Plaintiffs are the trustees and fiduciaries of an employee benefits plan for the plumbers and pipefitters industry in the state of Washington. In 2005, after years of using Tremont Partners, Inc. ("Tremont") as an investment manager, plaintiffs signed a Subscription Agreement ("Agreement") pursuant to which the Plan obtained shares in a hedge fund, the Tremont Core Strategies Fund (the "Fund"), which was managed by Tremont. The Agreement contained a forum selection clause providing that all disputes with respect to the Agreement and the Fund be brought in the Cayman Islands. Tremont now moves for judgment on the pleadings on the basis that the forum selection clause requires this case to be brought in the Cayman Islands. Plaintiffs oppose, and move for judgment on defendants' counterclaims and to strike defendants' affirmative defenses.
The court denies Tremont's motion for judgment on the pleadings. The plaintiffs' motions are granted in part and denied in part, as will be described.
Plaintiffs are the trustees and fiduciaries of the Washington State Plumbing and Pipefitting Industry Pension Plan (the "Plan"). The Plan is a multi-employer employee benefits plan governed by ERISA, with its sole purpose to provide pension benefits to eligible members of the Washington State plumbing and pipefitting industry.
Defendant Tremont is an investment manager that operated various hedge funds, a number of which were "feeder funds" to the now well-known Ponzi scheme of Bernard Madoff.
This case, like many others before this court, arises from the massive Ponzi scheme perpetrated by Madoff. The court will not describe in full the detailed circumstances of Madoff's Ponzi scheme, which have been thoroughly detailed by this court and others. The link in this case to Madoff's Ponzi scheme is the Tremont Core Strategies Fund ("the Fund"), managed by Tremont, and invested in by plaintiffs from 2005 through the present date.
As noted above, before 2005, Tremont had already been providing investment management services to plaintiffs. During 2005, Tremont created the Fund. The Fund principally offered its shares to ERISA plans such as the Plan. The Plan entered into a Subscription Agreement with Tremont in June 2005, pursuant to which the Plan became a shareholder of the Fund. After the Plan became a shareholder of the Fund and entrusted its money to Tremont, Tremont, as manager of the Fund, invested some portion of that with Madoff. The Plan lost money when Madoff's Ponzi scheme was revealed and seeks to recover the lost money from Tremont through this lawsuit.
The gravamen of this lawsuit is that Tremont, which served as the investment manager to the Fund, was bound by ERISA's fiduciary standards with respect to its management of the Fund, and violated those duties by failing to conduct adequate due diligence regarding the Fund's investments or its managers and failing to appropriately investigate red flags or warning signs that the Fund's assets were improperly invested. In sum, plaintiffs allege that Tremont should have been more careful about investing the Plan's assets, which were invested in the Fund and subsequently invested by with Madoff, and that, had Tremont been more prudent, such investments with Madoff would not have occurred. Plaintiffs also accuse Tremont of having a conflict of interest, which contributed to Tremont's not appropriately managing the money entrusted to it by plaintiffs.
As described above, when the Plan invested in the Fund, it did so by signing the Agreement. The Agreement is an agreement between the Plan and the Fund. It contains the following forum selection clause:
Investor agrees that any suit, action or proceeding ("Proceeding") brought by Investor with respect to this Agreement and the Fund shall be brought in the Cayman Islands. Investor irrevocably submits to the jurisdiction of the Cayman Islands courts with respect to any Proceeding and consents that service of process as provided by Cayman Islands law may be made upon Investor in such Proceeding, and may not claim that [the] Proceeding has been brought in an inconvenient forum.
The Fund is a corporation organized under Cayman Islands law.
The complaint alleges claims arising under ERISA. The first such claim is a claim for breach of fiduciary duty by failing to prudently and loyally manage the Plan assets. The second is a claim for breach of the duty to avoid conflicts of interest.
Tremont answered, denying the allegations, and asserting two counterclaims. The counterclaims request that the court enforce the forum selection clause and seek damages for its breach. Tremont also asserted a number of affirmative defenses, including defenses based on improper venue because of the ...