Matana v. Merkin
2013 U.S. Dist. LEXIS 107557
| S.D.N.Y. | 2013Background
- KM invested $1.5 million in Ascot Fund (Cayman Islands), an off-shore fund run by Merkin and GCC; Ascot Fund placed most assets with Madoff, who operated a Ponzi scheme.
- Merkin owned 100% of GCC and controlled Ascot Fund as well as related funds (Gabriel Fund and Ariel Fund) with exposure to Madoff.
- Ascot Fund was allegedly misrepresented as a three-strategy, market-neutral fund, when it largely funneled assets to Madoff under Merkin's control.
- KM made initial $1M investment (Oct 1, 2002) and an additional $500k (Jan 1, 2004), relying on the 1996 Prospectus and the December 2002 Offering Memorandum.
- Madoff’s fraud was exposed, wiping out Ascot Fund investments and KM’s $1.5 million.
- Related litigation includes NYAG’s Martin Act action and a putative investor class action; KM contends tolling applies, which the court analyzes and limits.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether KM’s fraud claims are timely. | KM argues tolling under American Pipe. | Defendants contend claims are untimely. | Fraud claims based on offering documents are time-barred. |
| Whether American Pipe tolling applies to KM’s NY state-law claims. | KM seeks tolling via Merkin class action and NYAG action. | Tolling does not apply because KM was not a class member and NYAG action is distinct. | American Pipe tolling inapplicable to KM’s claims. |
| Whether KM can plead a valid holder theory of fraud. | KM pleads a holder-based fraud theory from letters. | Holder theory not clearly recognized and pleadings insufficient under Rule 9(b). | Holder theory dismissed with leave to amend for particularized pleading. |
| Whether KM’s breach of fiduciary duty claim is time-barred. | Fraud alleged should toll fiduciary-duty claim. | Fraud claim incidental; three-year limitations apply. | Breach of fiduciary duty dismissed as time-barred. |
| Whether KM’s claim for breach of the duty of good faith and fair dealing lies against KM’s signatories. | Contracts governing Ascot Fund create implied duty. | KM and defendants not in contractual relationship; no implied duty. | Implied-duty claim dismissed; amendment permitted only if KM locates a contract. |
Key Cases Cited
- American Pipe & Construction Co. v. Utah, 414 U.S. 538 (U.S. 1974) (tolls class-action limitations for absent class members; tolling depends on class status and jurisdictional scope)
- Casey v. Merck, 653 F.3d 95 (2d Cir. 2011) (applies American Pipe tolling to state-law claims with state-law analogue)
- Choquette v. City of New York, 839 F. Supp. 2d 692 (S.D.N.Y. 2012) (discusses tolling and state-law implications for American Pipe framework)
- Anwar v. Fairfield Greenwich Ltd., 728 F. Supp. 2d 372 (S.D.N.Y. 2010) (discussion of fiduciary duties and related limitations in Madoff feeder-fund context)
- In re Merkin, 817 F. Supp. 2d 346 (S.D.N.Y. 2011) (related class-action decision informing tolling and scope of claims)