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In Re: Beacon Associates Litigation

September 26, 2011

IN RE: BEACON ASSOCIATES LITIGATION


The opinion of the court was delivered by: Sand, J.

BUFFALO LABORERS SECURITY FUND, WELFARE FUND AND WELFARE STAFF FUND et al., 09 Civ. 8362 (LBS) (AJP) Plaintiffs, v. J.P. JEANNERET ASSOCIATES, INC., et al., Defendants. ERNEST A. HARTMAN et al., 09 Civ. 8278 (LBS) (AJP) v. IVY ASSET MANAGEMENT LLC, et al., Defendants. Plaintiffs,

MEMORANDUM & ORDER

Before the Court is Defendant Ivy Asset Management LLC's motion for partial reconsideration of Judge McMahon's January 4, 2011 Order, granting in part and denying in part Defendant's motion to dismiss the claims asserted against it in Buffalo Laborers Security Fund v. J.P. Jeanneret Associates, Inc. ("Buffalo Laborers"), No. 09 Civ. 836. Defendant asks the Court to reconsider several portions of Judge McMahon's Order, as applied to the claims in Buffalo Laborers and, by stipulation of the parties, to the claims in a related case, Hartman v. Ivy Asset Management LLC ("Hartman"), No. 09 Civ. 8278, with which it has been consolidated for pretrial purposes. Ivy also moves the Court to dismiss two claims against it raised by the Hartman Plaintiffs but not raised in Buffalo Laborers and therefore not subject to either Judge McMahon's Order or the parties' stipulation.

For the following reasons, Defendant's motion for partial reconsideration and Defendant's motion to dismiss are granted in part and denied in part.

I.Background

Hartman and Buffalo Laborers are two of a number of lawsuits pending before this Court brought by, or on behalf of, clients of the investment and asset management company, J.P. Jeanneret Associates ("JPJA"), who lost money after they invested in what turned out to be the massive Ponzi scheme orchestrated by Bernard L. Madoff. The lawsuits concern the liability not of Madoff himself, but of JPJA and Ivy Management Associates LLC ("Ivy"), which entered into an agreement with JPJA in 1991 to provide it access to recommended investment managers, such as Madoff.*fn1

Both Hartman and Buffalo Laborers were originally assigned to Judge McMahon. However, Judge McMahon agreed to transfer the two cases to these chambers in response to the Secretary of Labor's request that all ERISA-related claims against JPJA and Ivy be consolidated before one judge. See Order Transferring ERISA Case (09 Civ. 8278) and Transferring Same to the Docket of the Hon. Leonard B. Sand, Jan. 4, 2011 ("McMahon Order"). In the January 4 Order in which she transferred Buffalo Laborers to this Court, Judge McMahon also disposed of the various motions to dismiss raised by the defendants in that case. By stipulation, the parties in Hartman agreed to apply Judge McMahon's Order to the claims in Hartman, to the extent they overlapped with the claims in Buffalo Laborers. The defendants expressly reserved the right to appeal and seek reversal of the January 4 Order, as applied to both cases.

In the motion before this Court, Ivy has exercised that right. It has asked the Court to reconsider four of the holdings in Judge McMahon's Order. It has also asked the Court to dismiss two claims raised by the Hartman Plaintiffs that were not raised by the Buffalo Laborers Plaintiffs and therefore were not implicated by the January 4 Order or subsequent stipulation.

II.The Motions for Reconsideration

Reconsideration of a previous order by the court is an "extraordinary remedy to be employed sparingly in the interests of finality and conservation of scarce judicial resources." In re Health Mgmt. Sys. Inc. Sec. Litig., 113 F. Supp. 2d 613, 614 (S.D.N.Y. 2000) (citation and internal quotation marks omitted). To prevail, "the movant must demonstrate 'an intervening change of controlling law, the availability of new evidence, or the need to correct a clear error or prevent manifest injustice.'" Catskill Dev., L.L.C. v. Park Place Entm't Corp., 154 F. Supp. 2d 696, 701 (S.D.N.Y. 2001) (quoting Doe v. NYC Dep't of Soc. Servs., 709 F.2d 782, 789 (2d Cir. 1983)). "The standard for granting such a motion 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, 256--57 (2d Cir. 1995).

A.Claims Relating to the Direct Investors

Ivy first asks this Court to reconsider Judge McMahon's decision to deny its motion to dismiss all claims against it that relate to the "Direct Investors"-those JPJA clients who invested directly in Madoff rather than placing their assets in one of the feeder funds that channeled money to Madoff, such as the Beacon Fund discussed in In re Beacon Assoc. Litigation ("Beacon"), 745 F. Supp. 2d 386 (S.D.N.Y. 2010).

Ivy makes three arguments in support of reconsideration. First, it argues that the decision to allow the Direct Investors claim to proceed was without justification given Judge McMahon's statement in the January 4 Order that in disposing of the various motions to dismiss before her, she was relying upon this Court's reasoning in Beacon, 745 F.Supp.2d 386 (S.D.N.Y. 2010). Beacon did not involve any Direct Investor claims but exclusively concerned claims brought by investors in the Beacon Fund. Ivy takes this to mean that Judge McMahon "did not. offer any reason for denying Ivy's motion to dismiss [these claims] other than not wanting to transfer a matter with open motions." Def.'s Memo Supp. Partial Recons. ("Ivy Memo") 3. It concludes from this fact that Judge McMahon "left the question [of Ivy's liability towards the Direct Investors] for this Court," and on this ground, urges reconsideration. Id.

Second, Ivy argues that the interests of "justice and judicial efficiency" would be advanced were the Court to reconsider the plausibility of the Direct Investor claims without deference to Judge McMahon's decision. Ivy Memo 4. Doing so, it argues, would ensure the same result is reached in these cases and in a related case, Solis v. Beacon Associates Management Corp. ("Solis"), No. 10 Civ. 8000, which also involves Direct Investor claims against Ivy (though brought by the Secretary of Labor rather than private plaintiffs) and is also pending before this Court.

Third, Ivy argues that the decision was substantively wrong because neither the Buffalo Laborers nor the Hartman Complaints allege sufficient facts to make out a plausible claim that Ivy acted as a fiduciary with respect to the Direct Investors, under the "investment advice for a fee" prong of the fiduciary definition set out in ERISA §3(21)(A) and approved in Beacon. See 745 F. Supp. 2d at 422--23 (citing 29 U.S.C. § 1002(21)(A)). It accepts Judge McMahon's decision denying its motion to dismiss the claims predicated upon its fiduciary responsibility towards investors in the feeder funds, given the decision in Beacon to allow the virtually identical claims raised by the plaintiffs in that case to proceed. Ivy argues, however, that the holding in Beacon does not apply to the Direct Investors, given 1) differences in the nature of the class and 2) differences in the amount of evidence Plaintiffs provide in their Complaints to support the inference that Ivy acted as a fiduciary with respect to this group of investors by providing them "individualized" investment advice, "on a regular basis," "pursuant to a mutual agreement, arrangement or understanding, that such services will serve as a primary basis for investment decisions with respect to plan assets," as the regulations require. See 29 C.F.R. § 2510.3--21(c)(1)(ii)(B).*fn2

Ivy notes, for example, that unlike investors in feeder funds like the Beacon Fund, none of the Direct Investors signed contracts with JPJA in which Ivy was named specifically as an "investment advisor." Def.'s Memo. Supp. Mot. Dismiss, Solis, No. 10 Civ. 8000, 12. It also notes that, whereas feeder funds like Beacon were single, homogenous entities, the Direct Investors represented "dozens of separate and distinct entities, each of which possessed its own investment portfolio and needs, its own individual trustees, its individual relationship with JPJA and its own independent account with Madoff." Def.'s Reply Memo Further Supp. Partial Recons. 3--4. Ivy argues that this fact means that it would have been extremely difficult, even impossible, to provide individualized investment advice to all of the Direct Investors, and unlikely that it would have agreed to do so. Id. at 4. These factual differences, it claims, in the nature of the Direct Investors as a class and in the amount of evidence about them provided in the Complaints, mean that Plaintiffs have ...


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