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JORDAN

United States District Court, Southern District of New York


June 2, 2003

THE JORDAN (BERMUDA) INVESTMENT COMPANY, LTD., PLAINTIFF,
v.
HUNTER GREEN INVESTMENTS LTD., HUNTER GREEN INVESTMENTS LLC, JOHN SHILLING, ILYA KAMINSKY, JONATHAN VINNIK, INTERNATIONAL FUND SERVICES (IRELAND), INTERNATIONAL FUND SERVICES, INC., INVESTMENT MANAGEMENT SERVICES INC., THOMAS F. GRIZETTI, MARK WILLIAM SOLLY, WILLIAM JAMES COWELL, EUROPEAN FUND SERVICES LIMITED, SUSANA BYRNE, ROSENMAN & COLIN LLP AND FRED M. SANTO, DEFENDANTS.

The opinion of the court was delivered by: Robert W. Sweet, Senior District Judge.

OPINION

Defendants Investment Management Services Inc. ("IMS") and the other IMS Defendants*fn1 have moved for reconsideration of the Court's opinion and order dated March 31, 2003, pursuant to Civil Rule 6.3. The IMS Defendants request reconsideration of the portion of the Opinion finding that the Second Amended Complaint ("SAC") adequately states claims of fraud and breach of fiduciary duty against IMS. For the reasons set forth below, the motion is denied.

Prior Proceedings

This action was commenced on December 5, 2000. The initial complaint was dismissed by an opinion decided on July 19, 2001, Jordan (Berm.) Inv. Co., Ltd. v. Hunter Green Invs. Ltd., 154 F. Supp.2d 682 (S.D.N.Y. 2001) ("Jordan I"). In a June 19, 2002 Opinion ("Jordan II"), this Court dismissed plaintiff Jordan (Bermuda) Investment Company, Ltd.'s ("Jordan") amended complaint holding Jordan's RICO claim legally insufficient and the state law claims lacking jurisdiction. Jordan (Berm.) Invs. Co., Ltd. v. Hunter Green Invs. Ltd., 205 F. Supp.2d 243 (S.D.N.Y. 2002). On March 31, 2003, the Court granted in part Jordan's motion for leave to file a Second Amended Complaint, dropping certain defendants in order to preserve diversity jurisdiction. Jordan (Berm.) Inv. Co., Ltd. v. Hunter Green Inv. Ltd., No. 00 Civ. 9214, 2003 U.S. Dist. LEXIS 5182 (S.D.N.Y. Mar. 31, 2003) ("Jordan III"). Familiarity is assumed with the preceding opinions. The instant motion was marked fully submitted on April 25, 2003.

Parties

As identified in the proposed SAC, Jordan is a corporation organized and existing under the laws of Bermuda, with its principal place of business in the State of Illinois. The sole shareholder of Jordan is The Jordan Trust ("the Jordan Trust"), which is organized and existing under the laws of Illinois. Its sole trustee is John W. Jordan II ("Mr. Jordan"), a resident and citizen of Illinois.

Jordan proposed to retain the following diverse parties as defendants in the SAC:

Hunter Green Investments LLC ("Hunter Green LLC") is a Connecticut limited liability company and was Primary Sub-Advisor and Commodity Trading Advisor to the Beacon Emerging Debt Fund, Ltd. ("Beacon" or the "Fund");

John Shilling ("Shilling") is a resident and citizen of Connecticut and during 1997 and 1998 a director of Hunter Green Investments Ltd. ("Hunter Green Ltd."), the Investment Manager for Beacon and Beacon Emerging Growth Fund LP ("Beacon Growth") and during 1997 and 1998 a director of Hunter Green LLC;

International Fund Services, Inc. ("IFS") is a corporation organized and existing under the laws of the State of Connecticut, with a principal place of business in New York;

Investment Management Services Inc. ("IMS") is a Delaware corporation, and alleged to be, along with International Fund Services, Inc. ("IFS"), the "effective" administrator of Beacon during 1997 and 1998, even though International Fund Services (Ireland) was the nominal administrator;

Thomas Grizzetti ("Grizzetti"), residing in New York, and was during 1997 and 1998, a director, officer and/or employee of IFSI and defendants IMS and IFS;

European Fund Services Limited ("EFSI") is alleged to be a Delaware corporation*fn2 and a director of Beacon during 1997 and 1998;

Rosenman & Colin LLP ("Rosenman") was a New York partnership, and acted as legal counsel for Beacon, Beacon Growth, Hunter Green Ltd., Hunter Green LLC, IFSI, IMS, and IFS;

Fred M. Santo ("Santo"), a citizen of New York, is employed as an attorney by Rosenman and was principally responsible for Beacon work at the firm;

Jordan proposes to drop the following non-diverse parties which were named as defendants in the Amended Complaint;

Hunter Green Investments Ltd. ("Hunter Green Ltd."), a British Virgin Island Corporation and the investment manager for Beacon and Beacon Growth;

International Fund Services (Ireland) ("IFSI"), a citizen and resident in the Republic of Ireland, and the Administrator of Beacon;

Ilya Kaminsky ("Kaminsky"), alleged to be a United States citizen residing abroad and the Chief Investment Officer of Hunter Green Ltd. and a director of Hunter Green LLC;

Jonathan Vinnik ("Vinnik"), alleged to be a United States citizen residing abroad and a director of both Hunter Green Ltd. and Hunter Green LLC;

Susan Byrne ("Byrne"), a director of IFSI and IFS during 1998;

Mark William Solly ("Solly"), a citizen and resident of the United Kingdom and director of Beacon during 1998; and

William James Cowell ("Cowell"), a citizen and resident of the United Kingdom and director of Beacon during 1998.

Standard

A motion for reconsideration "is appropriate where a court overlooks `controlling decisions or factual matters that were put before it on the underlying motion . . . and which, had they been considered, might have reasonably altered the result before the court.'" Banco de Seguros del Estado v. Mut. Marine Offices, Inc., 230 F. Supp.2d 427, 428 (S.D.N.Y. 2002) (quoting Range Rd. Music, Inc. v. Music Sales Corp., 90 F. Supp.2d 390, 392 (S.D.N.Y. 2000)). "The standard for granting . . . a motion [for reconsideration] is strict, and reconsideration will generally be denied unless the moving party can point to controlling decisions or data that the court overlooked — matters, in other words, that might reasonably be expected to alter the conclusion reached by the court." Shrader v. CSX Transp., Inc., 70 F.3d 255, 257 (2d Cir. 1995). "[A] motion for reconsideration may be granted to `correct a clear error or prevent manifest injustice.'" Banco, 230 F. Supp.2d at 428 (quoting Griffin Indus., Inc. v. Petrojam, Ltd., 72 F. Supp.2d 365, 368 (S.D.N.Y. 1999)). However, this must be "narrowly construed and strictly applied so as to avoid repetitive arguments on issues that have been considered fully by the Court." Dellefave v. Access Temps., Inc., No. 99 Civ. 6098, 2001 U.S. Dist. LEXIS 3165 (S.D.N.Y. Mar. 21, 2001).

The IMS Defendants fail to meet this standard by neither "point[ing] to controlling decisions or data that the court overlooked," Schrader, 70 F.3d at 257, nor showing that reconsideration is necessary in order to "correct a clear error or prevent manifest injustice." Banco, 230 F. Supp.2d at 428. However, even if the IMS Defendants were to meet the burden of proof for reconsideration, their argument fails on the merits.

Agency

The IMS Defendants first argue that the Court wrongfully sustained Jordan's fraud claim on the basis of insufficient agency allegations. The Court held that Jordan adequately stated a claim of fraud against IMS "as an active participant through its control of IFSI." Jordan III, 2003 U.S. Dist. LEXIS 5182, at *21.

Here, Jordan does more than state the "legal conclusion" of an agency relationship. Maung Ng We & Massive Atlantic Ltd. v.

Merrill Lynch & Co., No. 99 Civ. 9687, 2000 U.S. Dist. LEXIS 11660, at *16 (S.D.N.Y. Aug. 14, 2000). Rather, it "plead[s] facts that support a finding that such agency existed." Id. Paragraph 7 of the SAC states:

(a) IFSI had the actual authority to act or the apparent authority to act and was in fact acting as the agent for and on behalf of IMS and/or IFS during 1997 and 1998;
(b) all directors of Beacon were employees of, or affiliated with, IFSI and/or defendants IMS and IFS;
(c) defendants IMS and/or IFS, through IFSI, conducted the day-to-day activities of Beacon during 1997 and 1998;
(d) defendants IMS and/or IFS, through IFSI, implemented the trading decisions for Beacon during 1997 and 1998;
(e) defendants IMS and/or IFS, through IFSI, maintained the books and records of Beacon during 1997 and 1998;
(f) defendants IMS and/or IFS, through IFSI, prepared account statements for Beacon during 1997 and 1998; and (g) defendants IMS and/or IFS, through IFSI, communicated account statements for Beacon to investors during 1997 and 1998.
Furthermore, not only did IMS act "as the effective administrator of Beacon through its control of IFSI," but the "SAC alleges IMS's involvement in affirmatively making misrepresentations to Jordan and its active involvement in covering up the fraud." Jordan III, 2003 U.S. Dist. LEXIS 5182, at *21-22. "[T]he SAC alleges that IMS implemented the fraudulent scheme by effecting trades with the deposit in leveraged investments . . ." Id. at 24 (citing SAC ¶¶ 7, 43-46, 48-54, 63-65, 68-71).

Scienter

Second, the IMS Defendants argue that scienter has not been adequately alleged. The Second Circuit has held that a plaintiff can establish scienter "either (a) by alleging facts to show that defendants had both motive and opportunity to commit fraud, or (b) by alleging facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness." Novak v. Kasaks, 216 F.3d 300, 307 (2d Cir. 2000).

As previously determined, the SAC alleges that IMS's actions "constituted `consciously fraudulent behavior.'" Jordan III, 2003 U.S. Dist. LEXIS 5182, at *25. According to the SAC, IMS effected trades with the deposit in leveraged investments "when IMS knew such investments were contrary to the restrictions set forth in the fund records they maintained." Jordan III, 2003 U.S. Dist. LEXIS 5182, at *24 (citing SAC ¶¶ 7, 43-46, 48-54, 63-65, 68-71). Jordan adequately "plead[s] the events which [it] claim[s] give rise to an inference of knowledge." Devaney v. Chester, 813 F.2d 566, 568 (2d Cir. 1987). For instance, the SAC alleges:

¶ 49: Hunter Green LLC, Mr. Shilling, IMS, IFS, EFSI and Mr. Gizzetti intentionally failed to disclose, and concealed from The Jordan Trust, that Beacon was investing The Jordan Trust's Monies and utilizing leverage in making such investments.
¶ 50: Hunter Green LLC, Mr. Shilling, IMS, IFS, EFSI and Mr. Gizzetti intentionally failed to disclose, and concealed from The Jordan Trust, that foreign currency instruments purchased with The Jordan Trust's Monies were purchased utilizing leverage, were pledged to Beacon's creditors and were subject to margin calls.
Fiduciary

Finally, the IMS Defendants assert that the Court overlooked that the IMS could not have any fiduciary duty because the entity that they purportedly controlled, IFSI, did not have any fiduciary duty to Jordan.

The Opinion states that "as the Fund administrator," IFSI "had a fiduciary duty to all Fund shareholders to implement all trades on behalf of those shareholders and to report the status of each shareholder's account accurately." Jordan III, 2003 U.S. Dist. LEXIS 5182, at *37-38. The SAC alleges that IMS assumed the role that IFSI was responsible to perform. (SAC ¶ 4-7.) Thus, "[b]y undertaking to implement trades on behalf of the Trust as directed and to provide account statements to the Trust, IMS assumed a fiduciary duty to provide prior notice of any trade and to provide accurate information regarding the status of the Trust's account." Jordan III, 2003 U.S. Dist. LEXIS 5182, at *38 (citing Conway v. Ichan & Co., Inc., 16 F.3d 504, 510 (2d Cir. 1994); Kwiatkowski v. Bear Stearns Co., No. 96 Civ. 4798, 1997 WL 538819, at *4 (S.D.N.Y. Aug. 29, 1997)). By maintaining the Fund's share register and records and implementing all trades, the IMS Defendants, unlike the Rosenman Defendants, went beyond ministerial functions. (SAC ¶¶ 4,7(d)(e).) They further became actively involved in the actions of Schilling, HGK, and IFSI by misrepresenting the existence of the Class J Shares. This is very different from the Clifford v. Hughson case where defendants and plaintiffs were in a landlord-tenant relationship that "is not ordinarily a fiduciary one," and plaintiffs did "not anywhere allege that defendants . . . had a fiduciary relationship to plaintiffs." 992 F. Supp. 661, 670 (S.D.N.Y. 1998).

IFSI was retained as the Fund administrator pursuant to the Administrative Services Agreement of November 1, 1996. Although this agreement disclaimed any intention to give third parties enforceable rights, it did not waive fiduciary duties owned to Fund shareholders in carrying out the responsibilities of Fund administrator.

Conclusion

The IMS Defendants' motion for reconsideration is thereby denied.

It is so ordered.


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