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GPIF-I Equity Co., Ltd. v. HDG Mansur Investment Services, Inc.

United States District Court, S.D. New York

April 21, 2014

GPIF-I EQUITY CO., LTD. and GPIF-I FINANCE CO., LTD., Plaintiffs/Counterclaim Defendants,
v.
HDG MANSUR INVESTMENT SERVICES, INC., HDGM ADVISORY SERVICES, LLC, and HAROLD D. GARRISON, Defendants/Counterclaim Plaintiffs.

MEMORANDUM DECISION AND ORDER (1) GRANTING IN PART DEFENDANTS' MOTION FOR SUMMARY JUDGMENT ON PLAINTIFFS' REMAINING CLAIMS AND (2) DENYING PLAINTIFFS' CROSS-MOTION FOR SUMMARY JUDGMENT ON THEIR FIDUCIARY DUTY CLAIMS

COLLEEN McMAHON, District Judge.

Plaintiffs GPIF-I Equity Co., Ltd., and GPIF-I Finance Co., Ltd., (together, the "Funds") brought this action against Defendants HDG Mansur Investment Services, Inc., HDGM Advisory Services, LLC (together, the "HDG Entities"), and Harold D. Garrison, alleging breach of contract, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, fraud, and violation of the Investment Advisors Act, 15 U.S.C. ยง 80b-1 et seq., stemming from Defendants' alleged misappropriation of $5, 818, 682 from the Funds between February and November 2012.

Currently before the Court are two motions: (1) Defendants' motion for summary judgment on Plaintiffs' remaining claims (following this Court's grant of summary judgment to Plaintiffs on their breach of contract claim), and (2) Plaintiffs' cross-motion for partial summary judgment on their fiduciary duty claims. For the following reasons, Defendants' motion is granted in part and denied in part, and Plaintiffs' motion is denied.

BACKGROUND

The Funds are real estate investment funds that were set up as an investment vehicle for religious Muslims, who are prohibited by Shariah law from paying or receiving interest or becoming direct lenders or borrowers. The HDG Entities are real estate investment advisory firms that provided advisory and management services to the Funds. Harold D. Garrison is the co-founder of HDG Mansur Investment Services, Inc. ("HDGMIS").

From 2002 through March 2012, HDGMIS acted as the Fund Manager to the Funds. HDGMIS entered into Fund Management Agreements (the "FMAs") with each of the Plaintiff Funds. In 2012, Defendant HDGM Advisory Services ("HDGMAS") was created, and on March 30, 2012, it took an assignment of all of HDGMIS' rights and obligations under the FMAs.

The FMAs provided that the HDG Entities would provide various services to the Funds, including "the structuring, acquisition and financing of investments, in accordance with the principles of Islamic Shariah as interpreted by the Shariah committee [a committee at HSBC that oversees Shariah-compliant investment services]." In return for these services, the HDG Entities were entitled to receive two types of fees from the Funds: "Financing Fees" and "Investment Fees." The FMAs distinguish between the way the Financing Fees are calculated and the way Investment Fees are calculated.

In late 2011 or early 2012, the HDG Entities suddenly decided that they had been reading the FMAs incorrectly for the past decade and that they were entitled to an additional $5, 818, 682 in Financing Fees-which sum they proceeded to withdraw from various of the Funds' accounts, in some thirty different transactions, of differing amounts, all without obtaining any approval from Plaintiffs or their Board of Directors. Indeed, it is not clear that Plaintiffs were even notified of Defendants' contractual epiphany until after the money had been taken from the Funds. Defendants claimed that they were simply exercising their contractual right to self-help as set forth in Section 3 of the FMAs.

The Funds finally learned of Defendants' new contract interpretation in the fall of 2012. In January 2013, they terminated the FMAs and brought this action seeking the return of the $5.8 million that Defendants withdrew from their accounts. Plaintiffs filed their Complaint on January 24, 2013, along with a motion for a preliminary injunction, asking the Court to order the HDG Entities to deposit the $5.8 million in a constructive trust during the pendency of the litigation. The Court held a hearing on January 31, 2013, and denied the motion, holding that Plaintiffs had an adequate remedy at law.

On February 15, 2013, the HDG Entities asserted counterclaims against Plaintiffs for breach of contract and accounting. They claim that Plaintiffs owe the HDG Entities approximately $20.3 million in fees related to Plaintiffs' early termination of the parties' agreement, including, inter alia, fees owed on certain closed and pending transactions and a "severance payment."

On August 1, 2013, this Court granted Plaintiffs' motion for partial summary judgment on their breach of contract claim against the HDG Entities and awarded them $5, 181, 682 in damages, plus statutory pre- and post-judgment interest.

On December 20, 2013, this Court denied the parties' cross-motions for summary judgment on Defendants' counterclaims and also denied Plaintiffs' motion for entry of a partial judgment.

DISCUSSION

I. Summary Judgment ...


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