Agreement and Mutual Release, detailed below,
`to the Fourth Amended Complaint, VBF appears to suggest that the Court cannot consider them
`with respect to certain claims. See FAC ¶ 739 (“Neither the Engagement Letter nor the Release
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`Case 1:20-cv-04394-JPC-RWL Document 397 Filed 09/01/21 Page 3 of 40
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`Pursuant to the Engagement Agreement, Canaccord was authorized to distribute marketing
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`materials to prospective investors, but VBF was “solely responsible for the accuracy and
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`completeness” of those materials. Engagement Agreement at 2. Canaccord had “no obligation to
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`verify[] the accuracy or completeness of” information prepared or supplied by VBF and was
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`“under no circumstances” to “be liable to [VBF] for any damage arising out of the inaccuracy or
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`incompleteness of any such information.” Id. at 4. In the fall of 2015, the parties orally agreed to
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`expand the Engagement Agreement; when the National Bank of Canada, which VBF had hired to
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`raise equity, discontinued its efforts, Canaccord agreed to raise equity for VBF in addition to debt.
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`FAC ¶¶ 53, 762.
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`In accordance with the Engagement Agreement, Canaccord drafted marketing decks,
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`which were disseminated to “those who became VBF shareholders, Independent Board Members,
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`Independent Officers, and possibly then-current VBF shareholders not affiliated with the
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`Founders.” Id. ¶¶ 59-60. These decks incorporated the Founders’ lies about the company’s
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`technology and profitability. The Fourth Amended Complaint alleges that Canaccord knew or
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`should have known that these representations were false. See, e.g., id. ¶¶ 80, 87, 118-121. In
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`support, the Fourth Amended Complaint leans heavily on a June 15, 2015 email from Dr. Anthony
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`Michaels, an aquaculture expert that Canaccord had contacted to investigate VBF. See id. ¶ 4. In
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`were referenced in the previous counts. They also are not central to VBF’s claims against
`Canaccord for aiding and abetting, knowing participation in the tort of another, conspiracy,
`negligent misrepresentation, fraudulent concealment, or unjust enrichment. This is not a suit for
`breach of either agreement, and VBF can prove Counts I through VIII without reference to, and
`without reliance on, either document. Therefore, VBF pleads Count IX in the alternative.”). To the
`extent VBF makes such an argument, it is incorrect. VBF attached both documents to the Fourth
`Amended Complaint, see FAC Exhs. 95, 96, and VBF references both documents throughout the
`Fourth Amended Complaint, see FAC ¶¶ 11, 700c, 710c, 737, 739, 740, 742, 743, 749-54, 756-63,
`766, 767, 771-72. Indeed, VBF bases its recission claim on the Mutual Release. See id. ¶¶ 735-68.
`Accordingly, the Court considers both documents in deciding Canaccord’s motion to dismiss.
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`Case 1:20-cv-04394-JPC-RWL Document 397 Filed 09/01/21 Page 4 of 40
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`that email, Dr. Michaels alerted Canaccord that, among other things, VBF’s “energy and mass flux
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`calculations [were] almost at the theoretical limits,” that the fish that VBF farmed actually sell at
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`half of the modeled price, and that the technology “is not new as claimed and multiple companies
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`have gone bankrupt on similar systems.” FAC, Exh. 20A. Canaccord immediately forwarded that
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`email to Wulf, who forwarded it to Hall, Driver, Ted Rea, and James Rea—the remainder of the
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`VBF Board. Id.; FAC ¶ 200.
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`The Fourth Amended Complaint contends that this was a “fork in the road” in that
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`“Canaccord could have taken the right path, . . ceased its collaboration with the Founders[,] . . .
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`and advised those other than the Founders who could have acted for VBF that a well-respected
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`aquaculture expert had just thrown cold water on VBF.” FAC ¶ 5. Instead, Canaccord, motivated
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`by its desire to earn a commission, id. ¶ 11, “took the wrong path,” id. ¶ 5, and “join[ed] the
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`Founders in concealing VBF’s fatal flaws and making misrepresentations regarding VBF’s OFT,
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`Metrics, and performance, instead of disclosing such critical facts to individuals who were then,
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`or who later became, VBF shareholders, VBF non-Founder management, VBF directors who were
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`independent of the Founders, and others who could act for VBF (besides the Founders,
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`Canaccord’s co-conspirators),” id. ¶ 6.
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`VBF contends that it suffered $80 million in damages as a result of this misconduct. Id.
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`¶ 12. However, VBF does not allege that Canaccord actually secured any funding during the
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`parties’ engagement. See id. ¶¶ 26-29 (describing the investments VBF secured but not alleging
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`that Canaccord secured any); Dkt. 372, Exh. A (“Demand Letter”) at 7-9;3 see also Dkt. 246, Exh.
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`3 Canaccord argues that the Court can consider the Demand Letter at this stage because the
`Fourth Amended Complaint extensively quotes from it and relies upon it, thereby rendering it
`integral to the Fourth Amended Complaint. See Motion to Dismiss at 5 n.3; FAC ¶ 53. VBF does
`not dispute the accuracy or authenticity of the Demand Letter. Accordingly, the Court agrees with
`Canaccord that it is appropriate to consider the Demand Letter at this stage.
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`Case 1:20-cv-04394-JPC-RWL Document 397 Filed 09/01/21 Page 5 of 40
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`1 at 108-09.4 In fact, Canaccord threatened to sue VBF in August 2016 for obtaining financing on
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`its own and refusing to pay Canaccord fees it alleged it was due under the Engagement Agreement.
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`FAC ¶¶ 53, 738; Demand Letter; FAC, Exh. 96 (“Mutual Release”) at 1.
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`To settle this dispute, on September 26, 2016, VBF and Canaccord entered into a Mutual
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`Release. VBF agreed to pay Canaccord $475,000, and VBF and Canaccord agreed to release each
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`other from “any and all claims . . . known or unknown . . . based upon, relating to or arising out of
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`the Engagement Agreement, the Dispute (including any efforts to resolve the Dispute), the
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`Transaction, the engagement of Canaccord to provide services to [VBF] and its subsidiaries, and/or
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`the services that Canaccord provided to [VBF] and its subsidiaries.” Mutual Release at 1-2; see
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`FAC ¶¶ 11, 700c, 710c, 734, 738. The Fourth Amended Complaint does not allege any dealings
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`between the parties after this point.
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`B. Procedural History
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`This is one of three actions VBF filed against Canaccord within the span of six months.
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`See Veroblue Farms USA, Inc. v. Wulf, No. 19 Misc. 375 (AJN) (S.D.N.Y.) (the “Subpoena
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`Action”); Veroblue Farms USA, Inc. v. Wulf, No. 3:19 Civ. 764-X (N.D. Tex.) (the “Texas
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`4 In moving to dismiss, Canaccord asserts that it did not raise any funding for VBF. Dkt.
`356 (“Motion to Dismiss”) at 11 & n.8. In support, it cites a settlement letter that VBF’s attorney
`filed on the docket, in which VBF stated that Canaccord raised “$0” from investors. Id.; Dkt. 246,
`Exh. 1 at 108-09. “While consideration on a motion to dismiss is typically limited to the four
`corners of an amended complaint, a court is not required to ‘turn a blind eye to [a plaintiff’s]
`previous filings.’” Kupferstein v. TJX Cos., No. 15 Civ. 5881 (NG), 2017 WL 590324, at *2
`(E.D.N.Y. Feb. 14, 2017) (quoting Kupferstein v. Wakefern Food Corp., No. 15 Civ. 5828 (AMD),
`Dkt. 25 at 4 (E.D.N.Y. May 13, 2016)). Although VBF does not contest this, the Court concludes
`that it need not consider this letter at this stage, as the Fourth Amended Complaint, on its face,
`does not allege that Canaccord raised any money from investors. This omission is telling.
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`Action”); Veroblue Farms USA, Inc. v. Canaccord Genuity LLC, Adv. No. 20-09002 (Bankr. N.D.
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`Iowa) (the “Iowa Action”).5
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`As detailed below, the claims before this Court were severed from the Texas Action; the
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`remainder of that action, which includes VBF’s claims against the Founders, remains pending in
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`the Northern District of Texas. But the Texas Action did not, in fact, begin in Texas. It began
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`when VBF filed suit against the Founders in the Northern District of Iowa on July 31, 2018. Dkt. 1.
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`In its initial Complaint, VBF alleged that the Founders committed fraud and made material
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`misstatements via a number of discrete “schemes.” Id. VBF did not name Canaccord as a
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`defendant or otherwise mention Canaccord. On August 15, 2018, VBF filed its First Amended
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`Complaint. Dkt. 9. VBF again did not name Canaccord as a defendant. The Iowa court then
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`transferred the action to the Northern District of Texas pursuant to 28 U.S.C. § 1404(a). Dkt. 50.
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`After the case was transferred to Texas, on September 23, 2019, VBF filed its Second
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`Amended Complaint (the “SAC”), adding Canaccord as a defendant for the first time. Dkt. 159.
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`Canaccord and several other Defendants moved to dismiss. The Texas court then transferred the
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`claims against Canaccord to this District based on the forum selection clause in the Engagement
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`Agreement. Dkt. 291 (“Texas Opinion”) at 35-37. In doing so, the Texas court concluded that the
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`public interest favored transfer because the Engagement Agreement had a New York choice-of-
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`law provision and that New York has a “stronger interest than Texas in resolving this dispute.” Id
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`at 35-36. In the same opinion, the Texas court resolved several motions to dismiss filed by the
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`Founders. In doing so, the Texas court noted that VBF “can only sue for the fraud the defendants
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`5 VBF filed the Subpoena Action to compel Canaccord respond to a non-party subpoena
`seeking certain discovery. Subpoena Action, Dkt. 4. The court dismissed the case on the basis
`that VBF could not proceed via a subpoena and was required to pursue the normal discovery
`process in this action. See id. Dkts. 27, 35. The Iowa Action is stayed pending resolution of this
`action. Iowa Action, Dkts. 33, 34.
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`perpetrated on it,” and because “the disinterested directors control [VBF], [VBF] should be able
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`to know what statements were false or what material omissions were made.” Id. at 28.
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`Accordingly, the Texas court “direct[ed] [VBF] to remove from its new pleading allegations of
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`fraud where [VBF] was not the recipient of the fraudulent statement.” Id. at 20.
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`After it was transferred, this case was assigned to the Honorable Paul G. Gardephe. The
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`parties stipulated to allowing VBF until August 3, 2020 to file another amended complaint and
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`Canaccord until September 14, 2020 to file a motion to dismiss. Dkt. 304. VBF filed a document
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`entitled “First Amended Complaint” on August 3, 2020, but it was rejected by the Clerk’s Office
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`because it was not in fact the first amended complaint filed in this action. On August 6, 2020, after
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`the August 3 deadline to file had passed, VBF moved for leave to re-file the amended complaint
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`or for it to be considered properly titled. Dkt. 307. Canaccord opposed this request on the basis
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`that the proposed complaint “suffer[ed] from a number of glaring defects and violate[d] the most
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`basic pleading requirements.” Dkt. 308 at 1. Canaccord “provide[d] notice under Federal Rule of
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`Civil Procedure 11(c) of VBF’s counsel’s failure to abide by their obligations to ensure that their
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`pleadings are not ‘presented for any improper purpose, such as to harass, cause unnecessary delay,
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`or needlessly increase the cost of litigation.’” Id. at 4. The Court granted VBF leave to file the
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`Third Amended Complaint and stated that Canaccord could raise any objections in its motion to
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`dismiss. Dkt. 310.
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`On August 10, 2020, VBF filed the Third Amended Complaint. Dkt. 311 (“TAC”). The
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`Third Amended Complaint was 183 pages long and attached hundreds of pages of exhibits. The
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`Third Amended Complaint incorporated the most recent amended complaint in the Texas Action,
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`id. ¶ 13, Exh. 1 (the “Texas Complaint”), which itself was 283 pages long, exclusive of exhibits,
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`and contained over 1,000 numbered paragraphs.
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`Canaccord served a sanctions motion on VBF on August 21, 2020, raising issues with
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`VBF’s Third Amended Complaint. Dkt. 354 (“First Sanctions Motion”); see Dkt. 374 (“Second
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`Sanctions Motion”) at 2. On September 3, 2021, VBF notified Canaccord that it intended to amend
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`the Third Amended Complaint. See Dkt. 375 (“Opp’n to Second Sanctions Motion”) at 2. The
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`parties filed a proposed stipulation extending Canaccord’s September 14, 2020 deadline to respond
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`to the Third Amended Complaint until September 28, 2021. Dkt. 314 at 3. Judge Gardephe did
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`not endorse the stipulation.
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`Then, at 5:39 p.m. on September 10, 2020, VBF informed Canaccord that it intended to
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`file a pre-motion letter seeking leave to amend the Third Amended Complaint the following day,
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`and asked Canaccord to state whether it consented to allowing it leave to amend. See Second
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`Sanctions Motion at 2. Canaccord responded that it would not be able to read the extremely
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`lengthy proposed complaint and assess whether it consented under that time frame, and VBF filed
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`the pre-motion letter the following day. Id. at 2-3; Dkt. 315.
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`On September 14, 2021, pursuant to the agreed-upon briefing schedule endorsed by the
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`Court, Canaccord filed a motion to dismiss the Third Amended Complaint. See Dkt. 316 at 1 n.1.
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`In accordance with Judge Gardephe’s individual rules, Canaccord served this but did not file it on
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`the docket. That same day, Canaccord filed a letter motion for a conference regarding sanctions.
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`See id. Judge Gardephe referred this case to the Honorable Robert W. Lehrburger for general
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`pretrial supervision. Dkt. 318.
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`This case was then reassigned to the undersigned. Dkt. 324. Upon reassignment, the Court
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`instructed the parties to file any motion papers that had been served but not docketed. Id.
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`Accordingly, Canaccord filed its motion to dismiss the Third Amended Complaint on October 2,
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`2021. Dkt. 326. Judge Lehrburger held a conference on October 7, 2021, and permitted VBF to
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`file its Fourth Amended Complaint. See Dkt. 334. Judge Lehrburger, however, cautioned VBF
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`that “it’s conceivable that at some point in the future, it may be appropriate for consideration of
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`whether the costs associated with the revised briefing might be divided in some way.” Dkt. 348
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`(“Tr.”) at 16.
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`VBF filed the Fourth Amended Complaint on October 9, 2020. See Dkt. 335. The Fourth
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`Amended Complaint does not incorporate the Texas Complaint, but adds 38 pages of allegations
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`from that complaint. In total, the Fourth Amended Complaint brings nine counts against
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`Canaccord: (1) aiding and abetting and knowing participation in the Founders’ breaches of
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`fiduciary duties, (2) aiding and abetting the Founders’ fraudulent concealment, (3) aiding and
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`abetting the Founders’ fraudulent misrepresentations, (4) conspiracy to breach the Founders’
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`fiduciary duties to VBF, (5) conspiracy to defraud VBF, (6) negligent misrepresentation,
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`(7) fraudulent concealment, (8) alternative claim for unjust enrichment, and (9) alternative claim
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`for recission and/or declaratory judgment, as related to the Engagement Agreement and Mutual
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`Release. FAC ¶¶ 661-739.
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`Canaccord moved to dismiss the Fourth Amended Complaint on October 30, 2020. That
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`motion was fully submitted on December 18, 2020. Motion to Dismiss; Dkts. 364 (“Opp’n to
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`Motion to Dismiss”), 371. Canaccord’s first motion for sanctions was also fully submitted on
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`December 18, 2020. First Sanctions Motion; Dkts. 367 (“Opp’n to First Sanctions Motion”), 371.
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`VBF filed a second motion for sanctions based on the Fourth Amended Complaint on October 30,
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`2020. That motion was fully submitted on January 15, 2021. Second Sanctions Motion; Opp’n to
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`Second Sanctions Motion; Dkt. 378. The Court held oral argument on August 30, 2021.
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`II. Defendant’s Motions to Dismiss
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`For a complaint to survive a Rule 12(b)(6) motion to dismiss, it “must contain sufficient
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`factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Ashcroft
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`v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
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`In deciding the motion to dismiss, the Court “accept[s] all allegations in the complaint as true and
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`draw[s] all inferences in the non-moving parties favor.” LaFaro v. N.Y. Cardiothoracic Grp., 570
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`F.3d 471, 475 (2d Cir. 2009) (citation and internal quotation marks omitted). Although the Court
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`must “accept[] as true the factual allegations in the complaint and draw[] all inferences in the
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`plaintiff’s favor,” Biro v. Conde Nast, 807 F.3d 541, 544 (2d Cir. 2015), that tenet “‘is inapplicable
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`to legal conclusions,’ and ‘[t]hreadbare recitals of the elements of a cause of action, supported by
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`mere conclusory statements, do not suffice,’” Harris v. Mills, 572 F.3d 66, 72 (2d Cir. 2009)
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`(alteration in original) (quoting Iqbal, 556 U.S. 687).6
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`Both Canaccord’s motion to dismiss the Third Amended Complaint and its motion to
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`dismiss the Fourth Amended Complaint are pending before the Court. When faced with a motion
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`to dismiss a complaint that has since been amended, a district court “has the option of either denying
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`the pending motion as moot or evaluating the motion in light of the facts alleged in the amended
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`complaint.” Pettaway v. Nat’l Recovery Sols., LLC, 955 F.3d 299, 303-04 (2d Cir. 2020). In light
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`6 Canaccord contends that VBF’s claims must meet the heightened pleading requirements
`of Federal Rule of Civil Procedure 9(b), Motion to Dismiss at 23-24, whereas VBF maintains that
`the more lenient standard of Rule 8(a) applies to certain elements of its claims, Opp’n to Motion
`to Dismiss at 12. Because for reasons that follow the Court concludes that the Fourth Amended
`Complaint must be dismissed under either standard, it is not necessary to resolve whether certain,
`or all, of VBF’s claims must satisfy Rule 9(b)’s more stringent standard.
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`of the second motion to dismiss, the Court elects the former, and denies the motion to dismiss the
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`Third Amended Complaint as moot.
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`The Court therefore addresses only the motion to dismiss the Fourth Amended Complaint.
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`Canaccord moves to dismiss the Fourth Amended Complaint on the basis that (1) the Mutual
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`Release and the Engagement Agreement bar VBF’s Claims, (2) New York’s in pari delicto doctrine
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`bars VBF’s claims, (3) the Fourth Amended Complaint fails to state a claim upon which relief can
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`be granted, and (4) the Fourth Amended Complaint fails to meet the basic pleading requirements
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`of Rule 8 of the Federal Rules of Civil Procedure. Because the Court concludes that the Mutual
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`Release, the Engagement Agreement, and the in pari delicto doctrine all bar VBF’s claims, the
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`Court does not address Canaccord’s other arguments for dismissal.
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`A. The Mutual Release
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`The parties agree that New York law governs the scope of the Mutual Release. See Motion
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`to Dismiss at 12 & n.9; Opp’n to Motion to Dismiss at 14. Under New York law, “a valid release
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`constitutes a complete bar to an action on a claim which is the subject of the release.” Centro
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`Empresarial Cempresa S.A. v. Am. Movil, S.A.B. de C.V., 17 N.Y.3d 269, 276 (2011) (internal
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`quotation marks and citation omitted). A release may cover unknown claims, including unknown
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`fraud claims, “if the parties so intend and the agreement is ‘fairly and knowingly made.’” Id.
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`(quoting Mangini v. McClurg, 24 N.Y.2d 556, 566-67 (1969)). Whether the parties intended to
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`release such claims “must be determined from the language in the” release. Gamble v. Tyson, No.
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`17 Civ. 6635 (LAK) (SN), 2019 WL 5722129, at *8 (S.D.N.Y. Jan. 4, 2019).
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`The defendant bears the initial burden of establishing that it has been released from certain
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`claims. Centro Empresarial Cempresa S.A., 17 N.Y.3d at 276. The burden then shifts to the
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`plaintiff to show a reason “sufficient to void the release,” such as duress, illegality, fraud, or mutual
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`mistake. Id. (internal quotation marks and citation omitted). If a plaintiff seeks to invalidate a
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`release based on fraudulent inducement, the plaintiff must identify “a separate fraud from the
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`subject of the release.” Id.
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`Canaccord and VBF entered into the Mutual Release in September 2017, after Canaccord
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`threatened to sue VBF for breaching the Engagement Agreement. FAC ¶¶ 53, 738; see Demand
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`Letter. The Mutual Release included the following language:
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`[VBF] . . . fully and forever . . . release[s] and discharge[s] Canaccord . . . from and
`against any and all claims, demands, damages, debts, disputes, liabilities, accounts,
`obligations, costs, expenses, actions and causes of action, of every nature, whether
`based upon tort, contract or any other theory of recovery, whether known or
`unknown, suspected or unsuspected, contingent or fixed, liquidated or unliquidated,
`which it or [VBF] ever had, now has, owns or holds, or at any time heretofore ever
`had, owned or held, or may at any time have, own or hold, against [Canaccord],
`based upon, relating to or arising out of the Engagement Agreement, the Dispute7
`(including any efforts to resolve the Dispute), the Transaction, the engagement of
`Canaccord to provide services to [VBF] and its subsidiaries, and/or the services that
`Canaccord provided to [VBF] and its subsidiaries . . . .
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`Mutual Release ¶ 3(b).8
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`Thus, under the plain terms of the Mutual Release, VBF released Canaccord from liability
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`for the claims it now brings. The Mutual Release broadly covers claims “known or unknown”
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`based on any “theory of recovery,” including claims “based upon tort.” Id. VBF’s claims sound in
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`tort. And the Mutual Release covers claims “based upon, relating to or arising out of,” among other
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`things, “the engagement of Canaccord to provide services to [VBF] and its subsidiaries, and/or the
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`services that Canaccord provided to [VBF] and its subsidiaries.” Id. VBF’s claims all arise out of
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`the services that Canaccord provided VBF.
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`7 The Mutual Release defined the “Dispute” as “whether VeroBlue owes any amount of
`money to Canaccord under the Engagement Agreement with the [sic] respect to the Transaction
`and, if so, the amount owed.” Id. at p. 1, Background C.
`8 VBF does not dispute that it is bound by the Mutual Release, which binds VeroBlue
`Farms Inc. and its “affiliates.” Mutual Release at 2; Motion to Dismiss at 13 n.10; FAC ¶ 46.
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`VBF’s arguments otherwise are unavailing. In the Fourth Amended Complaint, VBF
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`contends that the Mutual Release is voidable because Canaccord “concealed” from VBF its
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`participation in the Founders’ supposed misconduct. See FAC ¶ 749 (“Because the true facts of the
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`Founders’ breaches of fiduciary duty, fraud, and material misrepresentations, as assisted by
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`Canaccord, were concealed and never revealed to VBF through its Independent Board Members,
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`the . . . [Mutual] Release [is] voidable.”); see also id. ¶ 745. In opposing the motion to dismiss,
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`VBF expands upon this, arguing that it “did not knowingly release any claims as its fiduciaries, the
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`Founders and Canaccord, did not make proper disclosures to VBF of the facts of the misconduct
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`alleged in the FAC that occurred prior to the Release.” Opp’n to Motion to Dismiss at 33. VBF
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`contends that the Founders’ fraud “[a]t a minimum . . . raise a fact issue about the [Mutual] Release
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`that precludes dismissal.” Id. at 31.
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`This argument fails under well-established New York law. Put simply, a signatory need not
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`disclose all facts to make a release valid. See Consorcio Prodipe, S.A. de C.V. v. Vinci, S.A., 544
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`F. Supp. 2d 178, 190 (S.D.N.Y. 2008) (“[U]nder New York law, all the facts and circumstances of
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`the claims being released need not be disclosed in order for a release to be valid and enforceable.”
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`(citing Alleghany Corp. v. Kirby, 333 F.2d 327, 333 (2d Cir. 1964)); Alleghany Corp., 333 F.2d at
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`333 (“There is no prerequisite to the settlement of a fraud case that the defendant must come
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`forward and confess to all his wrongful acts in connection with the subject matter of the suit.”);
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`accord Centro Empresarial Cempresa S.A., 17 N.Y.3d at 276.
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`Indeed, “[a] ‘general release executed even without knowledge of a specific fraud
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`effectively bars a claim or defense based on that fraud.’” Consorcio Prodipe, S.A. de C.V., 544 F.
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`Supp. 2d at 191 (quoting Sotheby’s, Inc. v. Dumba, No. 90 Civ. 6458 (KMW), 1992 WL 27043, at
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`*7 (S.D.N.Y. Jan. 31, 1992)). This includes a release executed even before any “semblance of fraud
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`had come to light.” Id. at 190; see, e.g., IBM v. Simon, 376 F. Supp. 3d 292, 301 (S.D.N.Y. 2019)
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`(agreeing with the plaintiff’s argument that “in releasing all claims, ‘whether known or unknown,
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`. . . hidden or concealed’ that arise out of or relate to any ‘matters related to [their transaction]’
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`Defendants have released any claim that [the plaintiff] fraudulently induced the Settlement by
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`hiding the true value of its [s]ales [r]evenue” (citation omitted)). Instead, to void a release for fraud,
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`VBF must identify a “separate fraud” not covered by the release. VBF has failed to do so here.
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`Because “[t]he fraud described in the complaint . . . falls squarely within the scope of the
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`release, . . . that fraud cannot nullify the release.” Estate of Mautner v. Alvin H. Glick Irrevocable
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`Grantor Tr., No. 19 Civ. 2742 (NRB), 2019 WL 6311520, at *4 (S.D.N.Y. Nov. 25, 2019)
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`(alterations in original) (internal quotation marks omitted).
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`VBF’s suggestion in its opposition that Canaccord breached a fiduciary duty does not
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`change this calculus. As an initial mater, VBF has not alleged facts suggesting Canaccord actually
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`owed VBF a fiduciary duty. VBF’s Fourth Amended Complaint alleges that VBF aided and abetted
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`and conspired with the Founders to breach the Founders’ fiduciary duties. See, e.g., FAC ¶¶ 12,
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`13, 64, 66, 69, 403, 661-670, 694-705. Nowhere in the 221-page Fourth Amended Complaint does
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`VBF allege that Canaccord owed VBF a fiduciary duty. Instead, it alleges that, by the nature of its
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`role as VBF’s “alleged agent,” Canaccord had a “special relationship with VBF” that required it to
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`“impart correct information to VBF.” Id. ¶ 717. And the Engagement Agreement specifically
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`stated that it was not creating a fiduciary relationship. See Engagement Agreement at 6. Even
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`VBF’s opposition is tepid in this respect, asserting that “Wulf, and arguably Canaccord, had
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`affirmative duties of disclosure to VBF.” Opp’n to Motion to Dismiss at 33 (emphasis added).
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`Regardless, VBF’s argument still fails. The New York Court of Appeals made clear in
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`Centro that “[w]here a principal and fiduciary are sophisticated parties engaged in negotiations to
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`terminate their relationship . . . the principal cannot blindly trust the fiduciary’s assertions.” 17
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`N.Y.3d at 279. This is particularly true where “the fiduciary relationship is no longer one of
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`unquestioning trust.” Id. at 278. But even Centro “d[id] not go so far as to hold that a relationship
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`of unquestioning trust prevents a party from being able to release fraud claims.” Chadha v.
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`Wahedna, 146 N.Y.S.3d 466 (Sup. Ct. 2021) (emphasis added). “In fact, nothing in Centro (or its
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`progeny Pappas v. Tzolis, 20 N.Y.3d 228 (2012)) requires that the parties have prior business
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`disputes to be able to release fraud claims.” Id. Instead, “[t]he test . . . is whether, given the nature
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`of the parties’ relationship at the time of the release, the principal is aware of information about the
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`fiduciary that would make reliance on the fiduciary unreasonable.” Pappas, 20 N.Y.3d at 233.
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`Reliance on Canaccord in this instance would have been unreasonable. VBF and Canaccord
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`are sophisticated entities and were represented by counsel during the negotiation of the Mutual
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`Release. And by that point, the parties’ relationship had clearly deteriorated—Canaccord was
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`threatening to sue VBF for failing to pay it for its services. See, e.g., Pappas, 20 N.Y