Bulldog Investors General Partnership v. Galvin
| Decision Date | 26 December 2007 |
| Docket Number | 071261BLS2 |
| Citation | 2007 MBA 462 |
| Parties | Bulldog Investors General Partnership et al.[1] v. William F. Galvin, Secretary of the Commonwealth et al. |
| Court | Massachusetts Superior Court |
As-is Docket Number: 07-1261-BLS2
Judge (with first initial, no space for Sullivan, Dorsey, and Walsh): Fabricant, Judith, J.
This action arises from activities of the Office of the Secretary of the Commonwealth in enforcing Massachusetts securities laws with respect to certain communications regarding hedge funds, particularly a website operated by the group of plaintiffs who will be referred to herein collectively as "Bulldog Investors," or "Bulldog," and associated e-mail communication. The plaintiffs contend that the Secretary's enforcement activities have violated their rights under the First Amendment to the United States Constitution and under the Commerce Clause. They seek injunctive relief and damages. Presently before the Court is the plaintiffs' motion for a preliminary injunction. For the reasons that will be explained, the motion will be denied.
BACKGROUND[2]
Plaintiff Bulldog Investors General Partnership is a general partnership. Three of its general partners are private investment partnerships known as hedge funds: the plaintiffs Opportunity Partners, L.P., Full Value Partners, L.P., and Opportunity Income Fund, L.P. The fourth general partner, and managing partner, is the plaintiff Kimball & Winthrop, Inc. which is the sole general partner of Opportunity Partners Fund. Plaintiffs Full Value Advisors, LLC, and Spar Advisors LLC, are the sole general partner and investment advisor to Full Value Fund and Income Plus Fund, respectively. Plaintiffs Phillip Goldstein, Steven Samuels, Andrew Dakos and Rajeev Das are principals of one or more of the above-described entities. These entities and individuals will be referred to herein collectively as Bulldog Investors, or Bulldog. Bulldog Investors has not registered any offering of securities with the Securities and Exchange Commission ("SEC"). In 1992 and 2001, respectively, Opportunity Partners and Full Value Fund filed "Form D" with the SEC, claiming exemption from registration requirements.[3] Plaintiff Leonard Bloness, a resident of Massachusetts, is not affiliated with Bulldog Investors, as far as the materials before the Court disclose; he alleges that he "desires to have access to and to read the information contained in the Bulldog Investors website but is not interested in investing in any security mentioned or described in that website."
From about June 9, 2005, to January 5, 2007, Bulldog Investors maintained an interactive website that provided information about investment products offered by Bulldog Investors. The website made certain information available to any visitor, including press articles and a printable brochure describing Bulldog's three investment vehicles, Opportunity Partners, Full Value Partners, and Income Plus Fund. The description gave a brief summary of each fund's approach. It described Opportunity Partners as Full Value Partners was described as "a fund that concentrates on taking substantial positions in undervalued operating companies and closed-end mutual funds," and that "acts as a catalyst to 'unlock' these values through proprietary means." Income Plus Funds, according to the brochure, Each fund, the brochure stated, "will hedge when deemed appropriate." A link on the site available to any visitor provided the statement that
The website provided additional information to a visitor who would click "I Agree" to the following disclaimer:
The information is available for information purposes only and does not constitute solicitation as to any investment service or product and is not an invitation to subscribe for shares or units in any fund herein. For the avoidance of doubt this website may not be used for the purpose of an offer or solicitation in any jurisdiction or in any circumstances in which such offer or solicitation is unlawful or not authorized. Whilst every effort has been made to ensure the accuracy of the information herein, Bulldog Investors accepts no responsibility for the accuracy of information, nor the reasonableness of conclusions based upon such information, which has been obtained from third parties. The Rates referring specifically to investment products offered by Bulldog Investors are only available for view with a username and password, which can be obtained by contacting the company on the Registration Form provided. The value of investments and the income from them can fall as well as rise. Past performance is not a guarantee of future performance and investors may not get back the full amount invested. Changes in the Rates of exchange may affect the value of investments.
A website visitor seeking more specific information about the funds and their performance could request such information by clicking on a button labeled "send feedback," which would lead to a registration screen seeking personal identifying information. To register a visitor would be required to indicate agreement to the disclaimer. At least one Massachusetts resident, one Brendan Hickey, did so on or about November 10, 2006. Steven Samuels responded to Hickey, by e-mail, attaching additional materials including information about the funds' investment strategy and philosophy, the backgrounds of their managers, performance and recent successes, and news articles. Samuels's e-mail stated, a telephone number provided.
Among the materials Samuels attached to his e-mail to Hickey was one item that is the subject of considerable argument among the parties here: a copy of a letter, dated July 13, 2006, directed to investors in Bulldog's funds. The letter discusses the funds' returns as compared to the Standard & Poor 500 Index, current investments in particular companies, and a lawsuit against the SEC challenging a rule requiring registration of certain hedge fund managers. It then states:
We don't need a nanny regulator to tell us right from wrong. And unlike most mutual fund managers, we put our money where our mouths are. Since day one a significant portion of our net worth has been invested in Full Value Partners so you can be sure that our interests are closely aligned with yours. In our opinion that is more important than all the cosmetic rules and regulations any regulator can dream up.
On January 31, 2007, the enforcement section of the Massachusetts Securities Division filed an administrative complaint with the Acting Director of the Securities Division against Bulldog Investors, alleging that Bulldog had offered securities for sale in the Commonwealth that were not properly registered or exempt, in violation of G.L.c. 110A, the Massachusetts Uniform Securities Act, and regulations thereunder, 950 C.M.R. §10 et seq., by means of the communications appearing in the website. The enforcement section sought a cease and desist order, an administrative fine, and other relief. Bulldog Investors answered the administrative complaint on February 21, 2007, denying the allegations and raising as a defense the allegation that the complaint abridged its rights under the First Amendment to the United States Constitution and Article XVI of the Massachusetts Declaration of Rights.
On March 23, 2007, while the administrative proceeding was pending, the plaintiffs filed this action. The complaint in this Court names Secretary of the Commonwealth William Galvin and Chief of Enforcement Patrick Ahearn.[4] The complaint alleges that the conduct that forms the basis of the administrative complaint is "protected by the free speech and free press guarantees in the First Amendment to the Constitution of the United States and Article XVI of the Massachusetts Declaration of Rights," and that the administrative proceeding chills the exercise of those rights, in that "[b]ut for the threat of sanctions and the litigation burden imposed by the Secretary, the Bulldog Investors website would continue to operate as it did prior to the Secretary's action." The complaint asserts claims under the federal and state civil rights acts, 42 U.S.C. §1983, and G.L.c. 12, §11I, and seeks declaratory and injunctive relief, including a preliminary injunction.[5]
Contemporaneously with the filing of the complaint, the plaintiffs moved for a...
To continue reading
Request your trial