978-1285770178 Case Printout Case CPC-27-07 Part 1

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Mass.Super.,2012.

Askenazy v. Tremont Group Holdings, Inc.

Not Reported in N.E.2d, 29 Mass.L.Rptr. 340, 2012 WL 440675 (Mass.Super.)

Chet Opalka; Karen Opalka; Monomoy Investments Limited Partnership; the Chester J. Opalka, Jr. Trusts;

John Palmer; Karen Anderson Palmer; Peter Roberts; Patrick Roche; Diana Rockefeller; Bedford Clay

LLC; Todd Ruderman; James Schamus; Ivy Street Investment Co., LLC; Rachel Seelig; Eileen Silvers; and

Kenneth Weiss.

MEMORANDUM OF DECISION AND ORDER ON MOTIONS TO DISMISS

JANET L. SANDERS, Justice.

This action arises in the aftermath of the criminal conduct of Bernard Madoff, who in December 2008 admitted

to operating the largest Ponzi scheme in United States history. The plaintiffs allege the loss of millions of dollars

they invested in two Madoff fifeeder funds,” hedge funds whose assets were invested almost exclusively with

seek unspecified damages, costs, fees, and other relief.

The action comes before this Court on four separate motions to dismiss; the funds‘ auditor also moves in the al-

ternative to compel arbitration of the claims against it. After careful review of all the materials submitted by the par–

ties, this Court (1) Allows the motion filed by Oppenheimer Acquisition Corporation, (2) Allows the motion filed by

Massachusetts Mutual Life Insurance Company and MassMutual Holding LLC, and (3) Allows in part and Denies in

ularly monitored fund assets through, among other means, producing audited financial statements for the limited

In making their initial investments, the plaintiffs also relied upon the most recent annual fact sheet for the fund

in which they invested. Among other things, each fund’s fact sheet explained the fisplit–strike conversion” (or fisplit–

strike synthetic conversion”) investment strategy which Madoff claimed to follow, and illustrated the particular

fund’s purported historic performance. The fact sheets stated that the respective fund had experienced fiyears of con-

sistent positive returns” and adhered to fidefined risk and return parameters.” They further stated that Tremont Part–

meetings, Tremont offered specific assurances about Madoff and BLMIS. For instance, when LongVue expressed

skepticism regarding Madoff’s consistently low volatility, Tremont stated that it fihad access to [Madoff and BLMIS]

that no one else had” and that Tremont received paper trade confirmations from Madoff by which it could confirm

that his trades were real.FN4 In responding to LongVue’s concern that Madoff fiself-custodied” the Rye Funds’ assets,

Tremont represented that Madoff did not use an independent custodian because doing so would make the details of

quests, Tremont provided what it purported to be confirmations of some of Madoff’s trades.

In addition to these assurances, Tremont furnished to LongVue documents and other materials, including a

completed due diligence questionnaire. This questionnaire represented that Tremont had invested tens of millions of

dollars in the Rye Funds, described Madoff’s purported investment strategy, and stated that, although Madoff had

full discretion over the trading of the Rye Prime Fund, Tremont Partners had reviewed each of the trades to ensure

The Rye Fund PPMs stated that the annual reports for the Funds were audited by an independent certified public

accountant. Since 2004, defendant KPMG LLP (KPMG) served as the Funds’ auditor and performed annual audits

of the plaintiffs’ investments. Specifically, KPMG audited the Rye Funds’ financial statements, schedules of invest-

ments, statements of operations, year-end cash flows, and changes in the limited partners’ capital accounts. Each

annual report for the Rye Funds was addressed to fiThe Partners” of the respective fund, which included the plain-

ners served as investment adviser and OppenheimerFunds handled fund distribution. Over the years, that family of

joint funds has continued to grow such that, in its Uniform Application for Investment Adviser Registration dated

March 31, 2006, Tremont Partners stated that it was the sub-advisor or investment manager for several funds which

OppenheimerFunds advised. In addition, the plaintiffs allege, Tremont, with the knowledge and approval of its par-

ent companies, marketed itself as being related to those established companies in order to attract investors to the Rye

Funds. For example, following the acquisition, the phrase, fiAn OppenheimerFunds Company,” began to appear on

Tremont’s stationery, publications and marketing materials.

DISCUSSION

Defendants Tremont, the Rye Funds, and Oppenheimer Acquisition each have moved to dismiss the Complaint

against them pursuant to Rule 12(b)(2) on the grounds that this Court lacks personal jurisdiction over them.FN6

They—together with defendant MassMutual—have also moved to dismiss the Complaint under Rule 12(b)(6) for

these defendants in this decision.

1. Personal Jurisdiction (Tremont and Oppenheimer Acquisition)

Because the Tremont defendants are foreign corporations, personal jurisdiction over them is only permissible

where (i) the assertion of jurisdiction is authorized by statute, and (ii) exercise of jurisdiction under state law is con-

facts put forward by the defendants to the extent that they are uncontradicted. Massachusetts Sch. of Law at Ando–

ver, Inc. v. American Bar Assn., 142 F.3d 26, 34 (1st Cir.1998). Applying this standard, the Court concludes that it

has personal jurisdiction over the claims asserted against Tremont by the nonresident plaintiffs.

The plaintiffs rely on the Massachusetts long-arm statute, G.L.c. 223A, § 3(a), which permits a court to exercise

jurisdiction over any person who transacts business in this Commonwealth, provided that the plaintiff’s claim arose

26 Mass.App.Ct. 14, 17 (1988), and may be satisfied by purposeful solicitation of business in Massachusetts by a

nonresident defendant, e.g., Gunner v. Elmwood Dodge, Inc., 24 Mass.App.Ct. 96, 99–101 (1987). See Tatro v.

Manor Care, Inc., 416 Mass. 763, 767–768 (1994). The Complaint alleges facts sufficient to show precisely that.

This Court also concludes that the allegations in the Complaint are sufficient to show that the nonresident plain-

tiffs’ claims arose from Tremont’s transaction of business in Massachusetts. The Supreme Judicial Court has con-

business here: but for the alleged misrepresentations by Tremont and the Rye Funds in their communications with

LongVue and in the marketing, due diligence, and fund performance materials that the Tremont defendants sent to

LongVue, the nonresident plaintiffs would not have invested in those Funds. FN7

FN7. This Court notes that the plaintiffs did not specifically allege in the Complaint but have only repre-

sented in their memorandum that all the nonresident plaintiffs invested through LongVue. Should that rep-

the defendant‘s contacts within the forum and those contacts consist of acts which suggest that the defendant has

purposefully availed itself of the privilege of conducting business in the forum state so as to invoke the benefits and

protections of its laws, then the assertion of jurisdiction is constitutional. See Bulldog Investors Gen. Partnership v.

Secretary of the Commonwealth, 457 Mass. 210, 217–218 (2010). Here, the Complaint alleges that Tremont sought

to expand the market for the Funds by soliciting clients in Massachusetts, either directly or through a Massachusetts-

Oppenheimer Acquisition is a Delaware corporation with a principal place of business in New York. It is a parent

company to two entities: Tremont Group Holdings and OppenheimerFunds. Oppenheimer Acquisition has no offices

or employees in Massachusetts, and it holds no licenses here or elsewhere. It does no business in Massachusetts and

is not qualified as a foreign corporation in this state. Oppenheimer Acquisition does not rent or own real property in

Massachusetts or elsewhere, nor does it have any bank accounts here. It has never promoted, marketed, advertised,

Affidavit of Robert G. Zack, the Vice President, Secretary, and General Counsel of Oppenheimer Acquisi-

tion.

The plaintiffs offer two theories in support of an assertion of personal jurisdiction over Oppenheimer Acquisi-

tion, each of them based on the in-state activities of Tremont.FN9 First, the plaintiffs contend that, because Tremont

is the wholly owned subsidiary of Oppenheimer Acquisition and the Complaint alleges generally that the latter exer-

that the two entities have common officers and directors. In the instant case, the plaintiffs have failed to show any-

thing more than a relatively meager involvement by Oppenheimer Acquisition in Tremont’s affairs.

FN9. In addition to these two theories, the plaintiffs make two other unpersuasive arguments on pages 8–9

sition because of its ficontrolling person” status over Tremont, including the fact that since 2001, Tremont Partners

listed Oppenheimer Acquisition as a ficontrol person” in its SEC filings. Even assuming that a viable claim of ficon-

trol person” liability has been alleged against Oppenheimer Acquisition, this Court is not persuaded that statutory

liability can itself be enough to establish personal jurisdiction. As the majority of state and federal courts have rec-

ognized when presented with essentially the same argument as the plaintiffs make here, substantive liability for pur-

tion.” See City of Monroe Employees Retirement Sys. v. Bridgestone Corp., 399 F.3d 651, 667–668 (6th Cir.2005),

quoting FDIC v. Milken, 781 F.Supp. 226, 234 (S.D.N.Y.1991).

2. Standing (Tremont, MassMutual, and KPMG)

In support of their motions under Rule 12(b)(6), Tremont, MassMutual, and KPMG each argues that the plain–

Delaware law to this issue. The parties further agree that this Court may determine whether the claims here are de-

rivative or direct by answering two questions: 1) who suffered the alleged harm; and 2) who would receive the bene–

fit of any recovery or other remedy? Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845 A.2d 1031, 1033, 1035

(Del.2004) (Tooley ). If the partnership alone suffered the harm for which the plaintiffs seek compensation, then it is

the partnership (i.e. the Rye Funds) which is entitled to recover, and the claim is derivative. Conversely, if the plain-

breach of fiduciary duty (Counts XVIII–XX), this Court agrees with the defendants that these claims are derivative

in nature. As alleged in the Complaint, the plaintiffs’ fiduciary duty claims arise from Tremont’s alleged misman-

agement of the Rye Fund partnerships through inadequate due diligence, imprudent investing, and otherwise im-

proper day-to-day partnership operation. As other courts presented with similar Madoff-related allegations have

held, a claim for deficient management or administration of a fund is fia paradigmatic derivative claim” under Dela-

ware law. Saltz v. First Frontier, LP, 782 F.Supp.2d 61, 79 (S.D.N.Y.2010), quoting Albert v. Alex. Brown Mgt.