Opinion
No. X05 CV095011561S
April 16, 2010
MEMORANDUM OF DECISION ON DEFENDANTS' MOTIONS TO DISMISS (#s 145; 148; 162; 164 168)
Introduction
This litigation in the Connecticut Superior Court is part of the fallout from the massive fraudulent investment scheme perpetrated by Bernard L. Madoff (Madoff). The plaintiffs are the Town of Fairfield (Town) and the two retirement programs or retirement plans (Plans) funded by the Town to provide pensions for its current or former police, fire and other municipal employees. The plaintiffs brought this action against multiple defendants to recover multi-million dollar losses sustained by the Plans, allegedly as a result of the actions of these defendants. The defendants consist of several individuals and institutions which invested Town pension funds on behalf of the Plans and/or are persons or entities which are alleged to have wrongfully participated in and benefited from Bernard Madoff's fraudulent scheme, all to the detriment of the Town and the Plans.
Arguing that this court lacks subject matter jurisdiction, the defendants have moved pursuant to Practice Book § 10-30 et seq. to dismiss the allegations against them on the ground that the plaintiffs lack standing. That is, the defendants contend that the plaintiffs' claims are derivative in nature, and may not be pursued as direct causes of action on the state of this record. Those motions are the subject of this memorandum of decision. As is discussed herein, for the purposes of these motions to dismiss, the court must accept the allegations in the complaint as true.
Recognition of this principle of law avoids the repeated characterization in this memorandum of decision of each and every allegation as an allegation.
The Defendants
The plaintiffs' complaint is dated March 30, 2009. There are currently eleven named defendants, eight individuals and three corporate entities. The defendants can be generally divided into two groups. The first group consists of Bernard Madoff and members of his family who worked with him in the securities industry. The second group are institutions and individuals whom the plaintiffs allege improperly participated in funneling or "feeding" investment funds to Madoff, which enabled him to continue running his Ponzi scheme. This second group of defendants may be further divided into two subsets: the so-called "Maxam Defendants," pension investment consultants which dealt directly with the Town and the Plans, and the other subset, called the "Fairfield Greenwich Group Defendants," a group of individuals who managed hedge funds but had no direct dealings with the plaintiffs whatsoever.
In addition to the defendants named above, the complaint as originally filed also asserted claims against four other defendants: Tremont Partners, Inc. (general partner of a number of hedge funds, including a fund in which the Plans had once invested as limited partners), Tremont Group Holdings, Inc. (owner of Tremont Partners), Oppenheimer Acquisition Corp. (owner of Tremont Group Holdings since 2001), and an individual named Robert Schulman (President of Tremont Group Holdings). Along with the defendant Sandra Manzke, who founded Tremont Partners, these four defendants are collectively referred to in the complaint as the "Tremont Defendants." The Tremont Defendants had at one time provided investment and pension consulting services for the Plans, but were not acting in that capacity when Madoff's long-running Ponzi scheme finally came to light in December 2008. The court heard oral argument on these motions to dismiss on December 22, 2009. After that hearing, but before the issuance of this memorandum of decision, the plaintiffs withdrew their claims against the Tremont Defendants. Although the Tremont Defendants had asserted their own challenges to this court's jurisdiction, in light of that withdrawal, those claims are not discussed, infra, except to the extent that their arguments have been expressly adopted by the remaining defendants. The Tremont Defendants are discussed herein only as necessary to an understanding of the allegations which remain against the defendant Sandra Manzke.
The defendants and their roles may be described as follows:
1. The defendant Bernard L. Madoff was the former chairman of the Nasdaq and the former investment manager and founder of the market-making firm Bernard L. Madoff Investment Securities, LLC (BLMIS). In December 2008, Madoff surrendered to federal authorities and confessed to orchestrating one of the world's biggest securities fraud cases ever. Essentially, Madoff admitted to a massive Ponzi scheme, a scheme in which investors' funds entrusted to Madoff were not actually invested, but were used instead to fund Madoff's lifestyle, and to pay other investors' requests for redemption of principal and profits. He was convicted and is currently serving a 150-year prison term. The court received notice that on April 13, 2009, an involuntary bankruptcy petition was filed against Madoff in the United States Bankruptcy Court for the Southern District of New York. This has resulted in an automatic stay of these proceedings as to Madoff pursuant to § 362 of the Bankruptcy Code.
2. Three other Madoff family members are also named as defendants to this litigation. Madoff's brother, the defendant Peter B. Madoff, was a co-owner of BLMIS, and served as its Senior Managing Director, Director of Trading and Chief Compliance Officer. Additionally, Madoff's two sons, who are alleged to have benefited financially from his fraud, are the defendants Mark D. Madoff and Andrew H. Madoff. There is no allegation that the Town or the Plans ever dealt directly with Madoff or any co-defendant family members, or BLMIS itself.
The plaintiffs also originally asserted claims against Madoff's wife, Ruth Madoff, but these were withdrawn in July 2009, and are not discussed.
3. The defendant Maxam Capital Management, LLC (Maxam Capital) is a Connecticut company that provided investment management and consulting services to institutional investors. Maxam Capital formed a hedge fund in the form of a Delaware limited partnership called the Maxam Absolute Return Fund, LP (Maxam Fund). Following a solicitation by the founder of Maxam Capital, the Plans invested as limited partners in the Maxam Fund, which was a fund whose assets were managed by Madoff. Both the general partner of the Maxam Fund, Maxam Capital GP, LLC, and the administrator of that hedge fund, Maxam Capital Management Limited, are owned by Maxam Capital, and they have also been named as defendants by the Town.
3. The defendant Sandra L. Manzke (Manzke) formed Maxam Capital. Manzke is the Chief Executive Officer of Maxam Capital and also serves on its Investment Committee. Prior to forming Maxam Capital, Manzke had been the President of Tremont Partners. Through her roles at Tremont Partners and even earlier at another investment consulting firm before Tremont Partners and prior to forming Maxam Capital, Manzke was personally involved in providing pension consulting services to the Town and the plaintiff Plans for a number of years, going back to the early to mid 1980s. While the plaintiffs are still pursuing claims against Manzke, the plaintiffs have withdrawn additional claims they originally asserted against other Tremont-related entities. (See n. 1.) The plaintiffs refer to Manzke and to the Maxam entities collectively as the "Maxam Defendants."
There is some discrepancy in the pleadings as to the year when Maxam Capital was formed. It is listed as both 2006 (Complaint ¶ 7), and 2005 (Complaint ¶ 59).
The complaint does not give a specific date for when Manzke began to service the Town's Plans, only noting that it was "some time prior to the fall of 1984," when Manzke was a partner at Rogers, Casey and Barksdale, another investment consulting firm that provided pension consulting services to the Plans. (Complaint ¶ 30.)
4. The defendants Walter M. Noel, Jr. (Noel), Jeffrey H. Tucker (Tucker), and Andres Piedrahita (Piedrahita) are founder partners, principals and members of the Executive Committee or Board of Directors of Fairfield Greenwich Group. Fairfield Greenwich Group is an asset management company that manages and solicits investments for its own hedge funds and other hedge funds that invested, directly or indirectly with Madoff. They are not alleged to have had any direct dealings with the plaintiffs, which refer to these three individuals collectively as the "Fairfield Greenwich Group Defendants." Together with the Maxam Defendants, the Fairfield Greenwich Group Defendants form the second group of defendants in this litigation, after the Madoff family. This second group is collectively referred to by the plaintiffs as the "Feeder Fund Defendants."
The Allegations in the Complaint
The complaint as filed sounds in a total of twenty-nine (29) counts. Because of the plaintiffs' withdrawals against certain defendants, and the statutory bankruptcy stay in effect as to Madoff himself, only sixteen (16) counts are currently at issue. In order to properly address the merits of the challenge the defendants have now launched to the validity of the complaint and the court's jurisdiction over them, the court will provide some context to those challenges by first briefly summarizing those allegations at issue, before discussing the specifics of the defendant's motions.
Count One: Allegation Against Madoff (Stayed Due to Bankruptcy Proceedings) Count Two: Allegation Against the Tremont Defendants (Withdrawn) Count Three: Statutory Theft Against the Maxam Defendants
The third count alleges statutory theft pursuant to General Statutes § 52-564 on the part of the Maxam Defendants. By way of background, in or about 1984, Manzke formed her own company, Tremont Partners, holding it out as a highly-experienced and qualified company specializing in providing pension consulting services. In 1985, Manzke contracted with the Town to have Tremont Partners serve as pension investment consultant to the Plans. Tremont Partners' role included identifying, evaluating, recommending and monitoring the investment managers with whom or which the Plans would place investments. This relationship between Manzke and Tremont Partners and the Plans continued for a 20-year period, from 1985 to 2005, and the plaintiffs reposed their trust and confidence in Manzke, and relied upon her superior investment knowledge to guide the Plans' investment decisions. In 1995, Manzke and Tremont Partners formed a limited partnership that operated as a hedge fund that pooled investments, with Tremont Partners serving as the general partner.
Section 52-564 provides: "Any person who steals any property of another, or knowingly receives and conceals stolen property, shall pay the owner treble his damages."
Due to an arrangement between Manzke and Tremont Partners and Madoff, all of the fund's assets were managed by Madoff. The Plans invested $5 million in the fund in 1997 on Manzke's recommendation. As with the later investments by the Plans in the Maxam Fund which was also invested with Madoff, Manzke is alleged to have either known or willfully refused to know that Madoff's purported investment strategy and the investment returns he generated for the fund were produced by illegal activity, but concealed that knowledge from the plaintiffs, and falsely represented to the plaintiffs that Madoff's double digit annual returns were honestly produced. In reliance upon these false representations, the plaintiffs paid management and administrative fees, and the plaintiffs increased their investments in the fund, investing over an additional $27 million.
Maxam Capital was an entity created by Manzke after she left Tremont Partners in 2005. Following that move, Manzke solicited the Plans to withdraw from their investment with Tremont Partners and to invest the assets of the Plans in a new Maxam Capital fund. The Plans terminated their pension consulting contract with Tremont Partners in 2005. The plaintiffs allege that the Maxam Defendants, acting in concert with the other Feeder Fund Defendants and Madoff and Peter Madoff entered into an illegal arrangement pursuant to which they agreed to provide Madoff with billions of dollars in third-party investment funds for Madoff's illegal operations. These funds were "fed" to Madoff through a series of hedge funds operating in the form of limited partnerships. Investors included the plaintiff Plans, which became limited partners in the Maxam Fund, another limited partnership hedge fund which had been formed and organized under Delaware law and managed by the Maxam Defendants.
As counsel for Tremont Partners characterized it at oral argument, "[T]he plaintiffs fired us, took all their money back, and moved it to Maxam. And so at the time of discovery of the Madoff Ponzi scheme in fact they had nothing invested with us."
Like the Tremont fund before it, the Maxam Fund placed all of its investments with Madoff, and Madoff reported his investment activity in the Maxam Fund to the Maxam Defendants, rather than directly to individual limited partner investors like the Plans. Madoff's purported results were incorporated by Manzke into documents distributed to the Plans and relied upon by the plaintiffs. The Feeder Fund Defendants are alleged to have either known or willfully refused to know that Madoff's purported investment strategy and the investment returns he generated thereby were produced by illegal activity. The Feeder Fund Defendants received hundreds of millions of dollars in management and administrative fees from investors for their role in Madoff's fraudulent scheme, and are also alleged to have been critical to the perpetuation of that scheme, due to the continued infusions of new capital they provided to Madoff.
The plaintiffs allege that on December 3, 2008, the Maxam Defendants provided the Plans with an Investor Statement reporting that the Plans' capital investment in the Maxam Fund had a value of $41,885,901.22 as of November 30, 2008. This amount consisted of the Plans' principal investments of $37,443,675 and over $3.8 million in appreciation. In December 2008, the plaintiffs learned of Madoff's Ponzi scheme, and that the Plan's limited partnership investment in the Maxam Fund was actually worthless, and that the Plans had paid unwarranted fees to the Maxam Defendants.
Count Four: Statutory Theft Against the Fairfield Greenwich Group Defendants
The plaintiffs' statutory theft count against the Fairfield Greenwich Group Defendants alleges that as principals and partners of hedge funds that invested (and lost, according to counsel) over $7.5 billion directly or indirectly with Madoff during the 1990s through December 2008, they were in a position in 2008 to generate over $225 million annually in illicit fees for themselves. The Fairfield Greenwich Group Defendants allegedly were instrumental in furthering and continuing Madoff's fraudulent scheme through their solicitations of investments, and their false representations to investors that Madoff's posted investment returns were obtained through an ostensibly legitimate investment strategy.
This strategy is called a "split-strike conversion" strategy, which in very basic terms involves the purchase of stocks along with the corresponding purchase and sale of certain index options. The plaintiffs allege that the Feeder Fund Defendants knew (or willfully refused to know) that given the vicissitudes of the market, such an announced strategy could not by itself produce the consistently positive monthly and annual returns Madoff reported; that investors had entrusted Madoff with billions of dollars; that given the dollar value of the total assets Madoff had under management, the volume of options trading that would have been required to support such a strategy on a scale commensurate with that dollar value did not exist; that they knew that Madoff was engaged in illegal conduct to achieve such results; and yet despite all this, the Feeder Fund Defendants still invested the Maxam Fund (and thereby the plaintiff Plans' money) with Madoff, and are therefore responsible for the losses to the Plans.
The plaintiffs do not allege that the Feeder Fund Defendants knew that Madoff was actually running a Ponzi scheme, a scheme in which little or no securities trading was done. They allege that these defendants believed Madoff was engaging in a practice illegal under the securities laws known as "front running" to achieve his consistently successful investment returns, results that yielded enormous fees for these defendants. Front running describes a practice of trading in securities by taking advantage of misappropriated information before or "in front of" other investors. While front running can take a variety of forms, by way of example, it could entail trading in a stock based on a strong buy/sell recommendation from an analyst before others in the market have been given that information, or purchasing a block of shares in advance of a purchase of an even larger block of shares, with the knowledge that such a purchase was about to occur. See, e.g., U.S. v. Royer, 549 F.3d 886, 891 (2nd Cir. 2008), cert. denied, 130 S.Ct. 85, 175 L.Ed.2d 237, 78 U.S.L.W. 3181 (U.S. 2009).
Count Five: Statutory Theft Against Peter Madoff
The plaintiffs allege that Peter Madoff acted in concert with Madoff and the Feeder Fund Defendants, and that his actions as an officer of BLMIS were wanton and willful and undertaken in knowing violation of the law, and enabled him and the co-defendants to reap enormous illegal profits they would not otherwise have been entitled to receive.
Count Six: Allegation Against the Tremont Defendants (Withdrawn) Counts Seven, Eight Nine: Aiding and Abetting Statutory Theft Against the Maxam Defendants, the Fairfield Greenwich Group Defendants, and Peter MadoffThe plaintiffs allege that the losses to the Plans were caused by the illegal conduct of the Feeder Fund Defendants and Peter Madoff in aiding and abetting Madoff's theft, enabling them to reap enormous fees from his illegal activity.
"[A]iding and abetting includes the following elements: (1) the party whom the defendant aids must perform a wrongful act that causes an injury; (2) the defendant must be generally aware of his role as part of an overall illegal or tortious activity at the time he provides the assistance; [and] (3) the defendant must knowingly and substantially assist the principal violation." Efthimiou v. Smith, 268 Conn. 499, 505 (2004).
Count Ten: Allegation Against the Tremont Defendants (Withdrawn) Count Eleven: False Statements Against the Maxam Defendants
This count alleges that Manzke and the Maxam Defendants knowingly and intentionally made false statements about Madoff's investment strategy and investment returns, and that they knew that the Town would rely on these statements in deciding whether to invest or continue their investment in a Madoff-related feeder fund, resulting in the losses to the Plans and the payment of unwarranted fees to Manzke and the Maxam Defendants.
In order to sustain a claim for fraudulent, or intentional misrepresentation, the plaintiff must establish four elements: 1) a false statement was made, as a statement of fact, 2) the statement was untrue, and known to be untrue by the party making it, 3) the statement was made to induce the party to act upon it, and 4) the other party did in fact act upon the representation, to his detriment. Miller v. Appleby, 183 Conn. 51, 54-55, 438 A.2d 811 (1991).
The plaintiffs claim that they suffered financial losses, and that each of these defendants acted in the conduct of a trade or commerce in an illegal, unfair and deceptive manner in violation of public policy, and that the conduct of these several defendants therefore constituted violations of the Connecticut Unfair Trade Practices Act (CUTPA), General Statutes § 42-110a, et seq.
Pursuant to § 42-110b(a), no person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce. "The essential elements to pleading a cause of action under CUTPA are: (1) That the defendant committed an unfair or deceptive act or practice (note: if the CUTPA claim is based upon a violation of another statute, that violation should also be alleged); (2) That the act complained of was performed in the conduct of trade or commerce; 3. That the prohibited act was the proximate cause of harm to the plaintiff." T. Merritt, 16 Connecticut Practice Series: Elements of an Action (2008), § 11:1, p. 530.
The plaintiffs allege that these defendants received millions of dollars in ill gotten gains or gifts or unsecured loans from Madoff and/or BLMIS, and seeks the imposition of a constructive trust in favor of the plaintiffs over the assets transferred by Madoff, and a constructive trust over property in Greenwich, Connecticut owned by Mark Madoff.
To impose a constructive trust, the court must find the existence of "(f)raud, misrepresentation, imposition, circumvention, artifice or concealment, or abuse of confidential relations." Garrigus v. Viarengo, 112 Conn.App. 655, 672 (2009). There is a typographical error in Count Nineteen as drafted. The word "trust" was omitted from "constructive trust," but the context is apparent from the allegations themselves, and from a reading of the other counts in the complaint seeking the same remedy.
Count Twenty-One: Fraudulent Conveyance Against Peter Madoff, Mark Madoff, Andrew Madoff and Ruth Madoff (Withdrawn as to Ruth Madoff)
The plaintiffs bring this cause of action under the Uniform Fraudulent Transfer Act, General Statutes § 52-552 et seq., alleging that Madoff made certain fraudulent transfers to these insider defendants while he was insolvent and with the intent to hinder, delay or defraud his creditors, including the plaintiff Plans. The plaintiffs seek the avoidance of these transfers, attachments, and the recovery of these amounts.
"In the area of fraudulent conveyances, [t]he party seeking to set aside a conveyance as fraudulent bears the burden of proving either: (1) that the conveyance was made without substantial consideration and rendered the transferor unable to meet his obligations; or (2) that the conveyance was made with a fraudulent intent in which the grantee participated . . . The party seeking to set aside the conveyance need not satisfy both alternatives." (Citations omitted; internal quotation marks omitted.) Wendell Corp. Trustee v. Thurston, 239 Conn. 109, 115-16, 680 A.2d 1314 (1996).
Count Twenty-Two: Allegation Against the Tremont Defendants (Withdrawn) Count Twenty-Three: Breach of Fiduciary Duty Against the Maxam Defendants
This count claims that Manzke and the other Maxam Defendants breached their fiduciary duties by soliciting and inducing the plaintiff Plans to invest in the Maxam Fund as limited partners and by failing to do their proper due diligence with respect to Madoff's bona fides, and Madoff's reported returns that could not be reasonably verified. Between July 2007 and January 2008, the plaintiffs withdrew over $37 million from the Tremont Partners' fund and invested these monies in the Maxam Fund. The Maxam Defendants failed to adequately determine the suitability of pension funds like the Plans investing in a fund that invested with Madoff, and made misrepresentations about Madoff's investment performance history and his returns, misrepresentations which were relied upon by the plaintiffs and the Plans to their detriment. The plaintiffs contend that the losses to the Plans, their lost investment opportunities and losses from the payment of unwarranted fees were caused by Manzke and the other Maxam Defendants' breaches of their fiduciary duties to the Plans.
"The essential elements to . . . a cause of action for breach of fiduciary duty under Connecticut law are: 1. That a fiduciary relationship existed which gave rise to (a) a duty of loyalty on the part of the defendant to the plaintiff, (b) an obligation on the part of the defendant to act in the best interests of the plaintiff, and (c) an obligation on the part of the defendant to act in good faith in any matter relating to the plaintiff; 2. That the defendant advanced his or her own interests to the detriment of the plaintiff; 3. That the plaintiff sustained damages; 4. That the damages were proximately caused by the fiduciary's breach of his or her fiduciary duty." T. Merritt, 16 Connecticut Practice Series: Elements of an Action (2009-2010 Ed.) § 8:1.
Count Twenty-Four: Allegation Against the Tremont Defendants (Withdrawn) Count Twenty-Five: Negligence Against the Maxam Defendants
The plaintiffs in this count allege that the same conduct of the Maxam Defendants outlined in the other allegations previously discussed also constitutes actionable negligence.
"Negligence involves the violation of a legal duty [that] one owes to another, in respect to care for the safety of the person or property of that other . . . The essential elements of a cause of action in negligence are well established: duty; breach of that duty; causation; and actual injury." (Citation omitted; internal quotation marks omitted.) Curran v. Kroll, 118 Conn.App. 401, 407, 984 A.2d 763 (2009).
Count Twenty-Six: Allegation Against the Tremont Defendants (Withdrawn) Count Twenty-Seven: Unjust Enrichment Against the Maxam Defendants
Plaintiffs seek to recover the amounts that they contend that Manzke and the other Maxam Defendants have been unjustly enriched at the expense of the Plans, specifically the hundreds of thousands of dollars that the Plans paid to the Maxam Defendants on purported assets and investment earnings in the Maxam Fund.
"Plaintiffs seeking recovery for unjust enrichment must prove (1) that the defendants were benefited, (2) that the defendants unjustly did not pay the plaintiffs for the benefits, and (3) that the failure of payment was to the plaintiffs' detriment." (Internal quotation marks omitted.) Jo-Ann Stores, Inc. v. Property Operating Co., LLC, 91 Conn.App. 179, 194, 880 A.2d 945 (2005). "Unjust enrichment is a very broad and flexible equitable doctrine that has as its basis the principle that it is contrary to equity and good conscience for a defendant to retain a benefit that has come to him at the expense of the plaintiff." Gagne v. Vaccaro, 255 Conn. 390, 409, 766 A.2d 416 (2001). "The lack of a remedy under a contract is a precondition to recovery based on unjust enrichment or quantum meruit." United Coastal Industries, Inc. v. Clearheart Construction Co., 71 Conn.App. 506, 513, CT Page 9127 802 A.2d 901 (2002).
CT Page 9112
Counts Twenty-Eight and Twenty-Nine: Allegations Against the Tremont Defendants (Withdrawn)
To summarize the allegations that are not the subject of a stay or a withdrawal, the complaint alleges that the Maxam Defendants, through their willful refusal to know that Madoff's purported investment strategy and the investment returns he generated thereby were produced by illegal activity, were unjustly enriched at the expense of the Plans, in that they received management and administrative fees as a result of their investments with Madoff. Further, the complaint alleges that Manzke and the Maxam Defendants knowingly made false statements about Madoff which induced the plaintiffs to transfer their investment in Madoff from the Tremont Partners' fund to the Maxam Fund. Additionally, the plaintiffs allege that the Maxam Defendants aided and abetted Madoff's fraud. Lastly, with respect to the Maxam Defendants, the complaint alleges that they breached their fiduciary duties by soliciting and inducing the plaintiff Plans to invest in the Tremont Partners' fund and later the Maxam Fund as limited partners and by failing to do their proper due diligence with respect to Madoff's bona fides and Madoff's reported returns that could not be reasonably verified. The plaintiffs also allege both a negligence claim and a CUTPA violation. (Counts 3, 11, 14, 23, 25 and 27.)With respect to the Fairfield Greenwich Group defendants, the complaint alleges that these defendants generated hundreds of millions of dollars in illicit fees as a result of their investments with Madoff's funds. Further, the complaint alleges that the Fairfield Greenwich Group Defendants falsely represented that Madoff was continuing to post successful annual investment returns through use of the split-strike conversion strategy. The plaintiffs claim that such representations violated CUTPA, and were necessary to enable the Feeder Fund Defendants to continue to raise large sums of money to be placed with (and stolen by) Madoff. (Counts 4, 8 and 15.)
The plaintiffs further allege that using his knowledge of Madoff's fraudulent scheme, Peter B. Madoff intentionally utilized his management authority at BLMIS to aid and abet Madoff's fraudulent scheme and enable Madoff to conceal his illegal misuse of BLMIS. The plaintiffs claim that this behavior violated CUTPA, and enabled the Feeder Fund Defendants to reap enormous monies that they would not otherwise have been entitled to receive. The plaintiffs also allege that the Madoff defendants received millions of dollars in ill gotten gains or gifts or unsecured loans from Madoff and/or BLMIS, and seek the imposition of a constructive trust over assets transferred by Madoff and a property owned by Mark Madoff. The plaintiffs also seek the avoidance of certain transfers from Madoff to his family members, claiming that these were fraudulent transfers done with the intent to hinder, delay or defraud Madoff's creditors. (Counts 5, 9, 16, 19, 20 and 21.)
Motions to Dismiss for Lack of Standing — Legal Principles Discussion
"The standard governing a trial court's review of a motion to dismiss is well established. In ruling upon whether a complaint survives a motion to dismiss, a court must take the facts to be those alleged in the complaint, including those facts necessarily implied from the allegations, construing them in a manner most favorable to the pleader." (Internal quotation marks omitted.) Davis v. Environmental Commission, Superior Court, judicial district of Stamford-Norwalk at Stamford, Docket No. CV 05 4007475 (January 26, 2007, Tobin, J.) [ 42 Conn. L. Rptr. 691]. "If a party is found to lack standing, the court is without subject matter jurisdiction to determine the cause . . ." (Internal quotation marks omitted; citation omitted.) Connecticut State Medical Society v. Oxford Health Plans (CT), Inc., 272 Conn. 469, 475, 863 A.2d 645 (2005). "The plaintiff bears the burden of proving subject matter jurisdiction, whenever and however raised." Fink v. Golenbock, 238 Conn. 183, 199 n. 13, 680 A.2d 1243 (1996).
"The issue of standing implicates subject matter jurisdiction and is therefore a basis for granting a motion to dismiss." May v. Coffey, 291 Conn. 106, 112-13, 967 A.2d 495 (2009). "Jurisdiction of the subject-matter is the power [of the court] to hear and determine cases of the general class to which the proceedings in question belong . . . A claim that [the] court lacks subject matter jurisdiction [may be raised] at any time . . . Once the question of lack of jurisdiction of a court is raised, [it] must be disposed of no matter in what form it is presented . . ." (Citations omitted; internal quotation marks omitted.) Goldberg v. Goodwill Industries, Superior Court, judicial district of Hartford, Docket No. CV 05 4009642 (January 3, 2006, Keller, J.).
"Standing is the legal right to set judicial machinery in motion. One cannot rightfully invoke the jurisdiction of the court unless he [or she] has, in an individual or representative capacity, some real interest in the cause of action, or a legal or equitable right, title or interest in the subject matter of the controversy . . . When standing is put in issue, the question is whether the person whose standing is challenged is a proper party to request an adjudication of the issue . . . Standing requires no more than a colorable claim of injury; a [party] ordinarily establishes . . . standing by allegations of injury. Similarly, standing exists to attempt to vindicate arguably protected interests . . . Standing is established by showing that the party claiming it is authorized by statute to bring suit or is classically aggrieved . . . The fundamental test for determining aggrievement encompasses a well-settled twofold determination: first, the party claiming aggrievement must successfully demonstrate a specific, personal and legal interest in [the subject matter of the challenged action], as distinguished from a general interest, such as is the concern of all members of the community as a whole. Second, the party claiming aggrievement must successfully establish that this specific personal and legal interest has been specially and injuriously affected by the [challenged action] . . . Aggrievement is established if there is a possibility, as distinguished from a certainty, that some legally protected interest . . . has been adversely affected . . . [I]t is the burden of the party who seeks the exercise of jurisdiction in his favor . . . clearly to allege facts demonstrating that he is a proper party to invoke judicial resolution of the dispute . . ." May v. Coffey, supra, 291 Conn. 112-13.
The general Connecticut rule of standing to bring a claim has been stated: "[A]s a general rule, a plaintiff lacks standing unless the harm alleged is direct rather than derivative or indirect." Connecticut State Medical Society v. Oxford Health Plans (CT), Inc., supra, 272 Conn. 481, citing Ganim v. Smith Wesson Corp., 258 Conn. 313, 347-48 (2001). As articulated in Ganim, "if the injuries claimed by the plaintiff are remote, indirect, or derivative with respect to the defendant's conduct, the plaintiff is not the proper party to assert them and lacks standing to do so." 258 Conn. 347. In the application of this general rule, it is clear that a party's characterization or labeling of a claim as direct or indirect has no bearing on the court's ultimate determination of standing to bring the claim. Whether a party has standing based on a given set of facts is a question of law for the court to decide. Id., 348.
The Supreme Court in Connecticut Medical Society v. Oxford Health Plans, supra, recognized that "the application of this general rule to a particular factual scenario may not always yield a ready or obvious answer to the question of standing . . ." 272 Conn. 481. In that case, Connecticut's Supreme Court reiterated its endorsement of the trial court's use of the three-factor policy analysis it had previously set forth in Ganim, an analysis based on a series of U.S. Supreme Court decisions. "First, the more indirect an injury is, the more difficult it becomes to determine the amount of plaintiff's damages attributable to the wrongdoing as opposed to other, independent factors. Second, recognizing claims by the indirectly injured would require courts to adopt complicated rules apportioning damages among plaintiffs removed at different levels of injury from the violative acts, in order to avoid the risk of multiple recoveries. Third, struggling with the first two problems is unnecessary where there are directly injured parties who can remedy the harm without these attendant problems." Ganim v. Smith Wesson Corp., supra, 258 Conn. 353.
As previously stated, the defendants move to dismiss the plaintiffs' complaint on the ground that the plaintiffs do not have standing to bring their claims. Specifically, the defendants contend that the plaintiffs' claims — the losses suffered by the Plans — are premised on an alleged injury to the Maxam Fund and its limited partners as a group, rather than a unique injury suffered directly by the Plans. Thus, the defendants argue that the claims are derivative in nature, and therefore, the Town was required to satisfy certain prerequisites before being able to bring claims on behalf of the Maxam Fund. As previously noted, the Maxam Fund is a Delaware limited partnership and as noted in May v. Coffey, supra, Connecticut courts have traditionally applied the law of the state of incorporation when resolving disputes involving shareholder derivative actions. 291 Conn. 113 n. 6. However, this should not obscure the fact that the ultimate question of whether a party has standing, and whether a Connecticut court therefore has subject matter jurisdiction over a controversy, is clearly a matter of Connecticut law.
The Delaware Supreme Court has held that the test for determining whether a claim is derivative or direct is: "Who suffered the alleged harm — the corporation or the suing stockholder individually — and who would receive the benefit of the recovery or other remedy?" Tooley v. Donaldson, Lufkin, Jenrette, Inc., 845 A.2d 1031, 1039 (Del. 2004). A claim is derivative if all of the "a [company's members are harmed and would recover pro rata in proportion with their ownership of the [company] solely because they are [members]." Feldman v. Cutaia, 956 A.2d 727, 733 (Del.Ch. 2008). "A claim is direct only where plaintiffs suffered some individualized harm not suffered by all of the stockholders [or partners] at large." Id. Thus, if the plaintiffs have not shown that they can prevail without showing injury to the partnership, they do not have standing to bring the claim, as it would be derivative in nature.
In analyzing whether a claim is derivative, the court looks to the nature of the alleged wrong, rather than the plaintiff's designation of the claim. Attempts to "creatively . . . recast [their] derivative [claims] as direct claims are disfavored by Delaware courts." Feldman v. Cutaia, 956 A.2d 644, 659 (Del.Ch. 2007), aff'd, 951 A.2d 727 (Del. 2008). "The test for distinguishing direct from derivative claims in the context of a limited partnership is substantially the same as that used when the underlying entity is a corporation. In both instances the determination is made by careful application of a rather nuanced test. The test looks to the nature of the injury and to the nature of remedy that could result if the plaintiffs are successful. When a plaintiff alleges either an injury that is different from what is suffered by other shareholders (or partners) or one that involves a contractual right of shareholders (or partners) that is independent of the entity's rights, the claim is direct. If the injury is one that affects all partners proportionally to their pro rata interests in the corporation, the claim is derivative. In a derivative action the plaintiff sues for an injury done to the partnership and any recovery of damages is paid to the partnership. Conversely, in a direct action the plaintiff sues to redress an injury suffered by the individual plaintiff and damages recovered are paid directly to the plaintiff who was injured. In every case the court must determine from the complaint whether the claims are direct or derivative and may not rely on either party's characterization. Because harm to the entity will almost inevitably harm the stakeholders and because the entity itself is in some ways no more than an amalgamation of a certain subset of stakeholders' interests, differentiation of direct from derivative claims can be elusive." Anglo American Security Fund, LP v. S.R. Global International Fund, LP, 829 A.2d 143 (Del.Ch. 2003).
It is well-established that in most cases an injury to the partnership interest of a limited partner is not direct or independent, and, thus, being derivative in nature, can only be pursued by the partnership itself. See Litman v. Prudential-Bache Properties, Inc., 611 A.2d 12, 15-17 (Del.Ch. 1992) (stating that the defendants' misconduct merely damaged the plaintiffs' proportionate interest in the partnership, and, thus, was not a direct injury to the plaintiffs). Courts applying Delaware law have held that claims alleging mismanagement, breach of fiduciary duty, breach of contract or claims arising from a diminution or dilution of equity, based upon the loss of the partnership's assets due to the defendants' failure to disclose fraud, belong to the partnership itself rather than to the limited partners individually, who suffered harm only derivatively through the ultimate loss of their investments in the partnership. See J.P. Morgan Chase Co. Shareholder Litigation, 906 A.2d 808, 817-18 (Del.Ch. 2005); Litman v. Prudential-Bache Properties, Inc., supra, 611 A.2d 12; Silveri v. Mirsky, No. 95 Civ. 10234, 1997 WL 473544 (S.D.N.Y. August 19, 1997) (applying Delaware law).
The plaintiffs contend that as a result of the defendants' tortious conduct, the Plans were wrongly induced to invest Town pension funds in the limited partnership Maxam Fund, part of the "Feeder Funds" that supplied capital to Madoff that enabled him to maintain his Ponzi scheme. As stated above, the plaintiffs allege that the defendants engaged in intentional criminal conduct and breached their professional responsibilities and fiduciary duties. The plaintiffs are seeking to recover the investments the Plans were induced to make through the defendants' wrongful conduct and to recover the amounts that the defendants have been unjustly enriched.
The defendants contend that all of the claims brought are derivative in nature, as they are premised on the alleged injury to the Maxam Fund and its partners as a group, rather than a unique injury suffered directly by the Town. The defendants claim that because the claims set forth in the complaint may be pursued solely on behalf of the fund, the Town was required to satisfy certain prerequisites before filing suit. As the plaintiffs has failed to satisfy those prerequisites, the plaintiffs lack standing to assert their claims. The plaintiffs, however, assert that their claims are not based on the wrongful conduct perpetrated against the feeder funds in which the Plans' funds were invested. Rather, the plaintiffs argue that their claims are based on the defendants' misconduct in directly inducing the Plans to make investments in the Feeder Funds. The plaintiffs claim that the victims of a fraudulent scheme may pursue causes of action to recover funds they were wrongfully induced to invest. In sum, the plaintiffs take the position that because their claims are based on "wrongful inducement," they should all be viewed as direct rather than derivative.
Litman v. Prudential-Bache Properties, Inc., 611 A.2d 12, 15-17 (Del.Ch. 1992).
The plaintiffs do not dispute that they have not satisfied the prerequisites for bringing a derivative action, but contend it is not necessary.
The plaintiffs claim that "the law is clear" that the victims of a fraudulent scheme may pursue causes of action to recover funds they were wrongly induced to invest, whether such investments were placed directly with a wrongdoer or made through an investment vehicle. More simply stated, the plaintiffs argue that a partner has standing to sue a partnership principal for fraudulent omissions which induced the partner to invest in the venture, because the fraudulent inducement injured the partner "personally," and thus, the claim properly belongs to the partner, not the partnership. Further, the plaintiffs argue that as all the counts are based on allegations of intentional misconduct directed specifically at the plaintiffs or breaches of duty owed directly to the plaintiffs, those counts should be viewed as direct claims as well.
The plaintiffs rely on In re Colonial Limited Partnership Litigation, 854 F.Sup. 64 (D.Conn. 1994), among other cases, as support. However, although that case deals with the right of a party to bring a claim alleging fraud, the issues in the present case are easily distinguishable. In the Colonial Limited Partnership litigation, the court was faced with the issue of whether a party met the standing requirements to sue under the RICO or racketeering statute. "Under the RICO statute, the critical inquiry to determine standing is whether a plaintiff has been injured in his business or property by [reason] of the conduct constituting the violation." In re Colonial Limited Partnership Litigation, supra, 854 F.Sup. 104. However, the central issue before this court in determining whether a claim is derivative or direct in the context of this case is whether there exists "separate and distinct harm to the plaintiffs." See May v. Coffey, supra, 291 Conn. 115. Thus, the In re Colonial court looked at the cause of the injury, while this court must look at the nature of the injury.
As to the defendants Noel, Tucker and Peter B. Madoff, the complaint alleges that these defendants knowingly participated in Madoff's unlawful Ponzi scheme. As to the defendants Mark D. Madoff and Andrew H. Madoff, the complaint alleges that these defendants wrongfully received illicit proceeds from Madoff. The defendant Noel is alleged to be a principal and one of the founding partners of the "Fairfield Greenwich Group" funds, however, the plaintiffs do not allege that they invested any funds with the Fairfield Greenwich Group or the defendant Noel. The defendant Noel argues that equity holders, like the plaintiffs, do not have standing to pursue a direct claim for injuries sustained by a limited partnership. Specifically, the defendant Noel argues that the plaintiffs do not, and cannot establish an injury that is direct or independent of the injury to the Maxam Fund, especially in light of the plaintiffs' admission that they never invested directly with Madoff, but instead purchased limited partnership interests in the Maxam Fund. Thus, it was the Maxam Fund's assets, not the plaintiffs' which were stolen by Madoff.
As to the Madoff defendants and the Fairfield Greenwich Group Defendants, the plaintiffs have not asserted a "separate and distinct" harm. Furthermore, the In re Colonial court determined that the plaintiff asserted damages beyond the diminution in the value of their investments, while the plaintiffs in the present case assert that their measure of damages is based only upon such diminution in their limited partnership interest, taking into account the ginned-up results Madoff promulgated. Based on the analysis required by the In re Colonial court, it is clearly inapplicable in the present case. The other cases cited by the plaintiffs that support the ruling in In re Colonial similarly focus on RICO claims, a statute with a different test for standing than is at issue here.
In response to these claims, the defendants maintain that any claims for fraudulent inducement in this matter are clearly derivative, as the alleged injury to the Plans is inextricably linked to the Maxam Funds' injury as a whole. Specifically, they argue that the plaintiffs fail to allege a unique injury suffered directly by the plaintiffs, as all of the plaintiffs' claims are premised on an alleged injury to the Maxam Fund and its limited partners as a group. Thus, any injury the Town or the Plans suffered would have been shared collectively by all of the Maxam Fund's limited partners, rather than independently by the plaintiffs or any other individual limited partner. Further, the defendants argue that any of the alleged fraudulent and tortious conduct alleged would have been committed against the Maxam Fund directly, and thus, only indirectly against any of the limited partners such as the plaintiffs.
With respect to allegations of mismanagement and excessive fees, the defendants contend such claims are also derivative in nature, as any injuries resulting from these alleged acts only flowed indirectly to the plaintiffs, as it is the Maxam Fund's value that suffered the direct injury from these acts. Regarding the breach of fiduciary duty claims, the defendants contend that any duties breached were owed to the Maxam Fund, and not to the plaintiffs or any other limited partner individually. See Goldstein v. SEC, 451 F.3d 873, 881 (D.C. Cir. 2006). Defendants point out that Delaware courts have held that "fraudulent inducement claims where the only alleged injury is inextricably linked to a corporate injury, [are derivative]." See Big Lots Stores, Inc. v. Bain Capital Fund VII, LLC, 922 A.2d 1169, 1176-77 (Del.Ch. 2006); In re Worldcom, Inc., 323 B.R. 844, 855-56 (S.D.N.Y. 2005) (applying Delaware law).
In support of their position, the defendants also cite the recent case of Ernst Young Ltd. Bermuda v. Quinn, Docket No. 09 CV 1164 (D.Conn., October 26, 2009). That case involved a petition by Ernst Young to compel arbitration, and a motion for a stay of state court proceedings which had been brought by investors in a certain fund which had been audited by Ernst Young. The case hinged on the enforceability of an arbitration agreement in an international business dispute. The applicability of the arbitration clause there hinged in turn on the characterization of certain investor claims as direct or derivative, with the consequence that certain direct claims would not be subject to arbitration under the facts of that case and the contract at issue.
The court noted the "strong federal policy in favor of arbitration agreements that is especially at play in international disputes," and stated it was mindful of a goal "to promote the enforcement of arbitral agreements in contracts involving international commerce so as to facilitate international business transactions." This strong preference for arbitration led the federal court to categorize a fraudulent inducement claim in that case as derivative, not direct, and therefore subject to mandatory arbitration. It found that those allegations were entirely connected to the losses suffered by an investment fund, and not an individualized harm that was not suffered by all of the other limited partners. The court stated that "[u]nder Delaware law, injuries sustained on account of having investment or ownership stake in a corporation that diminishes in value are not individually suffered harms." Thus, as the plaintiffs' injuries were "suffered not by them individually, but rather by [the fund] as a whole . . . [and] since they seek recovery based on their proportional investment in [the fund], any recovery, would be, in the first instance, received by the [f]und . . . [the] claims are derivative in nature."
Just as the court noted at the outset that there are two groups of defendants in this case, there are also two ways to look at these allegations to determine if they survive these motions to dismiss for lack of standing. Recall that this case is only at the pleading stage, and as such, a far less developed record exists than is typically presented for other dispositive motions presented after the completion of discovery. In examining the facts alleged here, the court is mindful of certain guiding principles. It must interpret the pleadings in the light most favorable to the plaintiff Plans, and "the interpretation of pleadings is always a question of law for the court . . . The modern trend, which is followed in Connecticut, is to construe pleadings broadly and realistically, rather than narrowly and technically . . . Although essential allegations may not be supplied by conjecture or remote implication . . . the complaint must be read in its entirety in such a way as to give effect to the pleading with reference to the general theory upon which it proceeded, and do substantial justice between the parties . . . As long as the pleadings provide sufficient notice of the facts claimed and the issues to be tried and do not surprise or prejudice the opposing party, we will not conclude that the complaint is insufficient to allow recovery . . . [I]f the parties at trial have adopted a certain construction of the pleadings . . . we should give deference to that construction." (Citations omitted; internal quotation marks omitted.) Travelers Ins. Co. v. Namerow, 261 Conn. 784, 795-96, 807 A.2d 467 (2002).
When it comes to the claims against the Fairfield Greenwich Group Defendants and the Madoff family members, defendants who had no direct dealings with the Town or the Plans, the court looks — as it must — at the Plans in their status as limited partners in the Maxam Fund. It is the lens through which these allegations must be viewed as to both the Madoff defendants and the Fairfield Greenwich Group Defendants, as it is only through the Plans' status as limited partners in the Maxam Fund that any losses accrued to the plaintiffs through any behavior of these defendants. Despite the fact that the plaintiffs argue that the Feeder Fund Defendants are perpetrators and not victims of Madoff's theft here, the Plans stand in the same shoes vis a vis both the Madoff defendants and the Fairfield Greenwich Group defendants as every other limited partner in the Maxam Fund. The plaintiffs' standing as to them is therefore clearly derivative.
There are no allegations of a conspiracy in the complaint.
Note that the court is expressly not ruling at this time on Counts One and Twelve, those allegations made directly against Bernard Madoff, as those are subject to the bankruptcy stay.
However, it is a different situation for the Maxam Defendants, which stand on very different footing indeed vis a vis the plaintiffs. Notwithstanding the fact, as counsel noted at oral argument, that the Maxam Defendants did not enter into a formal investment adviser agreement with the Plans like the Tremont Defendants had before them, because Manzke had developed a relationship of trust and confidence with the Plans stretching back well over 20 years, even before she created Tremont Partners, and because of that long-term reliance upon her investment advice as a pension consultant, the plaintiffs have alleged sufficient individualized harm, a harm in the context of a relationship which distinguishes these plaintiffs from the plaintiffs in Ernst Young Bermuda Ltd., supra.
The tangible wealth represented by a large number printed on a Madoff-managed fund statement is illusory without the intangible element of trust, part of the glue that holds society together. The tangibles do not work without the intangibles. Given Manzke's long prior history with the Plans, and the manner in which she held herself out as an expert in safe and secure pension fund investments, the Maxam defendants could have lost the Plans' money in a number of different ways — other than through the Maxam Fund limited partnership or any other limited partnership — and still arguably be answerable to these municipal pension Plans in a civil action in damages for fraudulent inducement, breach of fiduciary duty, for taking advantage of that relationship, for negligence in failing to exercise proper due diligence in determining the suitability of the investment, for making false representations, and engaging in unfair trade practices. The same may not be said for the other defendants. No Maxam Fund, no other defendants. Conversely, no limited partnership investment, no Maxam Fund, is needed to create a fiduciary duty running from the Maxam Defendants to the Plans, or indeed, to create that unique relationship itself in the first place.
The securities markets are underpinned not just by law, but by trust, which can be legislated only so far. It cannot be said that this complaint is a fatally defective attempt to bridge the difference. The plaintiffs have shown that a legally protected interest has been adversely affected by the Maxam Defendants, a showing required by the holding in May v. Coffey, supra. This stands in strong contrast to the other group of defendants, where it is equally clear that were there no limited partnership investment by the Plans, there would be no Fairfield Greenwich Group Defendants, and no Madoff defendants. That is what makes the plaintiffs' claims as to them derivative of the Delaware limited partnership (the Maxam Fund) itself.
Several of the counts against the Maxam Defendants allege a breach of a duty. "[D]uty is not sacrosanct in itself, but is only an expression of the sum total of those considerations of policy which lead the law to say that the plaintiff is entitled to protection . . . While it may seem that there should be a remedy for every wrong, this is an ideal limited perforce by the realities of this world. Every injury has ramifying consequences, like the ripplings of the waters, without end. The problem for the law is to limit the legal consequences of wrongs to a controllable degree . . . The final step in the duty inquiry, then, is to make a determination of the fundamental policy of the law, as to whether the defendant's responsibility should extend to such results." (Citations omitted; internal quotation marks omitted.) Perodeau v. Hartford, 259 Conn. 729, 756, 792 A.2d 752 (2002).
"The existence of a duty is a question of law and only if such a duty is found to exist does the trier of fact then determine whether the defendant violated that duty in the particular situation at hand . . . We have stated that the test for the existence of a legal duty of care entails (1) a determination of whether an ordinary person in the defendant's position, knowing what the defendant knew or should have known, would anticipate that harm of the general nature of that suffered was likely to result, and (2) a determination, on the basis of a public policy analysis, of whether the defendant's responsibility for its negligent conduct should extend to the particular consequences or particular plaintiff in the case . . . The first part of the test invokes the question of foreseeability, and the second part invokes the question of policy . . . We also have noted, however, that we are not required to address the first prong as to foreseeability if we determine, based on the public policy prong, that no duty of care existed." (Citation omitted; internal quotation marks omitted.) Neuhaus v. Decholnoky, 280 Conn. 190, 217-18, 905 A.2d 1135 (2006).
The issues to be tried are limited to the Maxam Defendants and the plaintiff Plans, no ordinary limited partner in a fund run by the defendants, but a pair of municipal pension plans with a long history between the parties as previously outlined. Because retirement Plans are the plaintiffs here, fiduciary duties and obligations abound, running on both sides in this case. The Town and the Plans owe a duty to the Plans' many beneficiaries, numbering over 1500 citizens, including retired Fairfield police and firefighters. The court finds as a matter of law that the Maxam Defendants owed a duty to the Plans themselves — separate and distinct from the Delaware limited partnership, and that standing is conferred here by the existence of that duty. This litigation will set the parameters of the latter duty, and whether the plaintiffs will ultimately be able to show a breach of that duty as alleged will have to await the evidence to resolve the issue of whether, as the Supreme Court stated in Perodeau, the defendant's responsibility should extend to such results. Standing is sufficiently demonstrated in the counts as to the Maxam Defendants to survive these motions to dismiss.
This distinction between direct and derivative actions on the facts of this case may be readily grasped by means of the following hypothetical. Suppose that an individual retired Fairfield firefighter receiving benefits under the Plans were to attempt to sue the Maxam Defendants himself on the same grounds as the plaintiffs here have alleged. It is clear that such a claim, while direct as to the Plans, would be derivative as to that individual firefighter, as his injury was indistinguishable from all other beneficiaries of the Plans.
Conclusion
Application of these principles to the facts of the present case leads this court to conclude that as to the claims against the defendants Walter M. Noel, Jr., Jeffrey H. Tucker, and Andres Piedrahita (the Fairfield Greenwich Group Defendants) and the defendants Peter Madoff, Andrew Madoff and Mark Madoff, the harms claimed by the plaintiffs in those counts are indirect, remote and derivative with respect to those defendants' conduct. Therefore, the plaintiffs lack standing to assert them.
Accordingly, the motions to dismiss are GRANTED as to Counts Four, Five, Eight, Nine, Fifteen, Sixteen, Nineteen, Twenty, and Twenty-One.
The motions to dismiss are DENIED as to counts Three, Seven, Eleven, Fourteen, Twenty-Three, Twenty-Five and Twenty-Seven, the counts against the Maxam Defendants.
The plaintiffs' withdrawals are noted as to Counts Two, Six, Ten, Thirteen, Seventeen, Eighteen, Twenty-Two, Twenty-Four, Twenty-Six, Twenty-Eight and Twenty-Nine.
Counts One and Twelve against Bernard Madoff remain subject to a statutory stay.
SO ORDERED,