In re Beacon Associates Litigation
282 F.R.D. 315
S.D.N.Y.2012Background
- Investors in Beacon Fund suffered losses after the fund invested with Madoff/BLMIS.
- Consolidated suits assert federal claims under the Exchange Act and IAA and ERISA against Beacon Fund affiliates and advisers.
- Plaintiffs filed SAC on June 21, 2010 asserting misrepresentations and fiduciary breaches related to Madoff investments.
- Court’s October 5, 2010 order dismissed state claims but retained certain federal claims against Beacon Defendants, Jeanneret Defendants, and Ivy Defendants.
- Plaintiffs seek certification of Investor Class, Jeanneret Investor Subclass (Rule 23(b)(3)) and ERISA Class, Jeanneret ERISA Subclass (Rule 23(b)(1)); both granted.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing under Birnbaum/Dabit principles | Class members’ securities interests were purchased in connection with the alleged fraud | Birnbaum rule bars non-purchased/sold claims by non-defrauded investors | Standing found; Birnbaum not a bar |
| Statute of repose under 28 U.S.C. § 1658(b)(2) | Continuing disclosures by Ivy prevent repose from starting earlier | Claims untimely since last misrepresentation occurred before 2008 | Not bar; continuing duty to disclose extends repose to Dec 11, 2008 or later |
| Class overbreadth | Class definitions properly include relevant investors and depend on agent-based reliance | Post-2006/2007 investors may dilute class | Not overbroad; continued duty to update applies to class members via agents |
| Rule 23(a) prerequisites and predominance | Numerosity, commonality, typicality, adequacy satisfied; common proof for misrepresentations | Questions vary by member; possible individualized issues | Rule 23(a) satisfied; predominance established for 23(b)(3) Investor and Jeanneret Investor Subclasses |
| ERISA class maintainability under Rule 23(b)(1) | Representatives’ claims affect plan interests; risk of inconsistent judgments minimized | Fiduciary status uncertain; burdens on deriving fiduciary duties | Maintainable under 23(b)(1) (and 23(b)(3) optional) for ERISA Class and Jeanneret ERISA Subclass |
Key Cases Cited
- Birnbaum v. Newport Steel Corp., 193 F.2d 461 (2d Cir. 1952) ( Birnbaum rule governs standing in securities fraud claims)
- Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (Supreme Court 1975) (standing limitation in §10(b) context; reliance requirement)
- Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71 (U.S. 2006) (Birnbaum rule requires fraud connected to purchase/sale of security)
- Teamsters Local 445 Freight Div. Pension Fund v. Bombardier, Inc., 546 F.3d 196 (2d Cir. 2008) (flexible/class certification standards for complex actions)
- In re IPO Sec. Litig., 471 F.3d 24 (2d Cir. 2006) (affirms Rule 23 analysis and class certification framework)
- Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (U.S. 2011) (common questions must be central to the claims; Dukes standard for commonality)
- Amchem Prods., Inc. v. Windsor, 521 U.S. 591 (U.S. 1997) (class certification and manageability in mass tort ERISA-like contexts)
- Robinson v. Metro-North Commuter R.R. Co., 267 F.3d 147 (2d Cir. 2001) (commonality analysis in class actions)
- Drexel Burnham Lambert Group, Inc. v. FTC, 960 F.2d 285 (2d Cir. 1992) (typicality concept in class actions)
- In re Morgan Stanley ERISA Litig., 696 F. Supp. 2d 345 (S.D.N.Y. 2009) (ERISA fiduciary duties and class certification framework)
- In re Beacon Assocs. Litig., 745 F. Supp. 2d 386 (S.D.N.Y. 2010) (court's prior ruling on disclosures and fiduciary duties in Beacon matter)