Bradshaw v. Maiden

• Decision Date: 10 August 2015
• Docket Number: 14 CVS 14445
• Citation: Bradshaw v. Maiden, 2015 NCBC 76, 14 CVS 14445 (N.C. Super. Ct. Aug 10, 2015)
• Court: Superior Court of North Carolina
• Parties: JAMES W. BRADSHAW, CARLA O. BRADSHAW, RESORT RETAIL ASSOCIATES, INC., E.C. BROADFOOT, CHRISTINA DUNN CHANDRA, JAMES DOYLE, THOMAS F. EGAN, CHARLES EGGERT, MARK P. GARSIDE, CLARK GREEN, DR. JAMES J. GREEN, JR., ROBERT K. GRUNEWALD, RONALD HOLMES, DAVID LAUCK, CURT W. LEMKAU, JR., EVAN MIDDLETON, JOSHUA M. NELSON, CHRISTIAN C. NUGENT, PETER B. PAKRADOONI, FORD PERRY, MARCELLO G. PORCELLI, ADAN RENDON, RICHARD H. STEVENSON, PAUL STOKES, LAWRENCE J. THEIL, R. MITCHELL WICKHAM, WILLIAM H. WILLIAMSON, III, WILLIAM K. WRIGHT, JR., ALEX M. WOLF, ALPINE CAPITAL III LLC, CHAFFIN FAMILY LIMITED PARTNERSHIP, and SOLARIS CAPITAL LLC, Plaintiffs, v. STEPHEN E. MAIDEN, MAIDEN CAPITAL, LLC, and SS&C TECHNOLOGIES INC., successor by merger to SS&C FUND ADMINISTRATION SERVICES, LLC (a/k/a SS&C FUND SERVICES), Defendants.

2015 NCBC 76

JAMES W. BRADSHAW, CARLA O. BRADSHAW, RESORT RETAIL ASSOCIATES, INC., E.C. BROADFOOT, CHRISTINA DUNN CHANDRA, JAMES DOYLE, THOMAS F. EGAN, CHARLES EGGERT, MARK P. GARSIDE, CLARK GREEN, DR. JAMES J. GREEN, JR., ROBERT K. GRUNEWALD, RONALD HOLMES, DAVID LAUCK, CURT W. LEMKAU, JR., EVAN MIDDLETON, JOSHUA M. NELSON, CHRISTIAN C. NUGENT, PETER B. PAKRADOONI, FORD PERRY, MARCELLO G. PORCELLI, ADAN RENDON, RICHARD H. STEVENSON, PAUL STOKES, LAWRENCE J. THEIL, R. MITCHELL WICKHAM, WILLIAM H. WILLIAMSON, III, WILLIAM K. WRIGHT, JR., ALEX M. WOLF, ALPINE CAPITAL III LLC, CHAFFIN FAMILY LIMITED PARTNERSHIP, and SOLARIS CAPITAL LLC, Plaintiffs, v. STEPHEN E. MAIDEN, MAIDEN CAPITAL, LLC, and SS&C TECHNOLOGIES INC., successor by merger to SS&C FUND ADMINISTRATION SERVICES, LLC (a/k/a SS&C FUND SERVICES), Defendants.

No. 14 CVS 14445

Superior Court of North Carolina, Mecklenburg

August 10, 2015

Lewis & Roberts, PLLC, by Gary V. Mauney and James A. Roberts, III, for Plaintiffs James W. Bradshaw, Carla O. Bradshaw, Resort Retail Associates, Inc., E.C. Broadfoot, Christina Dunn Chandra, James Doyle, Thomas F. Egan, Charles Eggert, Mark P. Garside, Clark Green, Dr. James J. Green, Jr., Robert K. Grunewald, Ronald Holmes, David Lauck, Curt W. Lemkau, Jr., Evan Middleton, Joshua M. Nelson, Christian C. Nugent, Peter B. Pakradooni, Ford Perry, Marcello G. Porcelli, Adan Rendon, Richard H. Stevenson, Paul Stokes, Lawrence J. Theil, R. Mitchell Wickham, William H. Williamson, III, William K. Wright, Jr., Alex M. Wolf, Alpine Capital III LLC, Chaffin Family Limited Partnership, and Solaris Capital, LLC.

Alston & Bird, LLP, by Ryan P. Ethridge, Michael A. Kaeding, and Jessica P. Corley (pro hac vice), for Defendant SS&C Technologies Inc.

ORDER AND OPINION ON DEFENDANT SS&C TECHNOLOGIES INC.'S MOTION TO DISMISS PLAINTIFFS' COMPLAINT

Louis A. Bledsoe, III, Special Superior Court Judge for Complex Business Cases.

{1} THIS MATTER is before the Court upon Defendant SS&C Technologies Inc.'s (successor by merger to SS&C Fund Administration Services, LLC (a/k/a SS&C Fund Services)) ("SS&C") Motion to Dismiss Plaintiffs' Complaint (the "Motion" or "Motion to Dismiss") in the above-captioned case.

{2} THE COURT, having considered SS&C's Motion, briefs in support of and in opposition to the Motion, and the arguments of counsel at a February 9, 2015 hearing in this matter, hereby GRANTS in part and DENIES in part the Motion.

I. PROCEDURAL HISTORY

{3} Plaintiffs' claims arise out of an alleged multi–million dollar fraudulent "Ponzi scheme" that Defendant Stephen E. Maiden ("Maiden") purportedly operated through a "friends and family" hedge fund managed by Defendant Maiden Capital, LLC ("Maiden Capital") (collectively, the "Maiden Defendants"). (Am. Compl. ¶ 1.) Maiden's hedge fund was a limited partnership named the Maiden Capital Opportunity Fund, LP ("MCOF" or the "Fund"). (Am. Compl. ¶ 1.) Maiden was the managing member of Maiden Capital, and Maiden Capital was the general partner of MCOF. (Am. Compl. ¶ 55.) Plaintiffs allege that "Maiden, through Maiden Capital, ran the business and operational activities of his hedge fund, MCOF. Maiden possessed total control over the Fund." (Am. Compl. ¶ 54.)

{4} SS&C functioned as the Fund's administrator from approximately 2007 until the Fund's collapse in 2013. (Am. Compl. ¶ 56.) Plaintiffs are limited partners and investors in MCOF and have allegedly suffered net losses of principal from their individual capital accounts in MCOF. (Am. Compl. ¶ 3.) Plaintiffs commenced this action by filing their original complaint on August 7, 2014, alleging various claims for relief against Defendants Maiden, Maiden Capital, and SS&C.

{5} SS&C moved for designation of this action to the North Carolina Business Court on September 5, 2014, and the action was thereafter designated to this Court on September 8, 2014 and assigned to the undersigned on September 11, 2014.

{6} On November 10, 2014, SS&C filed its Motion to Dismiss, which puts at issue whether Plaintiffs' claims against SS&C – more broadly, whether investor claims against a fund administrator as pleaded here – may survive dismissal under Rules 12(b)(6), 9(b), and 9(k) of the North Carolina Rules of Civil Procedure ("Rules").

{7} On November 12, 2014, the Court granted Plaintiffs' request to amend the summons and complaint for the limited purpose of correcting the name of the Defendant entity. On November 25, 2014, Plaintiffs filed an amended complaint and summons ("Amended Complaint").

{8} On December 23, 2014, Plaintiffs filed their papers in opposition to SS&C's Motion to Dismiss, and a hearing on the Motion was held on February 9, 2015, at which all parties were represented by counsel.

{9} SS&C's Motion to Dismiss is now ripe for resolution.^[1]

II. BACKGROUND

{10} The Court does not make findings of fact in ruling on motions to dismiss, "as such motions do 'not present the merits, but only [determine] whether the merits may be reached.'" Out of the Box Developers, LLC v. LogicBit Corp., 2012 NCBC LEXIS 55 at *4 (N.C. Super. Ct. Oct. 30, 2012) (brackets in original) (quoting Concrete Serv. Corp. v. Investors Grp., Inc., 79 N.C.App. 678, 681, 340 S.E.2d 755, 758 (1986)). The Court only recites herein the allegations set forth in Plaintiff's Amended Complaint that are relevant to the Court's determination of the Motion. See, e.g., Concrete Serv. Corp., 79 N.C.App. at 681, 340 S.E.2d at 758.

{11} Plaintiffs allege that to induce them to invest in the Fund, Maiden supplied Plaintiffs with a Confidential Private Offering Memorandum ("Offering Memorandum"), along with an accompanying Limited Partnership Agreement of MCOF ("Partnership Agreement") (together with the Offering Memorandum, "Offering Documents").^[2] (See Am. Compl. ¶¶ 12, 87.) As the sole "managing member" of Maiden Capital, Maiden had "exclusive management and control" of the Fund. (Offering Memorandum § 5.)

{12} Plaintiffs allege that on May 23, 2013, they discovered Maiden's allegedly fraudulent conduct that led to the collapse of MCOF when Maiden pleaded guilty to securities fraud in the United States District Court for the Western District of North Carolina. (Am. Compl. ¶¶ 2, 230.) The federal court criminal Bill of Information states:

In order to induce individuals to invest and to keep their funds with Maiden Capital, MAIDEN made a series of false and fraudulent representations, omitted material facts and told deceptive half–truths. MAIDEN represented to victims that the fund was doing well and earning money. By at least February 2009, however, Maiden had lost a substantial amount of all investor funds in a series of failed investments[.]

(Am. Compl. ¶ 2 (quoting Bill of Information).)

{13} Plaintiffs allege that SS&C, the Fund's administrator at all relevant times, was an "enabler" and played a "key role" in the fraudulent Ponzi scheme by, inter alia, reporting fictitious account values to Plaintiffs, "papering over" the Fund's accounting infirmities, and choosing to cease documenting and verifying the Fund's claimed assets. (Am. Compl. ¶¶ 1, 7, 9.)

{14} SS&C's duties as the Fund's administrator, as evidenced by the Administrative Services Agreement ("ASA")^[3] executed by SS&C and the Fund on September 1, 2006, ^[4] included:

(i) "Preparation of general ledger accounts and trial balances for the Fund including either the download of trades or recordation via journal entry of portfolio information as pre-agreed."

(ii) "Preparation and delivery of investor capital statements [("Capital Statements")] on a quarterly basis."^[5]

(iii) "Calculation of periodic management fees, performance fees and other periodic amounts payable by the Fund as provided for in the Fund's governing documents."

(iv) "Preparation of economic allocation for investors."

(v) "Calculation of net asset value [("NAV")] for the Fund, as well as performance rates of return."

(vi) "Delivery of reports to the Fund on a monthly basis including NAV reports, performance, trial balance and general ledger reports and reports showing investor capital."

(vii) "Coordination with the Fund's auditors in connection with the Fund's audit."

(viii) "[K]eep at its premises books, records and statements as may be reasonably necessary to document the transactions recorded by [SS&C] on behalf of the Fund."

(ASA pp. 1–2; Pls.' Resp. Opp. Mot. Dismiss, Ex. 7. See Am. Compl. ¶¶ 126–39.)

{15} The books and records described in the ASA were to be "based on the information SS&C receive[d] from the Fund or its Management, ^[6] and from designated third parties which may include the Fund's prime broker, investors, attorneys." (ASA p. 1.) "SS&C [was] responsible for maintaining a record of transactions based on the information supplied." (ASA p. 1.) SS&C was "not . . . responsible for determining the valuation of the Fund's investments, and [could] not perform any Management functions or make any Management decisions with regard to the operation of the Fund." (ASA p. 1.) "In instances where SS&C services include[d] comparing pricing to third party electronic feeds or other sources[, ] these services [were] performed as a support function to Management and [did] not limit Management's responsibility for determining the valuation of the Fund's investment portfolio." (ASA p. 2.)

{16} Under the ASA, Management was solely responsible for reviewing and approving all reports, analyses, and books and records that resulted from SS&C's services, evaluating and accepting responsibility for the results of SS&C's services, and accepting responsibility for valuations of the Fund's portfolio investments. (ASA p. 2.)

{17} Plaintiffs allege that Maiden conveyed false information to SS&C, which SS&C used to calculate and analyze the Fund's performance, (see, e.g., Am. Compl. ¶¶ 151–60, 162–65, 170–71), and that Maiden's "Ponzi" scheme could not have continued without SS&C's active participation in the fraud as the Fund's...