Opinion
C.A. No. 5025-VCL.
Date Submitted: August 3, 2010.
Date Decided: September 23, 2010.
Norman M. Monhait, ROSENTHAL MONHAIT GODDESS, P.A., Wilmington, Delaware; Robert K. Wise, Thomas F. Lillard, Andrew Szygenda, LILLARD WISE SZYGENDA PLLC, Dallas, Texas; Attorneys for Plaintiffs John W. McReynolds, Ray C. Davis, and Kelcy Warren.
Brock E. Czeschin, Lisa M. Pietrzak, RICHARDS LAYTON FINGER, P.A., Wilmington, Delaware; Attorneys for Defendant Trilantic Capital Partners IV L.P. f/k/a Lehman Brothers Merchant Banking Partners IV L.P.
MEMORANDUM OPINION
The plaintiffs are sophisticated investors who in March 2007 became limited partners in an investment fund originally known as Lehman Brothers Merchant Banking Partners IV L.P. (the "Fund"). As its name suggests, the Fund was sponsored by Lehman Brothers Holdings, Inc. ("Lehman"). Lehman and its affiliates owned a majority of the Fund's general partner, acted as the Fund's investment advisor, and committed to provide up to $250 million in capital, making Lehman the Fund's largest investor. After Lehman declared bankruptcy in September 2008, the Fund's management team bought out Lehman with the help of a new sponsor, took over the Fund's general partner and investment advisor, and changed the Fund's name to Trilantic Capital Partners IV, L.P. Although each step in the process was accomplished in accordance with contractual provisions to which the plaintiffs agreed at the time of their investment, the plaintiffs now seek to revoke their subscription agreements and recover their capital contributions. The Fund has moved to dismiss the complaint. The motion is granted.
I. FACTUAL BACKGROUND
The facts at this stage of the proceeding derive from the well-pled allegations of the Amended and Supplemental Complaint (the "Complaint") and from documents it incorporates by reference, including (i) the Amended and Restated Limited Partnership Agreement for the Fund, dated as of March 8, 2007 (the "LP Agreement"), (ii) the Confidential Private Placement Memorandum for the Fund (the "PPM"), and (iii) a representative Subscription Agreement signed by one of the plaintiffs (the "Subscription Agreement" or "SA"). The non-movant plaintiffs receive the benefit of all reasonable inferences.
A. The Plaintiffs Invest In The Fund.
In 2007, plaintiffs John W. McReynolds, Kelcy Warren, and Ray C. Davis agreed to invest in the Fund. They executed Subscription Agreements committing to make capital contributions of ten, eight, and five million dollars, respectively. Each of the plaintiffs is a senior officer or director of a large publicly traded company.
By signing the Subscription Agreement, each plaintiff agreed that his subscription was "irrevocable." SA ¶ 1. Each represented that he carefully read the PPM and LP Agreement. Id. ¶ 2(a). Each "agree[d] to be bound by all the terms and provisions of the [LP Agreement]." Id. ¶ 1. Each confirmed that:
The Investor has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of an investment in the [Fund], is able to bear the risks of an investment in the [Fund] and understands the risks of, and other considerations relating to, a purchase of an [interest in the Fund], including the matters set forth under the caption "Risk Factors and Conflicts of Interest" in the [PPM].Id. ¶ 2(a). Each further represented that "[o]ther than as set forth herein or in the [PPM] and the [LP] Agreement, the investor is not relying upon any other information, representation or warranty by the Partnership, the General Partner, their affiliates or any agent or representative of them in determining to invest." Id. ¶ 2(g). Each agreed that the "representations, warranties, covenants, agreements and confirmations made by the Investor in this Subscription Agreement . . . shall survive the closing of the transactions contemplated hereby." Id. ¶ 10.
B. The Fund's Relationship With Lehman Brothers
The Fund anticipated a close relationship with Lehman and marketed itself on that basis. The first page of the PPM described the Fund as "a global private equity investment fund sponsored by Lehman Brothers." PPM at 1. The Fund's general partner was Lehman Brothers Merchant Banking Associates IV L.P. Id. The Fund's investment advisor was Lehman Brothers Private Equity Advisers LLC. Id. at 26. All of the individuals identified as responsible for the Fund's activities were members of Lehman's Private Equity division. Id. at 27-34.
The PPM repeatedly extolled the advantages of having Lehman as a sponsor. The following paragraph provides the flavor:
Lehman Brothers Merchant Banking believes that the Partnership's affiliation with Lehman Brothers affords Fund IV a distinct and sustainable competitive advantage relative to other funds providing access to the resources, relationships and expertise of one of the world's leading full-service investment banks. Lehman Brothers Merchant Banking utilizes the Firm's resources, when appropriate, to assist in sourcing, due diligence and evaluation of investment opportunities, execution of transactions, monitoring of portfolio companies, and exiting investments. The Partnership's ability to capitalize on these resources is consistent with Lehman Brothers' "One Firm" approach to its business, which emphasizes working together across businesses to actively deliver the Firm's resources for the benefit of its clients and investors.
PPM at 5.
But the PPM spoke of more than sunshine and summer breezes. It warned:
Potential investors should pay particular attention to the information under the caption "Risk Factors and Conflicts of Interest". . . . Investment in the Partnership is suitable only for sophisticated investors and requires the financial ability and willingness to accept the high risks and lack of liquidity inherent in an investment in the Partnership. Investors in the Partnership must be prepared to bear such risks for an extended period of time. No assurance can be given that the Partnership's investment objective will be achieved or that investors will receive a return of their capital.
PPM at (i).
The PPM described particular risks associated with Lehman's involvement. Pertinent to the current dispute, it noted the possibility that Lehman might disassociate from the Fund, and it informed investors that Lehman could sell its interest in the general partner to an unrelated entity, as long as the transaction received approval from two-thirds of the limited partners. PPM at 63. The PPM explained that Lehman's disassociation would have consequences for the Fund. For one thing, Lehman's investment advisory group no longer would advise the Fund. Id. at 41. For another, Lehman's $250 million capital commitment to the Fund would cease, meaning that the Fund no longer could draw funds from its largest investor. Id. at 68. The PPM also discussed the possibility that "Key Persons" affiliated with the Fund, such as the Lehman employees who comprised its management team, might depart or be replaced. Id. at 44.
Ultimately, the PPM made clear that the LP Agreement governed the Fund and its relationship with the limited partners. It also made clear that to the extent there was any conflict between the PPM and the LP Agreement, the latter would control.
Id. at (i) (" This Memorandum contains a summary of the Partnership Agreement. . . . However, the summaries . . . do not purport to be complete and are subject to and qualified in their entirety by reference to the Partnership Agreement. . . . [T]he terms of the Partnership Agreement . . . shall control."); id. at 40 (" This summary (and terms of the Partnership described elsewhere in this Memorandum) is not complete and is subject to and qualified in its entirety by reference to the limited partnership agreement of the Partnership. . . . [T]he Partnership Agreement will control.").
C. Lehman Declares Bankruptcy, And The Plaintiffs Fail To Respond To Capital Calls.
Investors in the Fund did not transfer their full capital commitments to the Fund when they became limited partners. Only when the Fund identified an investment opportunity would it issue a capital call for each limited partner to pony up. See Compl. ¶ 19; see also LP Agreement § 3.1.
On September 15, 2008, Lehman filed for bankruptcy. The Fund did not file for bankruptcy and was not part of that proceeding. Lehman's interests in the Fund's general partner and investment advisor were assets of the bankruptcy estate, but that was the Fund's only connection.
After learning of Lehman's bankruptcy, the plaintiffs informed the Fund that they no longer would respond to capital calls. They asked the Fund to rescind their investments and return the capital they had invested to date. The Fund declined.
As advertised, when the Fund later made capital calls, the plaintiffs did not respond. Their failure to respond constituted an event of default under the LP Agreement. This in turn triggered contractual consequences for the plaintiffs, including a 50% reduction in their capital accounts. LP Agreement § 8.3.
D. The Fund's General Partner And Investment Advisor Change Hands.
In January 2009, the Fund notified its limited partners that subject to their approval, the Fund's existing management team would acquire the Fund's general partner and investment advisor from Lehman's bankruptcy estate. The transaction would be financed by Reinet Investments S.C.A. ("Reinet"), a Luxembourg-based investment fund. As part of the transaction, the Fund proposed to amend and restate the LP Agreement to offer limited partners the option to reduce their future capital commitments. Limited partners could cancel (i) half of the unfunded and uncommitted portion of the first $5 million of their commitment and (ii) 35% of any commitment over $5 million. Reinet would assume the unfunded and uncommitted portion of Lehman's $250 million capital commitment, subject to similar reductions.
The proposed transaction required the approval of 66-2/3% in interest of the limited partners. LP Agreement § 8.1(a). Although the plaintiffs opposed the transaction, the deal was approved. Compl. ¶ 41. The acquisition vehicle was Trilantic Capital Partners, and the Fund emerged with its current moniker, Trilantic Capital Partners IV L.P.
E. The Complaint In This Action
On October 27, 2009, the plaintiffs filed a complaint seeking the rescission of their investments in the Fund and a refund of their capital contributions, with interest. The complaint contained three counts. The first asserted supervening frustration. The second asserted mutual mistake. The third alleged violations of the Texas Securities Act. The Fund moved to dismiss the complaint on November 18, 2009.
On March 11, 2010, while the parties were briefing the motion to dismiss, the examiner appointed by Lehman's bankruptcy trustee to investigate Lehman's downfall filed his report with the bankruptcy court. When the plaintiffs learned of the "accounting legerdemain" disclosed in the examiner's 2,200-page report, including "Repo 105" transactions that reportedly were used to manipulate Lehman's financial statements and conceal its true financial condition, they moved to amend. The Fund responsibly stipulated to the amendment.
On April 21, 2010, the plaintiffs filed the current Complaint. It alleges the same three causes of action, but with new allegations in support of the mutual mistake and Texas Securities Act claims. The Complaint now alleges that, at the time the plaintiffs invested in the Fund, Lehman was already in such poor financial condition and at such reputational risk from financial shenanigans that it was doomed to fail. In the words of the Complaint,
Unbeknownst to the public and Plaintiffs when they invested in the Fund: Lehman Brothers (a) had "bet the ranch" on risky real-estate investments, including billions of dollars of toxic subprime and "Alt-A" mortgages, and risky leveraged loans, (b) was grossly overleveraged, its balance sheet was awash in toxic assets, and its risk-management and hedging programs and practices were lax and deficient, and (c) Lehman Brothers had been manipulating and falsifying its publicly-filed financial statements for many years and intended to continue to do so in the future.
Compl. ¶ 4. Each of the plaintiffs' claims fundamentally alleges that, because Lehman was secretly teetering at the time the plaintiffs invested in a Lehman-sponsored fund, the plaintiffs should be permitted to back out of their investment.
II. LEGAL ANALYSIS
A motion to dismiss for failure to state a claim should be denied unless the "plaintiff would not be entitled to recover under any reasonably conceivable set of circumstances susceptible of proof." Savor, Inc. v. FMR Corp., 812 A.2d 894, 897 (Del. 2002) (quoting Kofron v. Amoco Chems. Corp., 441 A.2d 226, 227 (Del. 1982)). "Dismissal is appropriate only if `it appears with reasonable certainty that, under any set of facts that could be proven to support the claims asserted, the plaintiff would not be entitled to relief.'" King Constr., Inc. v. Plaza Four Realty, LLC, 976 A.2d 145, 151-52 (Del. 2009) (quoting Gantler v. Stephens, 965 A.2d 695, 703 (Del. 2009)). Conversely, to survive a motion to dismiss "a complaint must plead enough facts to plausibly suggest that the plaintiff will ultimately be entitled to the relief she seeks." Desimone v. Barrows, 924 A.2d 908, 929 (Del. Ch. 2007). Here, the plaintiffs cannot prevail in light of the clear and unambiguous language of the Subscription Agreement and the LP Agreement.
A. Supervening Frustration
The plaintiffs' first cause of action is styled "Discharge of Plaintiffs' Obligations by Reason of Supervening Frustration." The doctrine of supervening frustration can be invoked "[w]here, after a contract is made, a party's principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made." Restatement (Second) of Contracts § 265 (1981). The doctrine is generally limited to cases where "a virtually cataclysmic, wholly unforeseeable event renders the contract valueless to one party." Wal-Mart Stores, Inc. v. AIG Life Ins. Co., 872 A.2d 611, 620 n. 35 (Del. Ch. 2005) (quoting Sage Realty Corp. v. Jugobanka, D.D., 1997 WL 370786, at *2 (S.D.N.Y. July 2, 1997)), aff'd in part, rev'd in part on other grounds, 901 A.2d 106 (Del. 2006); cf. Restatement (Second) of Contracts § 265 cmt. a, illus. 1-4 (1981). The doctrine does not apply if the supervening events were "reasonably foreseeable, and could (and should) have been anticipated by the parties" at the time of contracting. Wal-Mart Stores, 872 A.2d at 621. By parity of reasoning, the doctrine cannot apply if the events in question were actually foreseen, anticipated by the parties, and explicitly provided for at the time of contracting. See 17B C.J.S. Contracts § 524 (2010) ("The parties may not invoke the doctrine of frustration where they have contracted with reference to contemplated risks, and thereby assumed the risk of the intervening event.").
The plaintiffs claim supervening frustration based on an event that the parties foresaw and provided for in the LP Agreement: Lehman's disassociation from the Fund. Doubtless the Fund and all of its limited partners believed that Lehman's disassociation was a low-probability event. Nevertheless, they prudently provided for that eventuality.
The LP Agreement contemplated that Lehman might transfer its general partnership interest in the Fund. See LP Agreement § 8.1 ("Transfer and Withdrawal of the General Partner"). The LP Agreement provided that the Fund would continue to operate under those circumstances.
Section 8.1(a) of the LP Agreement stated that with the consent of 66-2/3% in interest of the limited partners, Lehman could transfer its general partner interest to a non-Lehman entity and withdraw from the Fund. See LP Agreement § 8.1(a); see also 6 Del. C. § 17-801(3). The LP Agreement similarly provided for the removal of the general partner, both for cause and without cause. See id. § 8.1(b), 8.1(f).
The LP Agreement also contemplated the potential bankruptcy of the general partner. It provided that upon the occurrence of a "Disabling Event" a majority of the limited partners could opt to continue the Fund with a successor general partner. See id. § 8.1(c), 9.1(b). The LP Agreement defined "Disabling Event" as "[t]he General Partner ceasing to be the general partner of the Partnership pursuant to Section 17-402 of the [Limited Partnership] Act other than as permitted by Section 8.1(a) (or other terms of this Agreement) or pursuant to a removal and replacement of the General Partner as provided in Sections 8.1(b) or 8.1(f)." Id. art. I., at 6-7. Under Section 17-402, "[a] person ceases to be a general partner of a limited partnership upon the happening of" a list of events, which includes filing a voluntary petition in bankruptcy or having entered against it an order for relief in bankruptcy. 6 Del. C. § 17-402(a)(4)).
In light of these provisions, the plaintiffs cannot plausibly claim that Lehman's continuing affiliation with the Fund was a fundamental assumption underlying the LP Agreement such that Lehman's disassociation amounted to supervening frustration. Because the LP Agreement contemplated and addressed the possibility that Lehman would disassociate from the Fund, that event was a "known, or obviously foreseeable" risk to which the doctrine of supervening frustration cannot apply. Wal-Mart Stores, 872 A.2d at 624; see also 17B C.J.S. Contracts § 524. Having agreed on how Lehman's disassociation would be handled, the plaintiffs cannot now revise the terms of their agreement by invoking the doctrine of supervening frustration.
The plaintiffs also cannot cite Lehman's bankruptcy as a supervening event. The LP Agreement addressed the more immediate and significant problem of the general partner's bankruptcy. If that occurred, then a majority of the limited partners could opt to continue the Fund with a successor general partner. Lehman's bankruptcy did not encompass the Lehman-affiliate general partner. Having agreed that the Fund could continue with an approved successor general partner in the event of the general partner's bankruptcy, the plaintiffs cannot claim supervening frustration from a more remote filing.
Lehman's disassociation from the Fund was contemplated by and addressed in the LP Agreement. The Fund has continued in compliance with those provisions. It does not frustrate the purpose of a contract for events to play out as contracting parties envisioned, even low-probability events that no one thought actually would come to pass. The supervening frustration claim is dismissed.
B. Mutual Mistake
The plaintiffs next invoke mutual mistake. Under this doctrine, a party can rescind an agreement if (i) both parties were mistaken as to a basic assumption underlying the agreement; (ii) the mistake materially affects the agreed-upon exchange of performances; and (iii) the party adversely affected did not assume the risk of the mistake. Am. Bottling Co. v. Crescent/Mach I Partners, L.P., 2009 WL 3290729, at *2 (Del. Super. Sept. 30, 2009); Restatement (Second) of Contracts § 152 (1981). The plaintiffs claim that they and the Fund were mistaken as to Lehman's true financial condition, that having a Lehman affiliate serving as general partner was a basic assumption underlying the Subscription Agreement and the LP Agreement, and that Lehman's failure materially affected the agreed-upon exchange of performances. Now, instead of owning interests in a fund backed by a leading investment bank like Lehman, they find themselves holding interests in a much smaller entity backed by an unknown and unproven sponsor. The plaintiffs say they did not assume this risk. Compl. ¶ 48.
A claim for mutual mistake must rest on a basic assumption about the contract, for which the test is the same as when a plaintiff claims supervening frustration. See Restatement (Second) of Contracts § 152 cmt. b (1981) ("The term `basic assumption' [for mutual mistake] has the same meaning . . . as it does in Chapter 11 in connection with . . . frustration. . . ."). For the reasons already discussed in Part II.A, supra, it is not plausible that the continuing involvement of a Lehman affiliate as general partner was a basic assumption underlying the LP Agreement. The LP Agreement contemplated that Lehman could disassociate from the Fund, and the parties complied with the LP Agreement when approving a successor general partner.
Mutual mistake also is not available because the plaintiffs assumed the risk of uncertainty about Lehman's financial condition. Under Delaware law, a party assumes the risk of a mistake where (1) the risk is allocated to that party by contract; (2) the party enters the contract knowing that he has limited knowledge about the relevant facts but treats that knowledge as sufficient; or (3) the court assigns the risk to the party because it is reasonable to do so. See Am. Bottling, 2009 WL 3290729, at *2; Restatement (Second) of Contracts § 154 (1981).
The PPM disclosed the possibility that Lehman and its resources might no longer be available to the Fund. See PPM at 41, 44, 63, 67. The PPM did not make any representation about the likelihood that Lehman would disassociate. The PPM did not make any representations about Lehman's financial health or its intention to remain with the Fund. The Subscription Agreement provided that "[o]ther than as set forth herein or in the [PPM] and the [LP] Agreement, the investor is not relying upon any other information, representation or warranty by the Partnership, the General Partner, their affiliates or any agent or representative of them in determining to invest." SA ¶ 2(g). By entering into the Subscription Agreement and the LP Agreement in reliance only on those agreements and the PPM, the plaintiffs knew they had limited knowledge about Lehman's financial condition and the likelihood of disassociation. The plaintiffs regarded the knowledge they had as sufficient and decided to invest. Therefore, the plaintiffs' mutual mistake claim is dismissed.
C. The Texas Securities Act
The plaintiffs finally assert a claim under the Texas Securities Act (the "TSA"). This statute prohibits the soliciting of an investment "by means of an untrue statement of a material fact or an omission to state a material fact necessary in order to make the statements made, in the light of the circumstances in which they are made, not misleading." Tex. Rev. Civ. Stat. Ann. art. 581, § 33(A)(2) (Vernon 2010). The plaintiffs identify two omissions: (i) the failure to disclose that Lehman was insolvent or so financially unstable as to be on the brink of insolvency and (ii) the failure to disclose that Lehman's financial statements were false and misleading because of Lehman's use of "Repo 105" transactions. Compl. ¶ 51. These omissions allegedly rendered false the general disclosures in the PPM about Lehman's involvement with the Fund, because no one reasonably could expect Lehman to have an on-going role with the Fund in light of its true condition.
My willingness to analyze the TSA should not be viewed as an affirmative determination that the statute applies. The parties to the Subscription Agreement selected Delaware law to govern their relationship and agreed contractually in that agreement to establish the universe of information and representations on which the investors were relying. When sophisticated parties contract in this fashion, a strong argument can be made that the law they choose should govern. See Organ v. Byron, 438 F.Supp.2d 388, 391-93 (D. Del. 2006). But because the Fund has not raised choice of law as an issue, I assume without deciding that the TSA applies.
The plaintiffs' TSA claim fails for at least two reasons. First, the omissions identified by the plaintiffs logically affect the accuracy and completeness of Lehman's public disclosures. As part of their effort to plead a material omission, the plaintiffs refer to and quote from Lehman's public filings. See, e.g., Compl. ¶¶ 12, 25 (quoting Lehman Brothers' 2006 Form 10-K and noting its reputation as being "financial sound"; asserting that Plaintiffs believed "the key to the Fund's success would be its close relationship with Lehman Brothers"). This case, however, is not about Lehman's disclosures. Each plaintiff agreed by signing the Subscription Agreement that "[o]ther than as set forth herein or in the [PPM] and the [LP] Agreement, the investor is not relying upon any other information, representation or warranty by the Partnership, the General Partner, their affiliates or any agent or representative of them in determining to invest." SA ¶ 2(g). Under Delaware law (which governs the contracts, id. ¶ 10), the plaintiffs' claims must rise or fall on whether the PPM or Agreements were materially misleading. Abry Partners V, L.P. v. F W Acquisition LLC, 891 A.2d 1032, 1057, 1056-58 (Del. Ch. 2006) ("[A] party cannot promise, in a clear integration clause of a negotiated agreement, that it will not rely on promises and representations outside of the agreement and then shirk its own bargain in favor of a `but we did rely on those other representations' fraudulent inducement claim."); H-M Wexford LLC v. Encorp, Inc., 832 A.2d 129, 142 (Del. Ch. 2003); see also Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 60 (Tex. 2008) ("[P]arties who contractually promise not to rely on extra-contractual statements — more than that, promise that they have in fact not relied upon such statements - should be held to their word." (emphasis in original)).
The Subscription Agreement does not contain any representation or warranty about Lehman's financial health. Nor does the LP Agreement. The PPM does not contain any financial information about Lehman. If Lehman's financial status was critical, the plaintiffs could have insisted on representations or disclosures, or they could have declined to invest.
The most the plaintiffs can point to are general statements in the PPM about how the Fund would benefit in the future from its affiliation with Lehman. See Compl. ¶¶ 7, 25-27, 31, 51. For example, the plaintiffs complain about the PPM allegedly representing that Lehman would serve as the general partner indefinitely such that Lehman's resources would be available to the Fund throughout its life. Compl. ¶ 51. In responding to the motion to dismiss, the plaintiffs bravely attempt to recast the challenged representations as addressing Lehman's then-present ability to achieve what the Fund expected Lehman to do. Though there was some present aspect to the representations, the complaint ultimately disputes whether Lehman could continue to serve in the future. In 2007, at the time the PPM was circulated and the plaintiffs invested, Lehman in fact was able to serve as the general partner. According to the Complaint, Lehman did so from "early 2007" (Compl. ¶ 22) to "early 2009" (Compl. ¶¶ 39, 41).
This leads to the second reason why the TSA claim fails. Forward-looking statements like these only can give rise to a claim under the TSA if made with scienter. Herrmann Holdings Ltd. v. Lucent Techs. Inc., 302 F.3d 552, 563-64 (5th Cir. 2002); cf. Formosa Plastics Corp. USA v. Presidio Eng'rs Contractors, Inc., 960 S.W.2d 41, 48 (Tex. 1998) (holding that a fraud claim based on a promise of future performance requires that "the promise was made with no intention of performing at the time it was made"). Under Texas law, "predictive statements contain at least three factual assertions that may be actionable: (1) the speaker believes the statement is accurate; (2) there is a reasonable basis for that belief; and (3) the speaker is unaware of any undisclosed facts that would tend to seriously undermine the accuracy of the statement." Paull v. Capital Res. Mgmt., Inc., 987 S.W.2d 214, 220 (Tex. App. 1999) (citing Rubinstein v. Collins, 20 F.3d 160, 166 (5th Cir. 1994) (applying this three-part analysis to a federal securities law claim)).
The Complaint fails to allege that the Fund knew its representations about Lehman were "false when made." See Herrmann, 302 F.3d at 563. The Complaint would need to allege that (1) the Fund did not in fact believe, when it disseminated the PPM in 2007, that Lehman would remain associated with the Fund; (2) the Fund subjectively believed that Lehman would remain associated with the Fund but did not have a reasonable basis for that belief; or (3) the Fund was aware of undisclosed facts that seriously undermined the likelihood that Lehman would remain associated with the Fund. Cf. Paull, 987 S.W.2d at 220. No such allegations or variants of these themes appear in the Complaint. Nor do any of the allegations found in the Complaint reasonably support the inference that any of these three conditions existed. The only plausible inference from the Complaint and the documents it incorporates by reference is that the Fund accurately disclosed in 2007 in the PPM its belief that Lehman would have a continuing association with the Fund. The TSA claim falls short.
III. CONCLUSION
For the foregoing reasons, the Complaint is dismissed. IT IS SO ORDERED.