MEMORANDUM DECISION and ORDER I. INTRODUCTION In 2014, three parties came together to form Acia, LLC (“Acia”). The first of these was defendant Karl Swan (“Swan”). This defendant is the director of defendant John Swan Ltd. (“JSL” or “the company”), a clothing corporation under the laws of the Republic of Ireland. The second party was defendant Graeme McDowell (“McDowell”). He is a professional golfer, most famous for winning the U.S. Open tournament in 2010. The third party was plaintiff Alpvex, Inc. (“Alpvex” or “plaintiff”). Plaintiff is a corporation under the laws of New Jersey that joined the Acia joint venture as an investor. Plaintiff’s role was to fund the distribution of the golfer’s licensed apparel in the United States. That investment never panned out as the parties hoped, and now they stand before this Court to determine who — if anyone — should be liable for its failure. As such, Alpvex initiated the suit, asserting nine claims: (1) common law fraud; (2) fraud in the inducement; (3) fraudulent conveyance; (4) conversion; (5) bad faith; (6) breach of fiduciary duty; (7) breach of contract; (8) unjust enrichment; and (9) civil conspiracy. Plaintiff relied for jurisdiction before this Court on 28 U.S.C. §1332, or diversity jurisdiction.1 Swan has asserted a cross-claim against Acia for breach of contract, account stated, and breach of operating agreement/indemnification. Although Acia has been removed from this case, those claims remain. McDowell has asserted a counterclaim against plaintiff for contribution and unjust enrichment. Plaintiff has moved for summary judgment under Federal Rule of Civil Procedure (“Rule”) 56 against only JSL and Swan, and only on its claims of fraud in the inducement and breach of fiduciary duty. Those same two defendants have also moved for summary judgment under Rule 56 on all claims.2 II. BACKGROUND A. BEFORE ACIA. In 1947, JSL was incorporated in the Republic of Ireland and began distributing clothing in that country under the brand name Kartel. Dkt. 100-12 (“Swan Dep.”) p. 6, 11.3 Initially, it distributed corporate clothing and casual apparel, but in 1996 it branched out to begin distributing golf apparel. Id. at 6. As part of its golf business, it negotiated a sponsorship agreement with the Irish professional golfer Padraig Harrington. Id. at 6-7. Through that contact, Swan received a call in 2010 from McDowell’s management seeking to purchase clothing for the golfer. Swan Dep. 7-8. In 2011, JSL turned that arrangement into a sponsorship agreement such that the company would market and sell the same clothes that it made especially for the golfer, in exchange for which the golfer would receive a royalty. Id. at 8, 12. The golfer thus began to wear and display attire made by the company and bearing the Kartel brand, called “G-Mac by Kartel” after the golfer’s nickname. Id. at 9. This brand launched in 2012. Id. at 13. In late 2011 or 2012, to help expand into the United States market, JSL incorporated Kartel, Inc., a wholly-owned subsidiary, in the United States. See Swan Dep. 11; Dkt. 101-3 (“Swan Dec.”), 4. The subsidiary built its parent’s enterprise by establishing brokers for customs, warehousing, distribution, and sales in this country. Id. 5. B. SEEKING INVESTMENTS. In 2013, a tight Irish economy, declining sales and long lead times in collecting money from customers all began to take their toll on Kartel, Inc. and JSL. Swan Dep. 26. Thus, in the hopes of growing the United States business, Swan began to look for investors. Id. at 24. During a golf outing in October of 2013, Alan Swan, that defendant’s father, met Brian McGovern, a director of Alpvex. Dkt. 100-3 (“McGovern Dec.”), 1; Dkt. 101-33 (“McGovern Dep.”), p. 15. The elder Swan was wearing a G-Mac by Kartel shirt. McGovern Dep. 16. McGovern was impressed by the shirt and the two began to discuss it and the clothing line. McGovern Dep. 16. In the course of the conversation, the elder Swan mentioned that he was in the United States looking for investors in the company, or else to start a new company to better market the apparel here. Id. McGovern volunteered to invest. See id. “[V]ery quickly” after McGovern met his father, defendant Swan sent him an investment proposal. Swan Dep. 30. Ultimately, the parties decided to form a new joint venture. Swan Dep. 17-18. This new entity would take over Kartel, Inc.’s business after a “brief overlap period.” Id. By January 15, 2014, the parties had prepared and revised a “non-binding term sheet” for the joint venture that would eventually become Acia. See generally Dkt. 101-5. On January 17, 2014, Swan asked McGovern to quickly draw the new entity down to help “accelerate deliveries and sales.” Dkt. 101-37, p. 4. McGovern responded that he understood “how funding fashion lines for seasons can be a hit to working capital….” Id. at 3. However, he also told this defendant that because “no legal entity yet exist[ed] for the [joint venture]“, a quick draw-down would not be possible, but instead Alpvex would provide a short-term loan to Kartel Ltd. in Ireland. Id. On January 24, 2014, plaintiff provided that loan in the amount of $150,000, but to Kartel, Inc. instead.4 Dkt. 101-36, pp. 1-2. On February 4, 2014, the parties filed a Certificate of Formation in Delaware creating Acia as a limited liability company. Dkt. 100-5, p. 7. Negotiations would continue, however, until March 31, 2014, when at last the three foundational parties — this defendant, Alpvex, and McDowell — finalized the operating agreement that created Acia. Id. at 2. Alpvex contributed $682,500 to Acia, in exchange for a 35 percent share in its profits going forward. Dkt. 100-5, p. 54. Though Swan testified at his deposition that he believed this capital contribution went into JSL’s bank account, contemporaneous bank statements show the money being instead deposited directly into a dedicated Acia bank account. Compare Swan Dep. 38 (this defendant testifying that to his recollection, the capital contribution deposit would have been transferred to JSL’s bank account), with Dkt. 100-9, p. 1 (showing wire transfer of $682,500 from plaintiff into Acia’s entity bank account on April 22, 2014). Swan and McDowell both contributed no money to the enterprise, but each received a profit share of 45 percent and 20 percent respectively. Dkt. 100-5, p. 54. The logic behind this was that the golfer would bring his name recognition, which merited his share of the profits. Swan Dep. 35. Similarly, the other defendant brought the value of the Kartel brand and the infrastructure to distribute it as his share of the investment. Id. Each member of the ACIA operating agreement was shielded from liability for any action that they undertook for the company in good faith that did not constitute “fraud, gross negligence, or reckless or intentional misconduct[.]” Dkt. 100-5, p. 22. Moreover, the operating agreement stated that “ no Member shall be entitled to the return of any part of its Capital Contribution” and that “no Member shall have any personal liability for the return of the Capital Contribution of any other Member[.]” Id. at 9. Included with the operating agreement was a proposed budget. Dkt. 100-5, p. 56. That budget contemplated that $75,000 in expenses would have accumulated in January of 2014. Id. Similarly, the budget reflects that Acia expected to incur further costs — but also profits — starting in April of 2014. Id. The same day that the operating agreement took effect, JSL, McDowell, and Acia entered into a supply agreement. Dkt. 101-6, p. 1. By the terms of that agreement, the company was to allow Acia to assume the same production methods that it employed itself. Id. at 4. In the event of a shortfall in product, Acia was to be allowed to purchase G-Mac by Kartel branded goods from the company at cost. Id. It is worth noting at this point that, from design to production to shipping, new lines of clothes take approximately six months to produce. Swan Dep. 12. Each new season of clothing demands this same six-month lead time. Id. New orders of clothes are manufactured, then invoiced, and finally, once the invoices are paid, shipped. Id. at 12-13. Thus, any clothing company expecting immediate profits upon formation would also need to expect a great deal of groundwork to be laid out well in advance. C. FALLOUT. Acia struggled financially not long after its birth. On December 22, 2014, Alpvex provided an additional $50,000 to keep the business going. Dkt. 100-6, p. 1. This contribution also proved insufficient, and on March 23, 2015, plaintiff provided another $50,000. Id. McDowell also invested $50,000 on each of these two dates to keep Acia afloat. Id. On November 8, 2016, plaintiff provided yet another $50,000 in the form of a short-term loan to Acia. McGovern Dec. 29. In late 2016, McGovern began to grow concerned as to where the money that Alpvex had been contributing to Acia was going. McGovern Dep. 25-26. Thus, on January 27, 2017, plaintiff’s attorney sent Swan a letter requesting that the latter furnish invoices for the expenses that the loan was used to pay. Dkt. 101-36, pp. 1-2. In particular, the letter expressed concern “that [the loaned] funds were used to satisfy outstanding liabilities of Kartel, Inc., [JSL], or [this defendant], individually, and not liabilities of Acia….” Id. Similarly, on February 28, 2017, plaintiff requested a further accounting of all invoices concerning Acia. Dkt. 101-10, p. 1. On April 3, 2017, defendant McLean, a JSL employee involved in finances and accounting, provided a list of invoices paid by Kartel, Inc. and the company during early 2014 that it argues were for Acia’s benefit. See generally Dkt. 101-9. The accounting began with the booth rental at the 2014 Professional Golfer’s Association Merchandise Show taking place on January 22-24, 2014, for which Kartel, Inc. received an invoice on August 2, 2013. Id. at 3. Kartel, Inc., being the operating wing of the company in the United States until Acia became operational, was the named customer in these invoices. See generally Swan Dep. 41-50. The remaining expenses all accumulated between January and April of 2014. Dkt. 101-9, pp. 4-28. The expenses included textile shipments, consultations, photo shoots, meals, travel, and other costs related to the production, importation, advertising, and storage of clothes. Id. at 3-28. Alpvex alleges that there was an additional invoice for Phoenix Software dated January of 2013 in the amount of $3,979.36. McGovern Dep. 65. However, McGovern admitted during his deposition that this invoice was not among the ones provided that totaled the $150,000 loan and agreed that the available bank statements do not reflect that total ever being paid. Id. Apparently unsatisfied with defendants’ response and the general condition of Acia, Alpvex initiated the present action on April 6, 2017. Dkt. 1. Plaintiff asserts nine claims under Delaware common law: (1) fraud; (2) fraud in the inducement; (3) fraudulent conveyance; (4) conversion; (5) bad faith; (6) breach of fiduciary duty; (7) breach of contract; (8) unjust enrichment; and (9) civil conspiracy. See generally id. Defendants Swan and JSL replied on June 28, 2017, and levied a cross-claim against Acia, then a co-defendant. Dkt. 8. On November 15, 2017, plaintiff submitted an amended complaint removing Acia as a defendant. Dkt. 32. On July 10, 2018, McDowell answered and lodged a counterclaim against Alpvex. Dkt. 53. On August 12, 2019, Alpvex moved for partial summary judgment on its claims of fraud in the inducement against Swan and JSL (“the Swan defendants”) and breach of fiduciary duty against the individual defendant. Dkt. 100. Those defendants responded with a motion for summary judgment against plaintiff on all claims. Dkt. 101. The motions having been fully briefed, this Court will consider them on the parties’ submissions without oral argument. III. DISCUSSION A. SUBJECT MATTER JURISDICTION. The Swan defendants first argue that this Court lacks subject matter jurisdiction over this claim because Acia is an indispensable party. Because it is a limited liability company and has the citizenship of each of its members for the purposes of determining diversity jurisdiction, claims against it would destroy the requisite diversity. 1. LEGAL STANDARD. Federal courts have jurisdiction under 28 U.S.C. §1332 over disputes between “citizens of a State and citizens or subjects of a foreign state.” 28 U.S.C. §1332(a)(2). Diversity jurisdiction is only proper “if diversity of citizenship among the parties is complete, i.e., only if there is no plaintiff and no defendant who are citizens of the same State.” OneWest Bank, N.A. v. Melina, 827 F.3d 214, 217-18 (2d Cir. 2016). By extension, “diversity jurisdiction cannot exist when aliens from the same state are on both sides of a case.” Bank of N.Y. v. Bank of Am., 861 F. Supp. 225, 228 (S.D.N.Y. 1994). A limited liability company takes the citizenship of each of its members. Bayerische Landesbank, N.Y. Branch v. Aladdin Capital Mgmt., 692 F.3d 42, 49 (2d Cir. 2012). Under Rule 12(b)(7), a court may dismiss a complaint for plaintiff’s failure to join a necessary party to the action under Rule 19. FED. R. CIV. P. 12(b)(7). However, “[b]efore dismissing a complaint under Rule 12(b)(7), a district court must determine whether the missing party” is truly necessary within the meaning of Rule 19. Johnson v. Smithsonian Inst., 189 F.3d 180, 188 (2d Cir. 1999) abrogated on other grounds by United States v. Kwai Fun Wong, 135 S. Ct. 1625, 1638 (2015). In answering that question, the first step in the requisite three-step test is whether a missing party is necessary. Viacom Int’l Inc. v. Kearney, 212 F.3d 721, 724 (2d Cir. 2000). If the party is truly necessary, the court must engage in the second step of determining whether joinder of the absent party is feasible. Id. at 725. Finally, if joinder is not feasible, the court must then conduct a Rule 19(b) analysis as to whether, in equity and good conscience, the action may proceed without the necessary party. Id. If the action may not proceed in good conscience, that party is indispensable to that claim and the claim must be dismissed. See id. The relevant factors for whether a party is indispensable are: (1) the extent a judgment rendered in the person’s absence might be prejudicial to the absent party or the parties already present; (2) the extent to which protective provisions in the judgment can lessen or avoid that prejudice; (3) whether a judgment rendered in the person’s absence will be adequate; and (4) whether the plaintiff will have an adequate remedy if the action is dismissed for nonjoinder. See FED. R. CIV. P. 19(b). 2. WHETHER ACIA IS A NECESSARY PARTY. In a derivative suit brought in a limited liability company’s name, that company is a necessary party under Rule 19. Atanasio v. O’Neill, 235 F. Supp. 3d 422, 425 (E.D.N.Y. 2017). Moreover, because a limited liability company “is a separate legal entity with rights and obligations distinct from those of its members; [a c]ourt cannot presume its interests are not also distinct from those of its members.” Bartfield v. Murphy, 578 F. Supp. 2d 638, 650 (S.D.N.Y. 2008). As such, entities are generally considered indispensable parties for derivative suits brought to protect their interests. See, e.g., Atanasio, 235 F. Supp. 3d at 425-26 (finding limited liability company necessary party to derivative suit and dismissing for lack of subject matter jurisdiction); Bartfield, 578 F. Supp. 2d at 650 (same); Weber v. King, 110 F. Supp. 2d 124, 127-29 (E.D.N.Y. 2000) (same). In deciding whether a suit is derivative under Delaware law,5 a court must “independently examine the nature of the wrong alleged and any potential relief to make its own determination of the suit’s classification.” Stone & Paper Invs., LLC v. Blanch, 2019 WL 2374005, at *3 (Del. Ch. May 31, 2019). That determination is “based upon the body of the complaint; plaintiff’s designation of the suit is not binding.” Id. (internal footnote and citations omitted). Ultimately, the inquiry turns on the question of whether the cause of action comes from a plaintiff’s own rights or the rights that they only have as a member of a discrete legal entity. See Citigroup Inc. v. AHW Inv. P’ship, 140 A.3d 1125, 1139 (Del. 2016). Alpvex argues that its claims are brought on its own and are not derivative of Acia’s rights and the duties defendants owe it. For plaintiff’s fraud in the inducement claim, this is true. Its argument is that it only joined the Acia venture because of defendants’ fraudulent conduct. Plaintiff’s right not to be defrauded is its own and does not come because of its relationship to Acia. See Citigroup, 140 A.3d at 1139-40. On the contrary, by definition Acia had not yet been formed. Thus, this claim is properly labeled as direct. Id. Moreover, because plaintiff’s fraud in the inducement claim concerns the conduct of the individual defendants, Acia is neither a necessary nor an indispensable party. See Viacom, 212 F.3d at 724-25. Similarly, Alpvex’s conspiracy claim is rooted largely in its fraud in the inducement claim, specifically alleging that defendants “acted and conspired jointly in a deliberate scheme to fraudulently induce [p]laintiff to invest” in Acia. Dkt. 32
119-20. This claim is therefore also direct, and Acia is not necessary. However, Alpvex’s remaining claims are all derivative in nature. According to the terms of the operating agreement, plaintiff’s capital contributions were Acia’s property, and it had no right to ever recover those capital contributions. Dkt. 100-5, p. 9. As a result, any claim relying on any defendant’s use of those funds once they passed into Acia’s hands is inherently derivative. First, Alpvex’s pure fraud claim relies entirely on defendants’ use of the capital contribution for purposes “unrelated to and not associated with” Acia’s operations and activities, and as such is a derivative claim. Dkt. 32
