Crown v. Kobrick Offshore Fund, Ltd.

• Decision Date: 24 April 2014
• Docket Number: No. 13–P–64.,13–P–64.
• Citation: 85 Mass.App.Ct. 214,8 N.E.3d 281
• Court: Appeals Court of Massachusetts
• Parties: Marc CROWN, trustee, v. KOBRICK OFFSHORE FUND, LTD., & others.

85 Mass.App.Ct. 214

8 N.E.3d 281

Marc CROWN, trustee,¹

v.KOBRICK OFFSHORE FUND, LTD., & others.²

No. 13–P–64.

Appeals Court of Massachusetts,

Suffolk.

Argued Dec. 6, 2013.

Decided April 24, 2014.

Philip Y. Brown (Stacie A. Kosinski with him), Boston, for the plaintiff.

Jeffrey S. Robbins, Boston, for the defendants.

Present: FECTEAU, SULLIVAN, & MALDONADO, JJ.

FECTEAU, J.

This cross appeal involves the plaintiff's claim under the Massachusetts Uniform Securities Act (securities act) for misrepresentation, G.L. c. 110A, § 410( a )(2), tried to a jury, and a claim for unfair and deceptive trade practices, G.L. c. 93A, § 11, tried to a judge; both trials resulted in a judgment for the defendants. On appeal from the judgment and the denial of three posttrial motions, the plaintiff challenges a number of evidentiary rulings, the jury instructions, and the sufficiency of the evidence. In their cross appeal from the judgment, the defendants challenge the allowance of the plaintiff's motion for summary judgment that dismissed their counterclaim for breach of contract.

We discern no abuse of discretion or other error in the evidentiary rulings or jury instructions challenged by the plaintiff, and we see no merit in the plaintiff's argument that the evidence was insufficient. As to the defendants' claim on appeal, we conclude that summary judgment was properly entered because the ground for the defendants' counterclaim is irreconcilable with the Supreme Judicial Court's decision in a related case, Marram v. Kobrick Offshore Fund, Ltd., 442 Mass. 43, 809 N.E.2d 1017 (2004) ( Marram I ). Accordingly, we affirm the judgment and the orders denying the plaintiff's posttrial motions.

Background. 1. Procedural history. This dispute arises from the plaintiff's investment in the Kobrick Offshore Fund (fund), which was a “hedge” fund ³ founded and managed by Frederick R. Kobrick (Kobrick). In particular, the parties' dispute centers on a December, 1999, meeting, and the statements Edward Marram and Kobrick made then and shortly thereafter in connection with Marram's decision to invest in the fund on behalf of the Geo–Centers, Inc. Profit Sharing Plan and Trust (plan).

In June, 2001, Marram, as trustee for the plan, sued the defendants for misrepresentation under the securities act, G.L. c. 110A, § 410( a ) (2) (securities claim); negligent misrepresentation; and unfair and deceptive trade practices, G.L. c. 93A, § 11 (c. 93A claim). In December, 2002, a Superior Court judge dismissed the plaintiff's claims on the defendants' motion pursuant to Mass.R.Civ.P. 12(b)(6), 365 Mass. 754 (1974). The plaintiff appealed, and the Supreme Judicial Court vacated the dismissal of the plaintiff's complaint and remanded the case to the Superior Court. See Marram I, supra at 63, 809 N.E.2d 1017.

On remand, two claims were dismissed before trial proceedings began. A judge granted the plaintiff's motion for summary judgment on the defendants' breach of contract counterclaim that sought legal fees under an indemnification clause in the parties' subscription agreement. The motion judge concluded that the indemnification clause was unenforceable as against public policy. In addition, the plaintiff dismissed its negligent misrepresentation claim. The plaintiff's remaining two claims were bifurcated for trial.

A jury trial was conducted on the plaintiff's securities claim from November 16 to November 30, 2009. The jury found for the defendants, answering a special verdictquestion that the defendants had made no misrepresentations. After a two-day bench trial conducted shortly thereafter, the judge made findings on the plaintiff's c. 93A claim, similarly concluding that the defendants had made no misrepresentations and committed no unfair or deceptive trade practices. After judgment entered, the plaintiff filed a series of posttrial motions: a motion for new trial, Mass.R.Civ.P. 59, 365 Mass. 827 (1974); a motion to alter or amend the findings, Mass.R.Civ.P. 52(b), as amended, 423 Mass. 1402 (1996);⁴ and a motion for judgment notwithstanding the verdict, Mass.R.Civ.P. 50(b), as amended, 428 Mass. 1402 (1998).⁵ The trial judge denied all “for the reasons set forth in the opposition.” Both the plaintiff and the defendants appealed.

2. Trial evidence. During trial, there was evidence of the following. On December 17, 1999, Marram met with Kobrick to discuss investing some of the plan's assets in the fund. As the basis of the misrepresentation claim, Marram testified that during this meeting Kobrick stated: (i) the fund was a suitable investment for the plan; (ii) the fund was diversified and invested in a variety of industries; (iii) the stock of high technology companies did not constitute a majority of the fund's holdings; and (iv) the fund would not be a volatile investment. The defendants denied that any such statements were made and countered with evidence that directly refuted the plaintiff's claims. For example, Kobrick's “PowerPoint” presentation at the December, 1999, meeting stated that the fund had a “capital appreciation” objective and “focus [ed] on high growth stock/sectors.” Moreover, after the meeting, Kobrick arranged for the plan to receive the fund's confidential offering memorandum (offering memorandum), which disclosed among other things, that the fund was “SPECULATIVE,” involved a “HIGH DEGREE OF RISK,” and was designed to achieve “above market growth.” The offering memorandum also stated that the fund: lacked diversification guidelines; may invest a significant proportion of its assets in “higher growth industries, such as technology [and] telecommunications”; and could engage in risky investment techniques. Marram signed the subscription agreement, certifying that he had read and understood the offering memorandum, and that he was knowledgeable and experienced in financial and business matters.

Marram invested $1.5 million of the plan's assets in the fund on January 1, 2000. On March 1, 2000, Marram invested another $500,000. Soon thereafter, the stock market suffered a sharp drop and the value of the fund declined significantly. Again, the evidence showed that the partiesfurther disputed the course of their dealings in 2000 after this market decline. The plaintiff asserted through Marram's testimony, in effect, that Kobrick made several postinvestment misrepresentations to induce the plan to keep its assets invested in the fund, specifically, that Kobrick had made the following false statements: (i) “new” money was coming into the fund; (ii) the new money was primarily from other Employee Retirement Income Security Act (ERISA) investors; and (iii) the fund had sold most of its technology holdings and shorted quite a bit more in March, 2000. Additionally, Marram testified that Kobrick failed to respond to Marram's request for a detailed listing of all the fund's positions.

The defendants demonstrated through evidence, however, that “[t]he [plaintiff] offered no credible evidence that any statement made by [the defendants] had any material impact on the [plaintiff's] decision to remain invested in the Fund ... [and] the [plaintiff] remained invested in the Fund through April 2001 because of its hope that the stock market would rebound.” Ultimately, on May 7, 2001, the plaintiff liquidated its assets in the fund for a steep loss. The plaintiff received $412,911 for its initial $1.5 million investment and $113,400 for its second $500,000 investment.

Discussion. 1. Plaintiff's securities claim. On appeal, the plaintiff argues: (a) the judge improperly allowed the defendants to introduce evidence of Marram's investment experience, the plan's other investments, and Kobrick's investment style; (b) the jury's verdict was markedly against the weight of the evidence; (c) the judge erred in precluding testimony from the plaintiff's expert; and (d) the judge erred in instructing the jury by not clearly distinguishing between actual and constructive knowledge, and by not instructing that Marram's sophistication as an investor was irrelevant to the plaintiff's securities claim. We address each of these claims in turn.

a. Evidence of Marram's investment experience, the plan's other investments, and Kobrick's investment style. The plaintiff contends that the judge erred in allowing the defendants to introduce evidence of Marram's investment experience because such testimony related to constructive knowledge and investor sophistication, both of which, the plaintiff claims, the Supreme Judicial Court found to be irrelevant to the securities claim. See Marram I, 442 Mass. at 53, 54 n. 19, 809 N.E.2d 1017. “We review a trial judge's evidentiary decisions under an abuse of discretion standard.” N.E. Physical Therapy Plus, Inc. v. Liberty Mut. Ins. Co., 466 Mass. 358, 363, 995 N.E.2d 57 (2013). Here, the judge's decision to admit the evidence of Marram's investment experience was not an abuse of discretion because the plaintiff offered and stipulated to evidence that Marram was an experienced and knowledgeable investor; thus, any additional evidence on that point was merely cumulative. On direct examination Marram testified that he taught entrepreneurship at Babson College, attended Harvard University's program for owners of companies, and had familiarity with the stock market. Moreover, the plaintiff stipulated to the admission into evidence of the subscription agreement, signed by Marram, which stated that Marram had “such knowledge and experience in financial and business matters that [he] is capable of evaluating the merits and risks of the [plan's] investment.” In fact, the judge warned the plaintiff's trial counsel that the broad scope of direct examination was “exposing [Marram] to so much cross-examination.” Thus, the judge acted well within her discretion when she admitted evidence offered by the defendants on Marram's investment experience, given that such questioning was within the proper purview of cross-examination. See ...