Amorim Holding Financeria v. C.P. Baker & Co.
| Decision Date | 30 September 2014 |
| Docket Number | Civil Action No. 09–10641–DPW. |
| Citation | 53 F.Supp.3d 279 |
| Court | U.S. District Court — District of Massachusetts |
| Parties | AMORIM HOLDING FINANCERIA, S.G.P.S., S.A., Plaintiff, v. C.P. BAKER & CO., LTD. and Christopher P. Baker, Defendants. |
OPINION TEXT STARTS HERE
Anthony S. Fiotto, Goodwin Procter, LLP, Boston, MA, for Plaintiff.
Daniel J. Dwyer, Murphy & King, PC, Boston, MA, for Defendants.
Amorim Holding Financeira S.G.P.S., S.A. (“Amorim Holding”) filed this suit against C.P. Baker & Co., Ltd. and its principal, Christopher P. Baker (collectively, “Baker”), alleging violations of the Massachusetts Securities Act, fraud, negligent misrepresentation, breach of fiduciary duty, and unfair and deceptive trade practices in violation of Massachusetts General Laws chapter 93A in connection with certain investments Amorim made with Baker. Baker answered the complaint with counterclaims for misrepresentation, breach of warranty, and indemnification against Amorim. The parties have presented cross motions for summary judgment as to each other's claims.
A. Amorim's Introduction to Baker
Amorim Holding Financeira S.G.P.S., S.A. (“Amorim Holding”) is a family-owned company located in Portugal. In 2003, the president of Amorim Holding, Americo Amorim (“Amorim”), had fallen short on an investment in a company called FiNet. Bob Beuret, an employee of C.P. Baker & Co., Ltd., a Delaware investment management company with a principal place of business in Boston, suggested that Amorim meet with Christopher Baker, the president and CEO of C.P. Baker & Co for help making up the deficit in the FiNet investment. Baker specialized in venture capital and private equity investments. After meeting Amorim and his representatives, Baker agreed to help Amorim with the FiNet investment.
In a February 2004 meeting with Amorim, Baker explained his investment philosophy of leveraging his managerial expertise to create value in private companies. He highlighted his investment experience and successes, such as his investment of a few million dollars in a company called Zone Perfect that turned into a $165 million sale in 2003. Baker also gave Amorim a tour of his office in Boston. Amorim was impressed, and agreed to invest with Baker. Baker mentioned during the meeting that he was starting an investment fund, called the Anasazi III Offshore Fund (“Anasazi III”). By the end of the meeting,Amorim agreed to invest in Anasazi III.
Shortly thereafter, a Gibraltar-based entity, Morris Holdings Ltd., invested $5 million in Anasazi III. Morris Holdings is a holding company for two Lichtenstein trusts, the beneficiaries of which are individual members of the Amorim family. Morris Holdings was represented by counsel for each of its investments, but is not a named plaintiff in this case.
From 2004 through 2006, Morris Holdings also invested in a number of start-ups and other privately held companies through Baker. It invested in On–Card Inc., a direct-mailing company; ZForce Partners LLC, a children's action cartoon production company; American Entertainment Holding Company, LLC, a moviescript intellectual property licensing company; and Chime Entertainment LLC, a music production company.
Each investment was subject to a purchase or subscription agreement, and Amorim Holding alleges that Baker made misrepresentations about each and every investment Morris Holdings made. Morris Holdings continues to hold some of the investments, has sold some, and has transferred others to other Amorim-affiliated entities. I summarize below the purchase or subscription agreements associated with each individual investment, along with the misrepresentations Baker allegedly made in connection with those investments. I also note the status of the investment as of the briefing and argument of the summary judgment motions. The parties have not further supplemented this information.
a. Anasazi IIIi. The Investment
The Application Form Morris Holdings signed on April 2, 2004 as a part of its investment of $5 million in Anasazi III represented that it possessed “the knowledge, expertise and experience in financial matters to evaluate the risks of investing” in Anasazi III and understood “the risks inherent in investing” in Anasazi III, including “the risk of loss of [its] entire investment.” Morris Holdings also received a private placement memo which, among other things, warned Morris Holdings that it could lose everything it invested in Anasazi III, and could not rely on any representation or warranty not contained in the written documents it had received or any representation or warranty relating to the economic return of Anasazi III.
The Application Form contained a section titled “Indemnification,” wherein Morris Holdings acknowledged that it would indemnify “the Fund, the Manager, the Administrator and their respective directors, officers and employees against any loss, liability, cost or expense (including without limitation attorneys' fees, taxes and penalties) which may result directly or indirectly, from any misrepresentation or breach of any warranty, condition, covenant or agreement set forth herein or in any other document delivered by the Investor to the Fund.” Baker was listed as the “Manager” of Anasazi III.
ii. Alleged Misrepresentations
The private placement memo also represented that the value of the companies which Anasazi III had an interest in would be valued at a “fair value as determined in good faith by [Baker], in consultation with the Administrator” of the Fund. Amorim Holding contends that Baker did not consult the Administrator of Anasazi III in valuing the companies Anasazi III had an interest in, nor did he provide a fair valuation in good faith.iii. Transfer of Interest
Morris Holdings sold its shares of Anasazi III to Amorim Alternative Investments, a wholly-owned subsidiary of Amorim Holding, for $1.8 million in the fall of 2008.
b. On–Cardi. The Investment
Morris Holdings made four separate investments in On–Card. These were in the amounts of $700,000 on November 23, 2004; $900,000 on December 9, 2004; $200,000 on November 3, 2005; and $100,000 on January 31, 2006.1
Each investment involved execution of a Subscription Agreement with On–Card. By signing the On–Card Subscription Agreement, Morris Holdings “recognize[d] that the [investment] involve[d] a high degree of risk.” The Agreement warned that the investments were illiquid, because “transferability [was] extremely limited.” It also warned that Morris Holdings could lose its entire investment. Morris Holdings warranted that it was “sufficiently experienced in financial and business matters to be capable of evaluating the merits and risks of an investment in the company” and that it had, in fact, “evaluated the merits and risks of [its] proposed investment.” The Subscription Agreement also noted that Morris Holdings would have to hold the shares for an indefinite period of time.
Like many of the other agreements, the On–Card Subscription Agreement included an integration clause, stating that the It also included an indemnification clause, wherein Morris Holdings agreed to indemnify On–Card “and its affiliates, directors, officers, trustees, managers, employees and representatives ... from and against any Losses suffered, sustained, incurred or required to be paid by any such [party] due to, based upon or arising out of any material inaccuracy in, or any material breach of, a representation or warranty of the Subscriber contained in this Agreement.” Baker was defined in the agreement as On–Card's “Placement Agent.”
ii. Alleged Misrepresentations
On October 25, 2004, Baker sent Amorim Holding an email suggesting that it invest in On–Card because On–Card's “product margins are extremely attractive.” That email represented that Baker and the Anasazi Funds had already invested $900,000 in OnCard, and suggested that Amorim Holding and Baker “should ... jointly invest a total of $1.4 million ($700k/$700k)” more in OnCard. On June 11, 2005, Baker sent Amorim Holding an email suggesting that On–Card was “exploding,” and on October 21, 2005, continued to assert that On–Card had “great potential.”
Amorim Holding alleges that in a May 2006 meeting, Baker told it that On–Card would have an initial public offering within two years, and that such an offering would lead to a two to five times return on its initial investment. In late 2006, Baker also allegedly assured Amorim Holding that he would replace On–Card's CEO with a more experienced one to improve the management of the company. Amorim Holding contends that all of these representations were false.
iii. No Transfer of Interest
Morris Holdings continues to hold the interest it purchased in On–Card in the four investments from 2004 through 2006.
c. Z–Forcei. The Investment
As with the Anasazi III investment, Morris Holdings signed a Subscription Agreement for a $900,000 investment in Z–Force on December 28, 2004.2 By signing the Agreement, Morris Holdings acknowledged that its investment “involves an extremely high degree of risk and is suitable only for sophisticated investors.” It agreed that it would “continue to bear the economic risk of [the] investment for an indefinite period” because the stock was not registered and thus could not be sold. The Agreement also warned that Baker could have potential and actual conflicts of interest arising from the investment as a result of his managerial role with the company, and Morris Holdings acknowledged those potential conflicts by signing the Agreements. Unlike many of the other investment agreements, the Morris Holdings Z–Force agreement did not include an indemnification clause.
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