11-3899 (L) In re: Tremont Securities Law, State Law, and Insurance Litigation



### UNITED STATES COURT OF APPEALS **FOR THE SECOND CIRCUIT**



## SUMMARY ORDER

**R ULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT**  **. C**  **ITATION TO A SUMMARY ORDER FILED**

**ON OR AFTER J** **ANUARY 1,**  **2007, IS PERMITTED AND IS GOVERNED BY**  **F EDERAL**  **R ULE OF**  **A PPELLATE**  **P ROCEDURE**  **32.1 AND THIS COURT**  **’ S**  **L OCAL**  **R ULE**  **32.1.1. W** **HEN CITING A SUMMARY ORDER IN A**

**DOCUMENT FILED WITH THIS COURT ,**  **A PARTY MUST CITE EITHER THE F**  **EDERAL A** **PPENDIX OR AN**

**ELECTRONIC DATABASE (**  **WITH THE NOTATION “**  **SUMMARY ORDER ”).**  **A PARTY CITING A SUMMARY ORDER MUST** 

**SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL .** 
**At a stated term of the United States Court of Appeals** 1 **for the Second Circuit, held at the Thurgood Marshall United** 2 **States Courthouse, 40 Foley Square, in the City of New York,** 3 **on the 25 th** **day of October, two thousand thirteen.** 4 5 **PRESENT: DENNIS JACOBS,** 6 **SUSAN L. CARNEY,** 7 **CHRISTOPHER F. DRONEY,** 8 **Circuit Judges**

**.** 9 10
- - - - - - - - - - - - - - - - - - - -X 11 12 **IN RE: TREMONT SECURITIES LAW, STATE** 13
**LAW AND INSURANCE LITIGATION** 14 15 **Madelyn Haines and Paul Zamrowski,** 16 **Appellants** 17 18 **-v.- 11-3899** 19 **11-3923** 20 **11-4022** 21 **11-4030** ***** 22

*11-4030 is currently the only open case number. The other case numbers have been determined by orders filed Mar. 13, 2013 (11-3899); Apr. 24, 2012 (11-3923); and Oct. 24, 2012 (11-4022).

1**Arthur E. Lange Revocable Trust,** 1 **Arthur C. Lange, Neal J. Polan, HFM** 2 **Charitable Remainder Trust, Eastham** 3 **Capital Appreciation Fund LP, NPV** 4 **Positive Corp., Daniel Jackson,** 5 **Laborers Local Pension Plan 17, Arthur** 6 **M. Brainson, Yvette Finkelstein, and** 7 **Group Defined Pension Plan & Trust,** 8 **Chateau Fiduciaire S.A., Matthew L.** 9 **Klein Irrevocable Family Trust,** 10 **Harriet Rutter Klein Revocable Trust,** 11 **Geoffrey Rabie Credit Shelter Trust,** 12 **and Joanne Brenda Rabie Credit Shelter** 13 **Trust,** 14 **Plaintiff-Appellees ,**  15 16 **and** 17 18 **Massachusetts Mutual Life Insurance** 19 **Company, MassMutual Holding LLC,** 20 **Oppenheimer Acquisition Corp.,** 21 **Tremont Capital Management Inc.,** 22 **Tremont Group Holdings, Inc., Rye** 23 **Investment Management, Tremont** 24 **Partners, Inc., Tremont (Bermuda)** 25 **Limited, Harry Hodges, Robert** 26 **Schulman, Jim Mitchell, Rupert Allan,** 27 **Lynn O. Keeshan, Patrick Kelly,** 28 **Stephen Thomas Clayton, Stuart** 29 **Pologe, Cynthia J. Nicoll, Tremont** 30 **Market Neutral Fund L.P., Tremont** 31 **Market Neutral Fund II, L.P., Tremont** 32 **Market Neutral Fund Limited, Tremont** 33 **Opportunity Fund Limited, Tremont** 34 **Opportunity Fund II L.P., Tremont** 35 **Opportunity Fund III L.P., Tremont** 36 **Arbitrage Fund, L.P., Tremont** 37 **Arbitrage Fund-Ireland, Tremont** 38 **Strategic Insurance Fund, L.P., Rye** 39 **Select Broad Market Fund, L.P., Rye** 40 **Select Broad Market XL Fund, L.P.,** 41 **Rye Select Broad Market Prime Fund,** 42

2**L.P., Rye Select Broad Market** 1 **Insurance Fund, L.P., and Rye Select** 2 **Broad Market Portfolio Limited,** 3 **Defendant-Appellees**

**.** 4 5
- - - - - - - - - - - - - - - - - - - -X 6 7 **FOR APPELLANTS:** V INCENT T. GRESHAM , Atlanta, Ga. 8 9 **FOR PLAINTIFF-APPELLEES:** ANDREW J. E NTWISTLE (Arthur V. 10 Nealon and Robert N. Cappucci, 11 Entiwistle & Cappucci LLP, New 12 York, N.Y., and Reed R. Kathrein 13 and Lee M. Gordon, Hagens Berman 14 Sobol Shapiro LLP, Berkeley, 15 Cal., on the brief ), Entwistle & 16 Cappucci LLP, New York, N.Y., 17 for appelleesArthur E. Lange 18 Revocable Trust, Arthur C. 19 Lange, Neal J. Polan, HFM 20 Charitable Remainder Trust, 21 Eastham Capital Appreciation 22 Fund LP, NPV Positive Corp., and 23 for the benefit of Nominal 24 Defendants, Daniel Jackson, and 25 Laborers Local Pension Plan 17. 26 27 J EFFREY M. HABER(Stephanie M. 28 Beige, on the brief ), Bernstein 29 Liebhard LLP, New York, N.Y., 30 for appelleesArthur M. 31 Brainson, Yvette Finkelstein, 32 and Group Defined Pension Plan & 33 Trust. 34 35
D EMET BASAR(Daniel W. Krasner, on 36 the brief ), Wolf Haldenstein 37 Adler Freeman & Herz LLP, New 38 York, N.Y., for appellees 39 Chateau Fiduciaire S.A., Matthew 40 L. Klein Irrevocable Family 41 Trust, and Harriet Rutter Klein 42 Revocable Trust. 43 44

3DAVID A. R OSENFELD , Robbins Geller 1 Rudman & Dowd LLP, Melville, 2 N.Y., for appelleesGeoffrey 3 Rabie Credit Shelter Trust and 4 Joanne Brenda Rabie Credit 5 Shelter Trust. 6 7 **FOR DEFENDANT-APPELLEES:** J OSEPH L. K OCIUBES(Carol E. Head, 8 on the brief ), Bingham McCutchen 9 LLP, Boston, Mass., for 10 appelleesMassachusetts Mutual 11 Life Insurance Company and 12 MassMutual Holding LLC. 13 14
DAVID A. K OTLER , Dechert LLP, 15 Princeton, N.J., for appellee 16 Oppenheimer Acquisition Corp. 17 18 S ETH S CHWARTZ(Jason C. Vigna, on 19 the brief ), Skadden, Arps, 20 Slate, Meagher & Flom LLP, New 21 York, N.Y., for appellees 22 Tremont Capital Management Inc., 23 Tremont Group Holdings, Inc., 24 Rye Investment Management, 25 Tremont Partners, Inc., Tremont 26 (Bermuda) Limited, Harry Hodges, 27 Robert Schulman, Jim Mitchell, 28 Rupert Allan, Lynn O. Keeshan, 29 Patrick Kelly, Stephen Thomas 30 Clayton, Stuart Pologe, and 31 Cynthia J. Nicoll. 32 33 JAMIE B.W. S TECHER(Ralph A. 34 Siciliano, David J. Kanfer, Zev 35 Feinstein Raben, on the brief ), 36 Tannenbaum Helpern Syracuse & 37 Hirschtritt LLP, New York, N.Y., 38 for appelleesTremont Market 39 Neutral Fund L.P., Tremont 40 Market Neutral Fund II, L.P., 41 Tremont Market Neutral Fund 42 Limited, Tremont Opportunity 43 Fund Limited, Tremont 44

4Opportunity Fund II L.P., 1 Tremont Opportunity Fund III 2 L.P., Tremont Arbitrage Fund, 3 L.P., Tremont Arbitrage Fund4 Ireland, Tremont Strategic 5 Insurance Fund, L.P., Rye Select 6 Broad Market Fund, L.P., Rye 7 Select Broad Market XL Fund, 8 L.P., Rye Select Broad Market 9 Prime Fund, L.P., Rye Select 10 Broad Market Insurance Fund, 11 L.P., and Rye Select Broad 12 Market Portfolio Limited. 13 14 Appeal from a judgment of the United States District 15 Court for the Southern District of New York (Griesa, J. ). 16 17 **UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED** 18
**AND DECREED**that the judgment of the district court be 19

**REMANDED**

. 20 21 In this consolidated class action, investors in a group 22 of hedge funds that suffered losses in the Madoff Ponzi 23 scheme (plaintiffs) sue those funds, the fund managers, and 24 their controlling entities (defendants) under federal and 25 state law. The United States District Court for the 26 Southern District of New York (Griesa, J. ) approved a 27 settlement and certified the settlement class over numerous 28 objections. On this appeal, objectors Madelyn Haines and 29 Paul Zamrowski challenge: the fairness of the settlement 30 terms; certification of the class; and dismissal of the 31 consolidated actions pursuant to Federal Rules of Civil 32 Procedure 23 and 23.1. They also argue that the award of 33 attorney’s fees was an abuse of discretion. We assume the 34 parties’ familiarity with the underlying facts, the 35 procedural history, and the issues presented for review. 36 37 By this order, we return the mandate to the district 38 court for the limited purpose of deciding an issue that 39 potentially moots some of the appellate issues that we would 40 otherwise need to decide. 41 42 The Rye Funds were “single manager” funds that invested 43 all of their assets with Bernard L. Madoff Investment 44

5Securities (“BLMIS”). The Tremont Funds were “funds of 1 funds,” investing about a quarter of their assets in the Rye 2 Funds (and the rest in unrelated investments) (collectively, 3 the “Funds”). When BLMIS imploded, the Rye Funds became 4 insolvent, and the Tremont Funds lost a quarter of their 5 assets. The plaintiffs claim that the defendants breached 6 their fiduciary duty by investing in BLMIS without 7 conducting proper due diligence, and made false and 8 misleading statements to investors about Madoff’s 9 involvement in managing the Funds’ assets. The Appellants 10 were investors in two Tremont Funds. 11 12 Settlement talks begun in November 2009 yielded a 13 Settlement Agreement in February 2011. While the settlement 14 negotiations were ongoing, the trustee of the BLMIS 15 bankruptcy estate (“Trustee”) sued many of the Settling 16 Defendants (as defined in the Settlement Agreement), seeking 17 recovery of approximately $2 billion that BLMIS had 18 transferred to the Tremont and Rye Funds prior to the 19 exposure of the Ponzi scheme. The Trustee alleged that the 20 bankruptcy estate could disallow approximately $3 billion 21 worth of customer claims filed by the Rye Funds unless the 22 estate recovered the $2 billion of alleged transfers. In 23 July 2011, this matter was settled: in exchange for 24 releasing all claims and allowing bankruptcy claims by 25 certain Rye Funds, the Settling Defendants agreed to pay $1 26 billion to the Trustee (the “Trustee Settlement”). The $1 27 billion was financed partially with cash provided by the Rye 28 and Tremont Funds. 29 30 The Appellants allege that the Trustee Settlement was 31 paid in part out of that portion of the Tremont Funds 32 (three-quarters) that was not invested in the Rye Funds–-and 33 therefore unrelated to Madoff. Although the parties dispute 34 the matter fiercely, it is clear that Haines and Zamrowski 35 together lost approximately $80,000 of their non-Madoff 36 investments in that manner. 37 38 The district court held fairness hearings regarding the 39 proposed Settlement Agreement in June and August 2011. 40 During this period, on August 4, 2011, lead counsel notified 41 the district court and the class of the Trustee Settlement. 42 On August 8, the district court found the Settlement 43 Agreement to be fair, adequate, and reasonable. The 44

6district court issued orders dismissing the case and 1 approving attorney’s fees on August 19. In approving the 2 settlement, the district court’s order defined “Released 3 Claims” as: 4 5 known claims and Unknown Claims . . . that have 6 been asserted in the Actions, or, to the extent 7 they relate to direct or indirect investments in 8 or by the Settling Funds . . . that could have 9 been asserted in any forum by Plaintiffs, any 10 Settlement Class Member, any Settling Fund, or any 11 Individual Settling Insurance Plaintiff or any of 12 them against any of the Released Parties that 13 arise out of, or are based upon, or related to, 14 the allegations, transactions, facts, matters, or 15 occurrences, representations or omissions 16 involved, set forth, or referred to in the 17 Complaints filed in the Actions, or that relate to 18 the purchase, retention, ownership or sale of 19 limited partnership interests in or shares of the 20 Settling Funds or the Settling Funds’ investments 21 in Madoff. 22 23 (emphasis added). 24 25 Haines and Zamrowski appealed the district court’s 26 order on various grounds. On May 8, 2012, while this appeal 27 was pending, the Settling Defendants made an offer of tender 28 to the Appellants for 100% of Haines’s and Zamrowski’s share 29 of the Tremont Funds’ Rye/Madoff-related losses ($41,375, 30 and $88,510, respectively). The Appellants rejected this 31 tender by letter dated May 18. The Settling Defendants 32 moved to dismiss the appeal on the ground that their offer 33 of tender rendered the appeal moot. The Appellants argue 34 that the purported offer falls short of their total losses 35 because they lost an additional $80,000 of their Tremont 36 investment when the Tremont Funds paid part of the $1 37 billion Trustee Settlement. The Lead Plaintiffs do not 38 dispute this, but argue that the Trustee Settlement is 39 unrelated to the facts underlying the class claims here, and 40 therefore not at issue. 41 42 We think it is clear that, in the consolidated cases, 43 no claim was expressly raised by the Appellants against the 44

7Settling Defendants for the alleged $80,000 loss arising out 1 of the Trustee Settlement. The question relevant to 2 mootness is whether such a claim was released by the 3 Settlement Agreement in this case. If so, and if the 4 Appellants would be barred from recovering on that claim in 5 any future case, the additional $80,000 in losses would 6 remain at issue here, and the offer of tender would not have 7 made the Appellants whole. If, on the other hand, the claim 8 was not released, the additional $80,000 in claimed losses 9 could be litigated in a separate suit against the Settling 10 Defendants, and the offer of tender would have covered all 11 of the Appellants’ losses related to this case. The 12 governing principles of mootness are set out in the margin. 1 13 14 The resolution of this dispute rests on the district 15 court’s definition of “Released Claims.” The last clause of 16 this definition is capacious–-it could be argued that a 17 claim based on the $1 billion Trustee Settlement was 18 “relate[d] to the . . . ownership . . . of limited 19 partnership interests in” the Tremont Funds. Ambiguity of a 20 contract term “is a threshold question of law for the 21 court.” Walk-In Med. Ctrs., Inc. v. Breuer Capital Corp.

, 22 818 F.2d 260, 263 (2d Cir. 1987). The meaning of ambiguous 23 language is a question of fact. Hoyt v. Andreucci , 433 F.3d 24 320, 331 (2d Cir. 2006). The release language cited above 25 “is susceptible [to] more than one reasonable 26

1Despite the Appellants’ status as objectors, the appeal would be moot if the Settling Defendants had tendered the full amount of losses–-whatever that may be–-to the Appellants. SeeBreneisen v. Motorola, Inc. , 656 F.3d 701, 706 (7th Cir. 2011) (“[O]nce the defendant offers to satisfy the plaintiff’s entire demand, there is no dispute over which to litigate . . . because he has no remaining stake.” (internal quotation marks omitted)). The Appellants cite U.S. Parole Comm’n v. Geraghty , 445 U.S. 388 (1980), and Deposit Guarantee National Bank, Jackson, Miss. v. Roper

, 445 U.S. 326 (1980), which together hold that a class action does not become moot upon offer of tender to the named plaintiff, even if class certification has been denied, because the plaintiff still has a “personal stake” in obtaining class certification on appeal. Neither case applies here because the Appellants are not class representatives.

8interpretation,” and is therefore ambiguous. Walk-In Med. 1 Ctrs. , 818 F.2d at 264. The district court made no explicit 2 findings as to the meaning of this ambiguous release 3 language. 4 5 Accordingly, we **REMAND**to the district court, pursuant 6 to the procedure outlined in United States v. Jacobson , 15 7 F.3d 19, 22 (2d Cir. 1994), for clarification as to the 8 following question: was the Appellants’ potential $80,000 9 claim arising out of the Trustee Settlement released by the 10 settlement and dismissal of this case? 11 12 A mandate shall issue forthwith remanding the case to 13 the district court, where it shall solicit briefing from the 14 parties in an expeditious manner and render a decision 15 within 60 days of the date of this order. After the 16 district court’s decision, any party to this appeal may 17 restore jurisdiction to this court within 30 days by letter 18 to the Clerk’s Office seeking review, without need for a new 19 notice of appeal. The Clerk’s Office will then set an 20 expedited briefing schedule and refer the appeal to this 21 panel. 22 23 FOR THE COURT: 24 CATHERINE O’HAGAN WOLFE, CLERK 25 26 27 28 29

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