Court Opinion

ID: 1087017
Source: CourtListenerOpinion
Date Created: 2013-10-25 14:54:55.402687+00
Date Added: 2024-06-11T12:51:51.874964
License: Public Domain

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,
 4       on the 25th 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
22                                                                       11-4030*

                *
               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 Fund-
 5                              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
13   governing principles of mootness are set out in the margin.1
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