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Servs., Inc., Nos. 762–N, 763–N, 2005 WL 2130607, at *12–13 (Del. Ch. Aug. 16, 2005), and citing Litman v. Pru-
dential–Bache Props., Inc., 611 A.2d 12, 15–16 (Del. Ch.1992) (holding claim to be derivative where the figist of
plaintiffs' complaint is that the general partners breached their fiduciary duties by inadequately investigating and
demand was excused), they must be dismissed.
The plaintiffs argue that these claims may nonetheless be pleaded as direct under the reasoning of Anglo Ameri-
can Securities Fund, L .P. v. S.R. Global International Fund, L.P., 829 A.2d 143, 151 (Del. Ch.2003) (Anglo Ameri-
can ). That case is distinguishable, however. In the Anglo American case, the plaintiffs were former partners, so that
treating their claims as derivative would mean that any recovery by the partnership would benefit only those partners
a result of KPMG's misstatements and professional incompetence, they were induced to invest in the Rye Funds, to
stay invested, and in some cases to make additional investments in the Funds. As such, these claims describe indi-
vidualized harm independent of harm to the partnership, and rest on a duty to each plaintiff that is not merely deriva-
tive of KPMG's fiduciary duties as the Rye Funds' auditor. This was precisely the conclusion the court reached in
Stephenson v. Citco Group Ltd., supra, where the plaintiffs were limited partners in a fund called Greenwood Sentry
taxes on fiphantom income” are also direct and not derivative. These claims rest on the fact that the Rye Funds were
pass-through tax entities, so the profits and losses of the Funds were allocated to the individual partners. The plain-
tiffs allege that, as a result of false information provided to them by KPMG in their Form K–1 tax statements, they
each paid taxes on income which did not exist. Because the Rye Funds themselves did not pay taxes, these tax relat-
ed losses are necessarily individual. See, e.g., Little v. Cook, 274 Va. 697, 708–712 (2007) (reversing a lower court's
note of its memorandum, KPMG argues that even the plaintiffs' direct claims fall within the scope of the arbitration
clause because they somehow arise from the Engagement Agreement. This Court finds this argument entirely unper-
suasive. Nothing suggests that the plaintiffs expressly assented to the Engagement Agreement or its arbitration pro-
vision, and none of the claims alleged in the Complaint against KPMG depends on a third-party beneficiary status.
ance upon KPMG's unqualified audit opinions, to their detriment. Morever, KPMG misrepresented in each annual
Form K–1 statement that taxable investment income was earned for each plaintiff's capital account when in fact the
6. Aiding and Abetting Fraud (KPMG and MassMutual)
Count XXII of the Complaint alleges aiding and abetting fraud against KPMG, and Count XXI alleges aiding
and abetting fraud against MassMutual. The gist of the allegations contained in both counts is that these defendants
had actual or constructive knowledge of the fraudulent representations made by Tremont and the Rye Funds and
Abbott Labs, 512 F.Supp. 1031, 1036 (D.Mass.1981). Here, there is no allegation in the Complaint that MassMutual
directly assisted either Tremont or the Rye Funds in the commission of fraud. Rather, the plaintiffs contend that
MassMutual is liable because it ficontrolled and dominated” Oppenheimer Acquisition, which itself aided and abet-
ted the fraud perpetrated against the plaintiffs. There is little in the Complaint to suggest that Oppenheimer Acquisi-
tion provided any substantial assistance or encouragement to Tremont or the Rye Funds: indeed, the plaintiffs rely
applies, the result would be the same regardless.
7. State Securities Law Violations (Tremont, Rye Funds, and MassMutual)
The plaintiffs, residents of the Commonwealth and six other states, assert counts for securities fraud against
Tremont, the Rye Funds, and MassMutual under the laws of Massachusetts, Colorado, Connecticut, Florida, New
make three principal arguments, which this Court addresses in turn.FN17
FN17. Tremont and the Rye Funds also recycle their contentions that the plaintiffs have failed adequately
to allege reasonable reliance and scienter. Even assuming these are necessary elements of state securities
law violations, this Court has already concluded that the Complaint alleges sufficient facts to satisfy Rule
12(b)(6) in the context of discussing other claims against these defendants.
ance upon KPMG's unqualified audit opinions, to their detriment. Morever, KPMG misrepresented in each annual
Form K–1 statement that taxable investment income was earned for each plaintiff's capital account when in fact the
6. Aiding and Abetting Fraud (KPMG and MassMutual)
Count XXII of the Complaint alleges aiding and abetting fraud against KPMG, and Count XXI alleges aiding
and abetting fraud against MassMutual. The gist of the allegations contained in both counts is that these defendants
had actual or constructive knowledge of the fraudulent representations made by Tremont and the Rye Funds and
Abbott Labs, 512 F.Supp. 1031, 1036 (D.Mass.1981). Here, there is no allegation in the Complaint that MassMutual
directly assisted either Tremont or the Rye Funds in the commission of fraud. Rather, the plaintiffs contend that
MassMutual is liable because it ficontrolled and dominated” Oppenheimer Acquisition, which itself aided and abet-
ted the fraud perpetrated against the plaintiffs. There is little in the Complaint to suggest that Oppenheimer Acquisi-
tion provided any substantial assistance or encouragement to Tremont or the Rye Funds: indeed, the plaintiffs rely
applies, the result would be the same regardless.
7. State Securities Law Violations (Tremont, Rye Funds, and MassMutual)
The plaintiffs, residents of the Commonwealth and six other states, assert counts for securities fraud against
Tremont, the Rye Funds, and MassMutual under the laws of Massachusetts, Colorado, Connecticut, Florida, New
make three principal arguments, which this Court addresses in turn.FN17
FN17. Tremont and the Rye Funds also recycle their contentions that the plaintiffs have failed adequately
to allege reasonable reliance and scienter. Even assuming these are necessary elements of state securities
law violations, this Court has already concluded that the Complaint alleges sufficient facts to satisfy Rule
12(b)(6) in the context of discussing other claims against these defendants.
