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In re Meridian Funds Group Securities and Employee Retirement Income Sec. Act (ERISA) Litigation

United States District Court, S.D. New York

January 7, 2013

In Re MERIDIAN FUNDS GROUP SECURITIES AND EMPLOYEE RETIREMENT INCOME SECURITY ACT (ERISA) LITIGATION.

Page 232

[Copyrighted Material Omitted]

Page 233

Darren J. Robbins, David C. Walton, Robbins Geller Rudman & Dowd LLP, San Diego, CA, David Avi Rosenfeld, Edward Y. Kroub, Samuel Howard Rudman, Robbins Geller Rudman & Dowd LLP, Melville, NY, Sharon M. Goodman, Slevin & Hart, P.C., Washington, DC, Jeffrey B. Gittleman, M. Richard Komins, Barrack, Rodos & Bacine, Stephen A. Weiss, Seeger Weiss LLP, Philadelphia, PA, Robert Alan Wallner, Milberg LLP, New York, NY, for Plaintiffs.

Marshall Howard Fishman, David Joseph Onorato, Samuel Joseph Rubin, Dana Leigh Post, Freshfields Bruckhaus Deringer LLP, Geoffrey Potter, Patterson, Belknap, Webb & Tyler LLP, New York, NY, for Defendants.

Page 234

OPINION

THOMAS P. GRIESA, District Judge.

This putative class action arises out of the massive Ponzi scheme orchestrated by Bernard Madoff.

The lead Plaintiff in this case, Pension Trust Fund for Operating Engineers (" Operating Engineers" ), is a multi-employer pension plan governed by ERISA. Operating Engineers was an investor in a hedge fund, Meridian Diversified ERISA Fund, Ltd. (" the ERISA Fund" ), managed by Meridian Diversified Fund Management, LLC (" Meridian Management" ). A portion of this fund's assets was invested in Rye Select Broad Market XL Portfolio Ltd. (" the Rye Portfolio Fund" ), managed by Tremont Partners, Inc., which served as a " feeder" fund, investing the fund's assets with Madoff and his investment firm, Bernard L. Madoff Investment Securities LLC (" BMIS" ). When Madoff's fraud was discovered, Meridian's entire investment in the Rye Portfolio Fund was lost and, with it, a portion of plaintiff's investment in the ERISA Fund.

The complaint alleges violations of the Securities Act of 1933, the Securities Exchange Act of 1934, the Employee Retirement Income Security Act of 1974, breach of contract, breach of fiduciary duty, unjust enrichment, gross negligence, common law fraud, and negligent misrepresentation.

Defendants move to dismiss all claims. Defendants' motion is granted in part and denied in part.

The Parties

Operating Engineers purchased and held shares worth a total of $125 million in the Meridian Diversified ERISA Fund, Ltd. (" the ERISA Fund" ) during the class period. (The class period covers shares purchased between March 24, 2004 and December 11, 2008, or held on December 11, 2008.) F.G. Crossthwaite, Operating Engineers' fiduciary, asserts ERISA claims on Operating Engineers' behalf, as required by ERISA ยง 502. This action is also brought on behalf of all persons similarly situated who purchased shares in funds managed by Meridian Management or one of a number of related entities— Meridian Capital Partners, Inc., (" Meridian Management" ), Meridian Diversified Fund, LP, and Meridian Diversified Fund, LLC (collectively, the " Meridian Corporate Defendants" )— and who suffered losses as a result of the alleged misconduct described below. Operating Engineers asserts claims not only related to the Meridian Diversified fund they invested in— the ERISA Fund— but also all funds managed by Meridian Corporate Defendants that invested in any Madoff-related entity.[1]

Operating Engineers has sued various Meridian Corporate Defendants. These include Meridian Diversified and Meridian Capital Partners, Inc. These appear also to include Meridian Diversified Fund, LP, and Meridian Diversified Fund, LLC though, presumably due to a drafting mistake, " Meridian Corporate Defendants" is at one point also defined only to include Meridian Diversified and Meridian Capital.

Operating Engineers has also sued various individual defendants who served as executives of Meridian Management and Meridian Capital. These include William Lawrence, Donald Halldin, James Owen, John Sica, Timothy Hickey, Robert Murphy, Howard Fischer, Laura Smith, Peter

Page 235

Brown, and Mark Hurrell (collectively, " Individual Defendants" ).

Operating Engineers have also listed Doe defendants representing individuals or entities who may also be liable but whose identities are not yet known.

Standing

As described above, the complaint alleges violations by defendants with respect to eight funds controlled by Meridian Corporate Defendants. See supra p. 234. However, as also described above, Operating Engineers only invested in one of these funds, the ERISA Fund. Thus, as to the seven remaining funds, Operating Engineers has suffered no injury.

Operating Engineers is only permitted to pursue claims relating to the Meridian fund in which it actually invested, i.e., the ERISA Fund. Therefore, all claims brought by Operating Engineers on behalf of putative, as yet unnamed class members who did not invest in the ERISA Fund are dismissed. However, because these claims are brought only on behalf of putative class members, there is no impact on the parties named in this lawsuit. It only affects the composition of the putative class and, accordingly, the number of potential claims against defendants.

Operating Engineers' State-Law Claims

Operating Engineers also brings a number of state-law claims on behalf of putative class members who are not ERISA plans. Naturally, because they are not ERISA Plans, these non-ERISA class plaintiffs were invested in funds other than the ERISA Fund in which Operating Engineers had invested.

However, as discussed above, Operating Engineers only has standing to bring claims arising out of its own investment in the ERISA Fund. Therefore, Operating Engineers does not have standing to bring these common law claims on behalf of non-ERISA class plaintiffs who, as Operating Engineers concedes, invested in funds other than the ERISA Fund. Thus, Operating Engineers' claims of breach of fiduciary duty, fraud, unjust enrichment, breach of contract, negligent misrepresentation, and gross ...


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