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In re Tremont Securities Law, State Law, and Insurance Litigation

United States District Court, Second Circuit

September 3, 2013

IN RE TREMONT SECURITIES LAW, STATE LAW, AND INSURANCE LITIGATION.
v.
TREMONT GROUP HOLDINGS, INC., et al., Defendants. SPECTRUM SELECT, L.P., Plaintiff, ALBERT ANIKSTEIN, et al., Plaintiff,
v.
TREMONT GROUP HOLDINGS, INC., et al., Defendants. MICHAEL BECKER, et al., Plaintiff,
v.
TREMONT GROUP HOLDINGS, INC., et al., Defendants. ALAN BILGORE, et al., Plaintiff,
v.
TREMONT GROUP HOLDINGS, INC., et al., Defendants. KARASEL II, L.P., et al., Plaintiff,
v.
TREMONT GROUP HOLDINGS, INC., et al., Defendants. SPECTRUM SELECT II, L.P. and SPECTRUM EQUITIES, L.P., Plaintiff,
v.
TREMONT GROUP HOLDINGS, INC., et al., Defendants. ROBERT COCCHI, et al., Plaintiff,
v.
TREMONT GROUP HOLDINGS, INC., et al., Defendants.

OPINION

THOMAS P. GRIESA, District Judge.

These are all closely similar actions brought by investors in certain Tremont funds to recover assets lost to the Bernard Madoff Ponzi scheme. They were originally filed in various Florida state courts, but they were eventually consolidated before a single judge in Palm Beach County, Florida, and then removed to the Southern District of Florida pursuant to the Securities Litigation Uniform Standards Act, 15 U.S.C. § 78bb(f)(2). They were then transferred to this court pursuant to an order by the Judicial Panel on Multidistrict Litigation. See In re Tremont Grp. Holdings, Inc. Sec. Litig., MDL No. 2052 (J.P.M.L. 2012).

Defendants now move to dismiss the complaints in these actions pursuant to SLUSA, 15 U.S.C. §§ 78bb(f)(1)(A). Plaintiffs do not seriously contend that dismissal on this basis is not appropriate. Rather, they move for leave to file an amended, consolidated complaint, adding federal securities law claims and incorporating allegations that are apparently the fruits of discovery granted by the Florida state court. 15 U.S.C. § 78u-4(b)(3)(B). Plaintiffs also request that the court refrain from ruling on defendants' motions to dismiss pending the Supreme Court's decision in the Troice cases currently pending before it. See Chadbourne & Parke LLP v. Troice , 133 S.Ct. 977 (2013); Proskauer Rose LLP v. Troice , 133 S.Ct. 978 (2013); Willis of Colo. Inc. v. Troice , 133 S.Ct. 977 (2013). Those cases, likely to be argued and decided next term, deal with the proper scope of SLUSA's preclusive effect and therefore, plaintiffs argue, may alter the court's disposition of the state law claims in this action.

The motion to stay is denied. The complaints are dismissed with leave to file a consolidated amended complaint.

The Complaints

The substance of the present motions has little to do with the details of plaintiffs' complaints, so the court will describe those allegations only briefly.

The complaints allege that the various plaintiffs invested their assets with Tremont's Rye Select Broad Market Fund, the Rye Select Broad Market XL Fund, and the Rye Select Broad Market Prime Fund. The complaint alleges that Tremont and the other defendants made representations about the quality of the investment strategy that the funds would employ, the due diligence that they would perform upon fund managers, and the funds' ongoing investment activities.

The complaints allege that these representations were false. It is alleged that instead of employing a rigorous and careful investment strategy, the funds handed their assets over to a Ponzi scheme. It is further alleged that instead of performing careful due diligence and rigorous monitoring, the funds handed their assets over blindly to Madoff and took his claims about the fund's performance on faith. Meanwhile, the defendants made numerous representations about the funds' past and ongoing performance, which claimed that the funds were achieving steady and consistent gains. These gains were entirely fictional.

Stemming from these allegations, the complaints claim numerous violations of Florida state law. These include state-law securities fraud under Fla. Stat. Ann. § 517.301, common law fraud, negligent misrepresentation, common law breach of fiduciary duty, breach of statutory fiduciary duties imposed by Fla. Stat. Ann. § 517.11, professional malpractice, breach of contract, as well as several counts of vicarious liability for aiding and abetting the primary violations just listed.

Discussion

SLUSA ensures that plaintiffs cannot avoid the heightened pleading standards of the Private Securities Litigation Reform Act of 1995 by finding state law vehicles for their securities fraud claims. 15 U.S.C. §§ 78bb(f), 77p(b). See Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit , 547 U.S. 71, 82 (2006). Thus, SLUSA bars "covered" collective actions brought under state law that allege "a misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security." 15 U.S.C. § 78bb(f)(1)(A).

The first of these elements - that the action be a "covered" collective action - is more troublesome in this case than most, but it is nonetheless satisfied. Under SLUSA, the definition of a covered action includes either a single class action, a single action with more than 50 plaintiffs, or, as relevant here

any group of lawsuits filed in or pending in the same court and involving common questions of law or fact, in which (I) damages are sought on behalf of more than 50 persons; and (II) the lawsuits are joined, consolidated, or otherwise proceed as a single action for any purpose.

15 U.S.C. § 77p(f)(2)(A)(ii). As described above, these actions were originally filed as separate actions across Florida, none of which individually had 50 or more plaintiffs. Now, however, as the Southern District of Florida and the Judicial Panel on Multidistrict Litigation have recognized, these cases are clearly proceeding as a single action. Indeed, plaintiffs can hardly contend - and have not - that they are not proceeding together given that one of the motions to be resolved by this opinion is a motion to file a consolidated complaint. And there is no dispute that ...


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