Lange et al v. Massachusetts Mutual Life Insurance Company et al

Filing 866

OPINION re: (113 in 1:12-cv-09062-TPG) MOTION for Judgment on the Pleadings. filed by Tremont Partners, Inc., Tremont Group Holdings, Inc., (97 in 1:12-cv-09057-TPG) MOTION for Judgment on the Pleadings. filed by Tremont Group, Holdings, Inc., Tremon t Partners, Inc., (118 in 1:12-cv-09061-TPG) MOTION for Judgment on the Pleadings. filed by Tremont Partners, Inc., Tremont Group Holdings, Inc., (845 in 1:08-cv-11117-TPG) MOTION for Judgment on the Pleadings. filed by Tremont Group Holdings, Inc., Tremont Partners, Inc, (117 in 1:12-cv-09060-TPG, 117 in 1:12-cv-09060-TPG) MOTION for Leave to File Consolidated Amended Complaint. MOTION to Seal Document (Consolidated Amended Complaint). MOTION to Seal Document (Consolidated Amended C omplaint). MOTION to Seal Document (Consolidated Amended Complaint). MOTION to Seal Document (Consolidated Amended Complaint). filed by Beatrice Robinson, Elinor Pock, Alvin Pock, Antonio Varela, Francine Fogel, Stephen Greenspan, Britta Llewellyn, Sheldon May, Rosalyn Densen, Stephen Fogel, Calla Gutter, Steven Becker, VLT Family, Leslie Steckler, Steven Brown, Alan Slootsky, Jaret Llewellyn, Linda Cohen, Steve Sherman, Ronald Sherrill, Joshua Parker, Kenneth Shavelson, Gary Rosenberg, Edie Minkoff, David Jay, Jean DeCastro, Janet Shavelson, Charles Cohen, Steven Silverman, Elizabeth Hoffman, Maureen Chaves, Jesse Gottlieb, Michael Gensberg, Rose Criblez, Robert Chaves, LRM Investment Corp., Zena Gensberg, Gloria Gottli eb, Marlene Sherman, Michael Becker, Marvin Gutter, Ronald Rubin, Paulette Sherrill, Robyn Barell, Jeffrey Minkoff, (108 in 1:12-cv-09060-TPG) MOTION for Judgment on the Pleadings. filed by Tremont Partners, Inc., Tremont Group Holdings, Inc., (92 in 1:12-cv-09058-TPG) MOTION for Judgment on the Pleadings. filed by Tremont Partners, Inc., Tremont Group Holdings, Inc., (109 in 1:12-cv-09064-TPG) MOTION for Judgment on the Pleadings. filed by Tremont Partners, Inc., Tremont Group Holdings, Inc., ( 119 in 1:12-cv-09064-TPG, 119 in 1:12-cv-09064-TPG) MOTION for Leave to File Consolidated Amended Complaint. MOTION to Seal Document (Consolidated Amended Complaint). MOTION to Seal Document (Consolidated Amended Complaint). MOTION t o Seal Document (Consolidated Amended Complaint). filed by Jason Zitrin, Penni Ellen Fromm, Rand Schwartzwald, Rachel Zitrin, RM Management LLC, John Silverberg, John Johnson, Roger Zitrin, Donna Weiss, David Schwartzwald, Herbert Silverberg, Robert Cocchi, The Norman Shulevitz Foundation, Inc., Sande Wische, Brian Gaines, Paula Zitrin, Jerry Weiss, PEF Associates, Inc., Carol Wische, (122 in 1:12-cv-09062-TPG, 122 in 1:12-cv-09062-TPG) MOTION for Leave to File Consolidated Amended Compla int. MOTION to Seal Document (Consolidated Amended Complaint). filed by Karasel II, L.P., (101 in 1:12-cv-09058-TPG, 101 in 1:12-cv-09058-TPG) MOTION for Leave to File Consolidated Amended Complaint. MOTION to Seal Document (Consolidated Amended Complaint). MOTION to Seal Document (Consolidated Amended Complaint). MOTION to Seal Document (Consolidated Amended Complaint). filed by Eduardo Marsigli, Fourmin Associates, Roxy Management Corporation, Inc., Dataman Grou p, Inc., William Charlton, III, Roger Schwab, Karyl Marsigli, Albert Anikstein, Allen Meisels, Dale Filhaber, SBM Investments L.L.L.P., John Paluska, Mayfair Associates, Edward Filhaber, Broyhill All-Weather Fund, L.P., Samuel Prizant, Phoenix Lake P artners, L.P., Carrswold Partnership, Ed Trimas, Walter Schwab, Richard Skelly, BMC Fund, Inc., William Charlton, (127 in 1:12-cv-09061-TPG, 127 in 1:12-cv-09061-TPG) MOTION for Leave to File Consolidated Amended Complaint. MOTION to Seal Document < I>(Consolidated Amended Complaint). MOTION to Seal Document (Consolidated Amended Complaint). MOTION to Seal Document (Consolidated Amended Complaint). filed by Marvin Hans, Daniel Kase, Murray Hazan, Steven Leffler, Roslyn Kase, Darters Investments, LLP, Debra Schefer, Harry Silverman, Jamie Fenster, Stewart Gorenberg, Larry Fenster, Jerome Miller, Alan Bilgore, Alan Schefer, Donald Yellin, Allen Schanman, Soeifer Brothers Realty Corporation, Ira Miller, Susan Schanman, Bonn ie Fenster, Kenneth Fenster, Anita Miller. The complaints in the above-captioned actions are dismissed with leave to re-plead in a consolidated amended complaint. This opinion resolves the motions listed as document number 845 in 08 Civ. 11117,number s and 106 in case number 12 Civ. 9057, numbers 92 and 101 in case number 12 Civ. 9058, numbers 108 and 117 in number 12 Civ. 9060, numbers 118 and 127 in case number 12 Civ. 9061, numbers 113 and 122 in case number 12 Civ. 9062, and numbers 109 and 119 in case number 12 Civ. 9064. SO ORDERED. (Signed by Judge Thomas P. Griesa on 9/03/2013) (ama)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

IN RE TREMONT SECURITIES LAW, STATE LAW,
AND INSURANCE LITIGATION

Master File No.
08 Civ. 11117

SPECTRUM SELECT, L.P.,
Plaintiff,
12 Civ. 9057

v.
TREMONT GROUP HOLDINGS, INC., et al.,
Defendants.
ALBERT ANIKSTEIN, et al.,
Plaintiff,

12 Civ. 9058

v.
TREMONT GROUP HOLDINGS, INC., et al.,
Defendants.
MICHAEL BECKER, et al.,
Plaintiff,
v.

12 Civ. 9060

TREMONT GROUP HOLDINGS, INC., et al.,
Defendants.

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ALAN BILGORE, et al.,
Plaintiff,
v.

12 Civ. 9061

TREMONT GROUP HOLDINGS, INC., et al.,
Defendants.
KARASEL II, L.P., et al.,
Plaintiff,
v.

12 Civ. 9062

TREMONT GROUP HOLDINGS, INC., et al.,
Defendants.
SPECTRUM SELECT II, L.P. and SPECTRUM
EQUITIES, L.P.,
Plaintiff,

12 Civ. 9062

v.
TREMONT GROUP HOLDINGS, INC., et al.,
Defendants.
ROBERT COCCHI, et al.,
Plaintiff,

12 Civ. 9064

v.
TREMONT GROUP HOLDINGS, INC., et al.,
Defendants.

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OPINION

These are all closely similar actions brought by investors in certain Tremont funds to
recover assets lost to the Bernard Madoff Ponzi scheme. They were originally filed in
various Florida state courts, but they were eventually consolidated before a single judge in
Palm Beach County, Florida, and then removed to the Southern District of Florida
pursuant to the Securities Litigation Uniform Standards Act, 15 U.S.C. § 78bb(f)(2). They
were then transferred to this court pursuant to an order by the Judicial Panel on
Multidistrict Litigation. See In re Tremont Grp. Holdings, Inc. Sec. Litig., MDL No. 2052
(J.P.M.L. 2012).
Defendants now move to dismiss the complaints in these actions pursuant to SLUSA,
15 U.S.C. §§ 78bb(f)(1)(A). Plaintiffs do not seriously contend that dismissal on this basis
is not appropriate. Rather, they move for leave to file an amended, consolidated
complaint, adding federal securities law claims and incorporating allegations that are
apparently the fruits of discovery granted by the Florida state court. 15 U.S.C. § 78u–
4(b)(3)(B). Plaintiffs also request that the court refrain from ruling on defendants’ motions
to dismiss pending the Supreme Court’s decision in the Troice cases currently pending
before it. See Chadbourne & Parke LLP v.Troice, 133 S. Ct. 977 (2013); Proskauer Rose
LLP v.Troice, 133 S. Ct. 978 (2013); Willis of Colo. Inc. v. Troice, 133 S. Ct. 977 (2013).
Those cases, likely to be argued and decided next term, deal with the proper scope of
SLUSA’s preclusive effect and therefore, plaintiffs argue, may alter the court’s disposition
of the state law claims in this action.

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The motion to stay is denied. The complaints are dismissed with leave to file a
consolidated amended complaint.

The Complaints
The substance of the present motions has little to do with the details of plaintiffs’
complaints, so the court will describe those allegations only briefly.
The complaints allege that the various plaintiffs invested their assets with Tremont’s
Rye Select Broad Market Fund, the Rye Select Broad Market XL Fund, and the Rye Select
Broad Market Prime Fund. The complaint alleges that Tremont and the other defendants
made representations about the quality of the investment strategy that the funds would
employ, the due diligence that they would perform upon fund managers, and the funds’
ongoing investment activities.
The complaints allege that these representations were false. It is alleged that instead of
employing a rigorous and careful investment strategy, the funds handed their assets over to
a Ponzi scheme. It is further alleged that instead of performing careful due diligence and
rigorous monitoring, the funds handed their assets over blindly to Madoff and took his
claims about the fund’s performance on faith. Meanwhile, the defendants made numerous
representations about the funds’ past and ongoing performance, which claimed that the
funds were achieving steady and consistent gains. These gains were entirely fictional.
Stemming from these allegations, the complaints claim numerous violations of Florida
state law. These include state-law securities fraud under Fla. Stat. Ann. § 517.301,
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common law fraud, negligent misrepresentation, common law breach of fiduciary duty,
breach of statutory fiduciary duties imposed by Fla. Stat. Ann. § 517.11, professional
malpractice, breach of contract, as well as several counts of vicarious liability for aiding and
abetting the primary violations just listed.

Discussion
SLUSA ensures that plaintiffs cannot avoid the heightened pleading standards of the
Private Securities Litigation Reform Act of 1995 by finding state law vehicles for their
securities fraud claims. 15 U.S.C. §§ 78bb(f), 77p(b). See Merrill Lynch, Pierce,
Fenner & Smith Inc. v. Dabit , 547 U.S. 71, 82 (2006). Thus, SLUSA bars “covered”
collective actions brought under state law that allege “a misrepresentation or omission of a
material fact in connection with the purchase or sale of a covered security.” 15 U.S.C.
§ 78bb(f)(1)(A).
The first of these elements — that the action be a “covered” collective action — is more
troublesome in this case than most, but it is nonetheless satisfied. Under SLUSA, the
definition of a covered action includes either a single class action, a single action with more
than 50 plaintiffs, or, as relevant here
any group of lawsuits filed in or pending in the same court and involving
common questions of law or fact, in which (I) damages are sought on behalf
of more than 50 persons; and (II) the lawsuits are joined, consolidated, or
otherwise proceed as a single action for any purpose.

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15 U.S.C. § 77p(f)(2)(A)(ii). As described above, these actions were originally filed as
separate actions across Florida, none of which individually had 50 or more plaintiffs. Now,
however, as the Southern District of Florida and the Judicial Panel on Multidistrict
Litigation have recognized, these cases are clearly proceeding as a single action. Indeed,
plaintiffs can hardly contend — and have not — that they are not proceeding together given
that one of the motions to be resolved by this opinion is a motion to file a consolidated
complaint. And there is no dispute that the group of actions seeks damages on behalf of
more than 50 people. Therefore, this group of actions is a covered collective action under
SLUSA.
Every count in each of the complaints arises under Florida state law. Thus the
second element, that the action is “based upon the statutory or common law of any State,”
15 U.S.C. § 77p(b), is met as well.
The final question is whether this action alleges “a misrepresentation or omission of a
material fact in connection with the purchase or sale of a covered security.” This court and
others in this circuit routinely dismiss state-law claims like plaintiffs’ claims for negligence,
breach of fiduciary duty, etc. when those claims are included in a broader complaint that
substantially revolves around allegations of misrepresentation. See Romano v. Kazacos,
609 F.3d 512, 521 (2d Cir. 2010); In re Austin Capital Mgmt., Ltd., Sec. & Employee Ret.
Income Sec. Act (ERISA) Litig., 09 M.D. 2075, 2012 WL 6644623 (S.D.N.Y. Dec. 21,
2012). Indeed, this court has previously dismissed closely similar claims in many other
cases alleging fraud, misrepresentation, and breach of fiduciary duty against defendants
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who lost plaintiffs’ money to the Madoff Ponzi scheme. See In re Austin Capital Mgmt.,
Ltd., Sec. & Employee Ret. Income Sec. Act (ERISA) Litig., 09 M.D. 2075, 2012 WL
6644623 (S.D.N.Y. Dec. 21, 2012); Lakeview Inv., LP v. Schulman, 11 CIV. 1851, 2012
WL 4461762 (S.D.N.Y. Sept. 27, 2012).
Accordingly, the court concludes that each of the state law claims in the complaint are
precluded by SLUSA as they are included in an action that primarily revolves around
allegations of misrepresentation in connection with the sale of securities. Therefore, they
are dismissed.
Plaintiff moves, however, for leave to file an amended complaint so that it may replace
its state law claims with federal securities claims and to include additional factual allegations
based upon discovery obtained in state court.
Defendants argue that plaintiffs ought to be barred from making their proposed
amendments on the grounds of undue delay. Plaintiffs’ course of litigation in state court,
defendants claim, was calculated to allow them to bring a de facto class action while
dodging SLUSA’s preclusive effect for several years. This is why, for example, plaintiffs —
all of whom are represented by the same law firm — brought their claims in small groups
across Florida. This technique allowed them to avoid removal to federal court and
dismissal under SLUSA by carefully evading the definition of a covered action under
SLUSA. See 15 U.S.C. § 77p(f)(2)(A)(ii).
This is a plausible explanation, and other courts have denied leave to re-plead under
similar circumstances. In re Worldcom, Inc. Sec. Litig., 02 Civ. 3288, 2004 WL 692746
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(S.D.N.Y. Apr. 2, 2004). While leave to re-plead is liberally granted at this stage in
litigation it may nonetheless “only be given when factors such as undue delay or undue
prejudice to the opposing party are absent.” SCS Commc’ns, Inc. v. Herrick Co., Inc., 360
F.3d 329, 345 (2d Cir. 2004).
But in this case, to deny plaintiffs leave to amend their complaints is too harsh a result.
If plaintiffs are not permitted to bring federal securities claims, they may be left with no
remedy at all. Meanwhile, it is less than absolutely clear that plaintiffs’ course of litigation
in Florida was taken in bad faith. Under these circumstances the court has no attractive
options. To refuse leave to amend is harsh, but to grant it may well be to reward three
years of delay and tactical games by the plaintiffs. But, their attorneys’ conduct aside, these
cases contain a number of potentially serious claims by a large number of plaintiffs. The
court is not prepared to deny leave to re-plead when to do so may leave so many claims
totally barred.
And then there is the question of what allegations the amended complaint may
properly contain. As previously discussed, plaintiffs propose to include in their
consolidated amended complaint allegations stemming from evidence gathered during
discovery in the Cocchi action in Florida state court. Had the action been proceeding in
federal court, that discovery would have been impossible due to the mandatory discovery
stay imposed by the PSLRA. 15 USC § 78u–4(b)(3)(B). Thus, defendants argue that to
permit plaintiffs to include allegations based upon the documents obtained in the Florida
action would defeat the goals of the PSLRA and SLUSA, which seeks to ensure that
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plaintiffs may not avoid the heightened requirements of the PSLRA by bringing actions in
state court. Defendants therefore ask the court bar plaintiffs from including allegations
based upon the fruits of their state-court discovery.
However, neither SLUSA nor any other law prohibits plaintiffs from making
allegations based upon discovery obtained as it was obtained here. And this is for good
reason.
Finally, as is likely evident from the preceding discussion, the motion to stay resolution
of defendants’ motions to dismiss pending the Supreme Court’s decision in the Troice
cases is denied. No decision is likely to be forthcoming in that case until either much later
this year or in 2014. “Only in rare circumstances will a litigant in one cause be compelled
to stand aside while a litigant in another settles the rule of law that will define the rights of
both.” Landis v. N. Am. Co., 299 U.S. 248, 255–57 (1936). Therefore, absent any
showing that plaintiffs will face any special hardship in proceeding before the Troice cases
are decided, the court is not willing to stay the resolution of dispositive motions in this case
on the mere possibility that the Supreme Court may announce a rule that is both relevant
and contrary to this court’s own holdings.

Conclusion
The complaints in the above-captioned actions are dismissed with leave to re-plead in a
consolidated amended complaint.

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This (I inion resolves the motions listed as document number 845 in 08 Civ. 11117,
numbers~' and 106 in case number 12 Civ. 9057, numbers 92 and 101 in case number 12

Civ. 9058, umbers 108 and 117 in number 12 Civ. 9060, numbers 118 and 127 in case
number 1· Civ. 9061, numbers 113 and 122 in case number 12 Civ. 9062, and numbers
109 and 1. 9 in case number 12 Civ. 9064.

So orden: .
Dated:

r[
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w York, New York
ptember 3,2013
Thomas P. Griesa
United States DistrictJudge

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