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Midwest Memorial Group, LLC v. International Fund Services : (Ireland) Limited

October 17, 2011

MIDWEST MEMORIAL GROUP, LLC, PLAINTIFF,
v.
INTERNATIONAL FUND SERVICES : (IRELAND) LIMITED, DEFENDANT.



The opinion of the court was delivered by: Honorable Paul A. Crotty, United States District Judge:

USDC SDNY

OPINION & ORDER

Plaintiff Midwest Memorial Group, LLC ("Plaintiff") brings this action for damages against Defendant International Fund Services (Ireland) Limited ("IFS") alleging four causes of action: (1) aiding and abetting conversion; (2) negligence; (3) aiding and abetting fraud; and (4) civil conspiracy, in connection with a criminal scheme to convert trust fund assets of various cemeteries in Michigan. IFS moves to dismiss the Complaint under Fed. R. Civ. P. 12(b)(6) arguing that all of Plaintiff's claims are time barred. In the alternative, Defendant argues that Plaintiff also fails to state claims for relief under New York law. For the reasons discussed below, the Court finds that the Plaintiff's claims are time barred and GRANTS the Defendant's motion to dismiss.

I. BACKGROUND

In 2003, Mark Singer, who was then a financial advisor employed by Deutsche Bank, met Craig Bush, a Michigan attorney and businessman who owned various cemeteries (the "Cemeteries") in Michigan. (Compl. ¶ 22.) Michigan law requires a cemetery to maintain trust accounts to provide for the care and upkeep of graves in perpetuity, as well as to fund the purchase price of headstones, monuments, and mausoleums. (Id. ¶¶ 24-25.) These trust funds (the "Cemetery Trust Funds") totaled approximately $68 million in the fall of 2003. (Id. ¶ 25.) On Singer's advice, Bush formed a shell company, Summerfield LLC ("Summerfield"), to serve as the "investment vehicle" for the Cemetery Trust Funds. (Id. ¶ 26.) Summerfield then invested the Cemetery Trust Funds in various hedge funds (the "Topiary Funds") sponsored by Deutsche Bank and administered by IFS. As fund administrator, IFS was responsible for maintaining all financial and accounting books and records, among other things. (Id. ¶ 15.)

Bush, who was actively trying to sell the Cemeteries for three years, found a prospective buyer in Clayton Smart. Plaintiff alleges that Singer and Smart devised a plan to transfer ownership to Smart and to use the Cemetery Trust Funds to pay Bush. (Id. ¶ 28.) First, Smart would get a personal loan to convince Bush that he had the resources to purchase the Cemeteries. Second, having satisfied Bush by obtaining funds, Bush would then transfer control of the Cemetery Trust Funds to Smart. Third, after Smart controlled the Funds, he would transfer their assets into his own name. Lastly, Smart would pay Bush for the Cemeteries directly from the Cemetery Trust Funds "and loot the remainder." (Id. ¶ 29.)

On July 28, 2004, Singer, who was now at Smith Barney, issued term sheets for two loans totaling $31.5 million from Smith Barney. (Id. ¶ 34.) The term sheets showed the collateral for these loans was to be Smart's alleged interest in the Topiary Funds, but these assets were in the name of Summerfield, and administered by IFS. Smart then gave Bush the term sheets for the loans from Smith Barney. On August 19, 2004, Bush and Smart signed a Purchase Agreement for the Cemeteries. Smart was to pay $31 million and assume a $15 million debt that Bush had incurred when he purchased the Cemeteries in 2000. (Id. ¶ 37.) Smart was to pay the purchase price following a "closing date" but was entitled to operate the Cemeteries in the "ordinary course" before Bush received any funds. (Id. ¶ 38.) The Purchase Agreement restricted Smart from conducting investment transactions "without prior regulatory approval." (Id.)

To finalize Smart's purchase of the Cemeteries, on August 22, 2004, Smart faxed IFS a request to move Summerfield's holdings in the Topiary Funds to a Smith Barney account in Smart's name. (Id. ¶ 43.) IFS did not recognize Smart's name and so it initially declined this request. (Id.) On August 26, 2004, Bush directed IFS to grant control to Smart, and IFS acknowledged the change in signatories for the Fund. (Id. ¶ 44.) On August 30, 2004, Smart again faxed IFS to request that IFS transfer Summerfield's interest in the Topiary Funds to a company in which Smart owned a 95 percent interest. (Id. ¶ 45.)

These transfers were to be approved as of September 30, 2004, but a transaction as of that date would give the lie to Smart's assertion that he had an interest in the Topiary Funds as of July 24, 2004. Accordingly, Singer and Smart then "worked with IFS to 'back date' the transfers and issue false account statements that stated Smart owned the funds as of June 30, 2004," even though IFS had previously issued statements to Summerfield showing Summerfield owned the interest in the Topiary Funds through July 2004. (Id. ¶¶ 46-47.) Singer faxed this backdated account statement to Smith Barney on September 16, 2004, and the next day IFS faxed a letter agreement to Smith Barney confirming that Smart owned an interest in the Topiary Funds. (Id. ¶ 50.) After receiving the letter agreement from IFS on September 17, Smith Barney issued its loan to Smart that same day. (Id. ¶ 51.)

According to Plaintiff, IFS's backdated account statement "was crucial to Smith Barney actually funding the loan, which, in turn, was crucial to the entire Scheme." (Id. ¶ 49.) Through the backdated statement, Smart "appeared to have an ownership interest in the Summerfield accounts at a time when he did not," which in turn made Smart "appear eligible to purchase the Cemeteries so he could obtain funding from Smith Barney and thereby gain access to the Trust Funds." (Id. ¶ 48.)

Plaintiff alleges that after the Cemetery Purchase was final, Smart and Singer "began moving funds in and out of the Smith Barney accounts in a swirl of fraudulent activity," while simultaneously creating a false paper trail to hide their conversion of the Cemetery Trust Funds. (Id. ¶¶ 53-55.) Authorities in Michigan began an investigation in 2006 and filed Conservatorship proceedings on December 18, 2006 alleging that more than $60 million in Cemetery Trust Funds were unaccounted for. (Id. ¶ 56.) Criminal proceedings are currently pending against Smart in both Tennessee and Michigan.

Plaintiff purchased the Cemeteries from the Michigan conservator and filed suit in Michigan state court*fn1 (the "Michigan Action") on January 28, 2010 against IFS, Singer, Smart, Smith Barney, and others. On September 7 and October 21, 2010, the Michigan court issued two opinions finding that the court lacked personal jurisdiction over IFS. (Id. ¶ 62.) On November 16, 2010, Plaintiff filed its Complaint in this action. On November 17, 2010, IFS was dismissed from the Michigan Action for lack of personal jurisdiction.*fn2 (Def. Mem. at 6.)

Plaintiff and IFS entered into a statute of limitations tolling agreement that applied to claims existing as of September 7, 2007. The tolling agreement prohibited Plaintiff from filing claims relating to the Cemetery Trust Funds while the agreement was in ...


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