11-3899 (L)

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

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED

ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE

PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A

DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX 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.

1 At a stated term of the United States Court of Appeals

2 for the Second Circuit, held at the Thurgood Marshall United

3 States Courthouse, 40 Foley Square, in the City of New York,

on the 25th 4 day of October, two thousand thirteen.

5

6 PRESENT: DENNIS JACOBS,

7 SUSAN L. CARNEY,

8 CHRISTOPHER F. DRONEY,

9 Circuit Judges.

10

11 - - - - - - - - - - - - - - - - - - - -X

12

13 IN RE: TREMONT SECURITIES LAW, STATE

14 LAW AND INSURANCE LITIGATION

15

16 Madelyn Haines and Paul Zamrowski, 

17 Appellants

18

19 -v.- 11-3899

20 11-3923

21 11-4022

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
1 Arthur E. Lange Revocable Trust,

2 Arthur C. Lange, Neal J. Polan, HFM

3 Charitable Remainder Trust, Eastham

4 Capital Appreciation Fund LP, NPV

5 Positive Corp., Daniel Jackson,

6 Laborers Local Pension Plan 17, Arthur

7 M. Brainson, Yvette Finkelstein, and

8 Group Defined Pension Plan & Trust,

9 Chateau Fiduciaire S.A., Matthew L.

10 Klein Irrevocable Family Trust,

11 Harriet Rutter Klein Revocable Trust,

12 Geoffrey Rabie Credit Shelter Trust,

13 and Joanne Brenda Rabie Credit Shelter

14 Trust,

15 Plaintiff-Appellees,

16

17 and

18

19 Massachusetts Mutual Life Insurance

20 Company, MassMutual Holding LLC,

21 Oppenheimer Acquisition Corp.,

22 Tremont Capital Management Inc.,

23 Tremont Group Holdings, Inc., Rye

24 Investment Management, Tremont

25 Partners, Inc., Tremont (Bermuda)

26 Limited, Harry Hodges, Robert

27 Schulman, Jim Mitchell, Rupert Allan,

28 Lynn O. Keeshan, Patrick Kelly,

29 Stephen Thomas Clayton, Stuart

30 Pologe, Cynthia J. Nicoll, Tremont

31 Market Neutral Fund L.P., Tremont

32 Market Neutral Fund II, L.P., Tremont

33 Market Neutral Fund Limited, Tremont

34 Opportunity Fund Limited, Tremont

35 Opportunity Fund II L.P., Tremont

36 Opportunity Fund III L.P., Tremont

37 Arbitrage Fund, L.P., Tremont

38 Arbitrage Fund-Ireland, Tremont

39 Strategic Insurance Fund, L.P., Rye

40 Select Broad Market Fund, L.P., Rye

41 Select Broad Market XL Fund, L.P.,

42 Rye Select Broad Market Prime Fund,

2
1 L.P., Rye Select Broad Market

2 Insurance Fund, L.P., and Rye Select

3 Broad Market Portfolio Limited,

4 Defendant-Appellees.

5

6 - - - - - - - - - - - - - - - - - - - -X

7

8 FOR APPELLANTS: VINCENT T. GRESHAM, Atlanta, Ga.

9

10 FOR PLAINTIFF-APPELLEES: ANDREW J. ENTWISTLE (Arthur V.

11 Nealon and Robert N. Cappucci,

12 Entiwistle & Cappucci LLP, New

13 York, N.Y., and Reed R. Kathrein

14 and Lee M. Gordon, Hagens Berman

15 Sobol Shapiro LLP, Berkeley,

16 Cal., on the brief), Entwistle &

17 Cappucci LLP, New York, N.Y.,

18 for appellees Arthur E. Lange

19 Revocable Trust, Arthur C.

20 Lange, Neal J. Polan, HFM

21 Charitable Remainder Trust,

22 Eastham Capital Appreciation

23 Fund LP, NPV Positive Corp., and

24 for the benefit of Nominal

25 Defendants, Daniel Jackson, and

26 Laborers Local Pension Plan 17.

27

28 JEFFREY M. HABER (Stephanie M.

29 Beige, on the brief), Bernstein

30 Liebhard LLP, New York, N.Y.,

31 for appellees Arthur M.

32 Brainson, Yvette Finkelstein,

33 and Group Defined Pension Plan &

34 Trust.

35

36 DEMET BASAR (Daniel W. Krasner, on

37 the brief), Wolf Haldenstein

38 Adler Freeman & Herz LLP, New

39 York, N.Y., for appellees

40 Chateau Fiduciaire S.A., Matthew

41 L. Klein Irrevocable Family

42 Trust, and Harriet Rutter Klein

43 Revocable Trust.

44

3
1 DAVID A. ROSENFELD, Robbins Geller

2 Rudman & Dowd LLP, Melville,

3 N.Y., for appellees Geoffrey

4 Rabie Credit Shelter Trust and

5 Joanne Brenda Rabie Credit

6 Shelter Trust.

7

8 FOR DEFENDANT-APPELLEES: JOSEPH L. KOCIUBES (Carol E. Head,

9 on the brief), Bingham McCutchen

10 LLP, Boston, Mass., for

11 appellees Massachusetts Mutual

12 Life Insurance Company and

13 MassMutual Holding LLC.

14

15 DAVID A. KOTLER, Dechert LLP,

16 Princeton, N.J., for appellee

17 Oppenheimer Acquisition Corp.

18

19 SETH SCHWARTZ (Jason C. Vigna, on

20 the brief), Skadden, Arps,

21 Slate, Meagher & Flom LLP, New

22 York, N.Y., for appellees

23 Tremont Capital Management Inc.,

24 Tremont Group Holdings, Inc.,

25 Rye Investment Management,

26 Tremont Partners, Inc., Tremont

27 (Bermuda) Limited, Harry Hodges,

28 Robert Schulman, Jim Mitchell,

29 Rupert Allan, Lynn O. Keeshan,

30 Patrick Kelly, Stephen Thomas

31 Clayton, Stuart Pologe, and

32 Cynthia J. Nicoll.

33

34 JAMIE B.W. STECHER (Ralph A.

35 Siciliano, David J. Kanfer, Zev

36 Feinstein Raben, on the brief),

37 Tannenbaum Helpern Syracuse &

38 Hirschtritt LLP, New York, N.Y.,

39 for appellees Tremont Market

40 Neutral Fund L.P., Tremont

41 Market Neutral Fund II, L.P.,

42 Tremont Market Neutral Fund

43 Limited, Tremont Opportunity

44 Fund Limited, Tremont

4
1 Opportunity Fund II L.P.,

2 Tremont Opportunity Fund III

3 L.P., Tremont Arbitrage Fund,

4 L.P., Tremont Arbitrage Fund5 Ireland, Tremont Strategic

6 Insurance Fund, L.P., Rye Select

7 Broad Market Fund, L.P., Rye

8 Select Broad Market XL Fund,

9 L.P., Rye Select Broad Market

10 Prime Fund, L.P., Rye Select

11 Broad Market Insurance Fund,

12 L.P., and Rye Select Broad

13 Market Portfolio Limited.

14

15 Appeal from a judgment of the United States District

16 Court for the Southern District of New York (Griesa, J.).

17

18 UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED

19 AND DECREED that the judgment of the district court be

20 REMANDED. 

21

22 In this consolidated class action, investors in a group

23 of hedge funds that suffered losses in the Madoff Ponzi

24 scheme (plaintiffs) sue those funds, the fund managers, and

25 their controlling entities (defendants) under federal and

26 state law. The United States District Court for the

27 Southern District of New York (Griesa, J.) approved a

28 settlement and certified the settlement class over numerous

29 objections. On this appeal, objectors Madelyn Haines and

30 Paul Zamrowski challenge: the fairness of the settlement

31 terms; certification of the class; and dismissal of the

32 consolidated actions pursuant to Federal Rules of Civil

33 Procedure 23 and 23.1. They also argue that the award of

34 attorney’s fees was an abuse of discretion. We assume the

35 parties’ familiarity with the underlying facts, the

36 procedural history, and the issues presented for review.

37

38 By this order, we return the mandate to the district

39 court for the limited purpose of deciding an issue that

40 potentially moots some of the appellate issues that we would

41 otherwise need to decide.

42

43 The Rye Funds were “single manager” funds that invested

44 all of their assets with Bernard L. Madoff Investment

5
1 Securities (“BLMIS”). The Tremont Funds were “funds of

2 funds,” investing about a quarter of their assets in the Rye

3 Funds (and the rest in unrelated investments) (collectively,

4 the “Funds”). When BLMIS imploded, the Rye Funds became

5 insolvent, and the Tremont Funds lost a quarter of their

6 assets. The plaintiffs claim that the defendants breached

7 their fiduciary duty by investing in BLMIS without

8 conducting proper due diligence, and made false and

9 misleading statements to investors about Madoff’s

10 involvement in managing the Funds’ assets. The Appellants

11 were investors in two Tremont Funds. 

12

13 Settlement talks begun in November 2009 yielded a

14 Settlement Agreement in February 2011. While the settlement

15 negotiations were ongoing, the trustee of the BLMIS

16 bankruptcy estate (“Trustee”) sued many of the Settling

17 Defendants (as defined in the Settlement Agreement), seeking

18 recovery of approximately $2 billion that BLMIS had

19 transferred to the Tremont and Rye Funds prior to the

20 exposure of the Ponzi scheme. The Trustee alleged that the

21 bankruptcy estate could disallow approximately $3 billion

22 worth of customer claims filed by the Rye Funds unless the

23 estate recovered the $2 billion of alleged transfers. In

24 July 2011, this matter was settled: in exchange for

25 releasing all claims and allowing bankruptcy claims by

26 certain Rye Funds, the Settling Defendants agreed to pay $1

27 billion to the Trustee (the “Trustee Settlement”). The $1

28 billion was financed partially with cash provided by the Rye

29 and Tremont Funds. 

30

31 The Appellants allege that the Trustee Settlement was

32 paid in part out of that portion of the Tremont Funds

33 (three-quarters) that was not invested in the Rye Funds–-and

34 therefore unrelated to Madoff. Although the parties dispute

35 the matter fiercely, it is clear that Haines and Zamrowski

36 together lost approximately $80,000 of their non-Madoff

37 investments in that manner. 

38

39 The district court held fairness hearings regarding the

40 proposed Settlement Agreement in June and August 2011. 

41 During this period, on August 4, 2011, lead counsel notified

42 the district court and the class of the Trustee Settlement. 

43 On August 8, the district court found the Settlement

44 Agreement to be fair, adequate, and reasonable. The

6
1 district court issued orders dismissing the case and

2 approving attorney’s fees on August 19. In approving the

3 settlement, the district court’s order defined “Released

4 Claims” as:

5

6 known claims and Unknown Claims . . . that have

7 been asserted in the Actions, or, to the extent

8 they relate to direct or indirect investments in

9 or by the Settling Funds . . . that could have

10 been asserted in any forum by Plaintiffs, any

11 Settlement Class Member, any Settling Fund, or any

12 Individual Settling Insurance Plaintiff or any of

13 them against any of the Released Parties that

14 arise out of, or are based upon, or related to,

15 the allegations, transactions, facts, matters, or

16 occurrences, representations or omissions

17 involved, set forth, or referred to in the

18 Complaints filed in the Actions, or that relate to

19 the purchase, retention, ownership or sale of

20 limited partnership interests in or shares of the

21 Settling Funds or the Settling Funds’ investments

22 in Madoff.

23

24 (emphasis added).

25

26 Haines and Zamrowski appealed the district court’s

27 order on various grounds. On May 8, 2012, while this appeal

28 was pending, the Settling Defendants made an offer of tender

29 to the Appellants for 100% of Haines’s and Zamrowski’s share

30 of the Tremont Funds’ Rye/Madoff-related losses ($41,375,

31 and $88,510, respectively). The Appellants rejected this

32 tender by letter dated May 18. The Settling Defendants

33 moved to dismiss the appeal on the ground that their offer

34 of tender rendered the appeal moot. The Appellants argue

35 that the purported offer falls short of their total losses

36 because they lost an additional $80,000 of their Tremont

37 investment when the Tremont Funds paid part of the $1

38 billion Trustee Settlement. The Lead Plaintiffs do not

39 dispute this, but argue that the Trustee Settlement is

40 unrelated to the facts underlying the class claims here, and

41 therefore not at issue. 

42

43 We think it is clear that, in the consolidated cases,

44 no claim was expressly raised by the Appellants against the

7
1 Settling Defendants for the alleged $80,000 loss arising out

2 of the Trustee Settlement. The question relevant to

3 mootness is whether such a claim was released by the

4 Settlement Agreement in this case. If so, and if the

5 Appellants would be barred from recovering on that claim in

6 any future case, the additional $80,000 in losses would

7 remain at issue here, and the offer of tender would not have

8 made the Appellants whole. If, on the other hand, the claim

9 was not released, the additional $80,000 in claimed losses

10 could be litigated in a separate suit against the Settling

11 Defendants, and the offer of tender would have covered all

12 of the Appellants’ losses related to this case. The

governing principles of mootness are set out in the margin.1 13

14

15 The resolution of this dispute rests on the district

16 court’s definition of “Released Claims.” The last clause of

17 this definition is capacious–-it could be argued that a

18 claim based on the $1 billion Trustee Settlement was

19 “relate[d] to the . . . ownership . . . of limited

20 partnership interests in” the Tremont Funds. Ambiguity of a

21 contract term “is a threshold question of law for the

22 court.” Walk-In Med. Ctrs., Inc. v. Breuer Capital Corp.,

23 818 F.2d 260, 263 (2d Cir. 1987). The meaning of ambiguous

24 language is a question of fact. Hoyt v. Andreucci, 433 F.3d

25 320, 331 (2d Cir. 2006). The release language cited above

26 “is susceptible [to] more than one reasonable

1 Despite 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. See Breneisen 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.

8
1 interpretation,” and is therefore ambiguous. Walk-In Med.

2 Ctrs., 818 F.2d at 264. The district court made no explicit

3 findings as to the meaning of this ambiguous release

4 language.

5

6 Accordingly, we REMAND to the district court, pursuant

7 to the procedure outlined in United States v. Jacobson, 15

8 F.3d 19, 22 (2d Cir. 1994), for clarification as to the

9 following question: was the Appellants’ potential $80,000

10 claim arising out of the Trustee Settlement released by the

11 settlement and dismissal of this case?

12

13 A mandate shall issue forthwith remanding the case to

14 the district court, where it shall solicit briefing from the

15 parties in an expeditious manner and render a decision

16 within 60 days of the date of this order. After the

17 district court’s decision, any party to this appeal may

18 restore jurisdiction to this court within 30 days by letter

19 to the Clerk’s Office seeking review, without need for a new

20 notice of appeal. The Clerk’s Office will then set an

21 expedited briefing schedule and refer the appeal to this

22 panel.

23

24 FOR THE COURT:

25 CATHERINE O’HAGAN WOLFE, CLERK

26

27

28

29

9