## Facts

- A hedge fund was organized as a limited partnership, managed by its general partner controlled by John Whittier.
- The fund’s offering memorandum described an investment strategy emphasizing diversification and stated that an outside firm served as the fund’s auditor; fund counsel drafted the offering memorandum and updates.
- Multiple limited partners invested substantial sums in the fund over a period of years.
- The fund later concentrated heavily in a single public company’s stock, far exceeding the offering memorandum’s stated concentration limits, and the stock’s price dropped sharply.
- The fund became unable to meet investor redemption requests; fund counsel resigned.
- Regulators brought enforcement proceedings against Whittier and the fund entities; a receiver was appointed, and Whittier later pled guilty to securities fraud.
- Limited partners sued fund counsel alleging (i) affirmative misstatements in offering materials about the auditor and (ii) failure to disclose the concentrated position and other alleged improper fund activities despite knowledge of them.

## Issues

1. Whether the limited partners pleaded fraud against fund counsel with the specificity required by CPLR 3016(b), including particularized allegations of justifiable reliance and loss causation.
2. Whether outside counsel to a fund and its general partner owed a fiduciary duty to the fund’s limited partners permitting a direct breach-of-fiduciary-duty claim.
3. Whether fund counsel had an independent duty to disclose to limited partners the fund’s alleged misconduct or undisclosed investment concentration.

## Decision

- The Court of Appeals affirmed dismissal of the complaint against fund counsel.
- The fraud claims were dismissed for failure to plead the circumstances of the fraud in detail, including individualized reliance and causation.
- The fiduciary-duty claim was dismissed because counsel’s attorney-client relationship was with the fund and its general partner, not the limited partners.
- The court declined to impose a separate duty on counsel to disclose client misconduct or portfolio concentration to investors absent a recognized basis for such a duty.

## Legal Principles

- CPLR 3016(b) requires fraud to be pleaded with particularity; group pleading and generalized assertions of reliance are insufficient.
- A fraud claim must allege a concrete link between a specific misrepresentation (or actionable omission) and each plaintiff’s justifiable reliance and resulting loss.
- Attorneys generally owe duties to their clients, not to non-clients who may foreseeably read or rely on documents counsel prepared, absent privity or a relationship approaching privity.
- Outside counsel to an entity does not, without more, owe fiduciary obligations to the entity’s investors.
- Courts will not impose a broad, independent duty on counsel to disclose a client’s improper activities to investors where doing so would expand attorney obligations beyond established limits.

## Conclusion

The Court of Appeals held that limited partners could not proceed against fund counsel because the complaint did not plead fraud with the required specificity and because counsel owed no fiduciary or affirmative disclosure duty to the limited partners based solely on counsel’s role in preparing offering materials for the fund and its general partner.


Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 N.Y.3d 553 (N.Y. 2009)