Friedlob v. Trustees of Alpine Mut. Fund Trust, Civ. A. No. 93 N 2337.
| Citation | 905 F. Supp. 843 |
| Decision Date | 22 May 1995 |
| Docket Number | Civ. A. No. 93 N 2337. |
| Parties | Raymond L. FRIEDLOB, Receiver of the Alpine Mutual Fund Trust, a Massachusetts Business Trust, and Raymond L. Friedlob, Receiver of the National Municipal Asset Trust, a series fund of the Alpine Mutual Fund Trust, Plaintiffs, v. TRUSTEES OF the ALPINE MUTUAL FUND TRUST, a Massachusetts Business Trust; Edwin J. Pittock, individually, as President, Treasurer and as Trustee of the Alpine Mutual Fund Trust; Gilbert W. Acheson, individually and as Trustee of the Alpine Mutual Fund Trust; Paul A. Fregosi, individually and as Trustee of the Alpine Mutual Fund Trust; Larry D. Hayden, individually and as Trustee of the Alpine Mutual Fund Trust; David Kerr, individually and as Trustee of the Alpine Mutual Fund Trust; Robert R. Woodworth, individually and as Trustee of the Alpine Mutual Fund Trust; Alpine Capital Management Corporation, a Colorado corporation and registered investment adviser; Edwin J. Pittock, individually and as President of Alpine Capital Management Corporation; John I. Dickerson, individually and as Chairman of the Board of Directors of Alpine Capital Management Corporation; Thomas F. Leonard, individually and as an officer of Alpine Capital Management Corporation; Alpine Municipal Leasing Corporation, a Colorado corporation; Edwin J. Pittock, individually and as President and a Director of Alpine Municipal Leasing Corporation; John I. Dickerson, individually and as Director of Alpine Municipal Leasing Corporation; and Thomas F. Leonard, individually and as an officer of Alpine Municipal Leasing Corporation; other unnamed John and/or Jane Does, Defendants. |
| Court | U.S. District Court — District of Colorado |
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Richard H. Goldberg, Raskin & Friedlob, P.C., Denver, CO, for plaintiffs.
Larry D. Hayden, Arvada, CO, pro se.
David M. Tenner, Bond & Morris, P.C., Denver, CO, for defendant Fregosi.
Leonard E. Davies, Denver, CO, for defendant Dickerson.
David A. Zisser, Berliner Kaplan Zisser & Walter, P.C., Denver, CO, for Pittock, Alpine Capital Management Corp., and Alpine Municipal Leasing Corp.
Jeffrey A. Chase, Richard A. Oertli, Holme Roberts & Owen, Denver, CO, for defendants Kerr and Acheson.
Marc J. Musyl, Freeborn & Peters, Denver, CO, for defendant Woodworth.
This is a securities-fraud case. The litigation arose out of several investments made by three mutual-fund trusts. Plaintiff Raymond L. Friedlob, as court-appointed receiver, brings this action against various individuals and entities involved in the administration and management of the trusts. Plaintiff's allegations of mismanagement are premised on the following claims: (1) violation of sections 11 and 15 of the Securities Act of 1933, 15 U.S.C.A. §§ 77k, 77o (West 1981) hereinafter the "1933 Act"; (2) violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C.A. §§ 78j(b), 78t(a) (West 1981) hereinafter the "1934 Act", and rule 10b-5 promulgated thereunder by the Securities and Exchange Commission ("SEC"), 17 C.F.R. § 240.10b-5 (1988); (3) violations of sections 8(b), 13(a), 15(c), 17(e) and 21 of the Investment Company Act of 1940, 15 U.S.C.A. §§ 80a-8(b)(1) to -8(b)(3), -13(a)(3), -15(c), -17(e)(2), and -21 (West 1981 & Supp.1995) hereinafter the "ICA"; (4) violations of the Racketeer Influenced and Corrupt Organizations Act of 1970, 18 U.S.C.A. § 1962(b)-(d) (West 1984 & Supp.1995) hereinafter "RICO"; and (5) state statutory and common-law claims, including securities violations, breach of fiduciary duties, gross negligence, bad faith, willful misfeasance, and reckless conduct.
The matter is now before the court on defendants' (1) motions to dismiss, (2) motions for sanctions, and (3) motions for judgment on the pleadings on the counter-claims for indemnification.1 Jurisdiction is alleged under the following statutes: (1) 15 U.S.C.A. § 78aa (West 1981 & Supp.1995); (2) 15 U.S.C.A. § 77v (West 1981 & Supp.1995); (3) 18 U.S.C.A. § 1964 (West 1984); (4) 15 U.S.C.A. § 80a-43 (West 1984 & Supp.1995); and (5) 28 U.S.C.A. § 1367 (West 1993).
Plaintiff is the court-appointed receiver of three trusts: (1) the Alpine Mutual Fund Trust ("Alpine"); (2) the National Municipal Asset Trust ("NMAT"); and (3) the California Municipal Asset Trust ("CMAT"). (Second Am.Compl. and Jury Demand at 2 filed July 11, 1994 hereinafter "Second Am. Compl.".) NMAT and CMAT are sub-trusts of Alpine and were registered as open-end investment companies under the ICA. (Id. ¶ 4.) CMAT's primary investment objective was to provide its investors with dividend and interest income exempt from federal and California income tax through investments in municipal leases, including obligations issued by recognized Indian tribal governments. CMAT was to refrain from investing more than 52.5% of the fund's assets without backing from an irrevocable letter of credit. (Id. ¶ 24.) NMAT's primary investment objectives were similar to CMAT's. NMAT was to refrain from (1) investing in unrated municipal leases which were not subject to remarketing agreements and (2) investing more than 10% of its total assets in short-term funds without shareholder approval. (Id. ¶ 25.)
Alpine, a Massachusetts business trust, was formed in June 1986 and commenced business on September 19, 1986, under the name Continental Heritage Mutual Fund Trust (the "Continental Trust"). (Id.) The Continental Trust was also registered under the ICA. The Alpine Trustees established the NMAT and CMAT sub-trusts (the "Funds") in December 1986, and September 1988, respectively. (Id.) Alpine Capital Management Corporation ("Alpine Capital") served as the investment advisor to Alpine from August 24, 1989, to March 1991. (Id. ¶ 15.) Alpine Municipal Leasing Corporation ("Alpine Leasing") originated, purchased, and sold securities, including municipal leases, bonds, and other assets, to NMAT and CMAT. (Id. ¶ 4.) Defendants Edwin J. Pittock and John I. Dickerson were principal shareholders in Alpine Holding Corporation, the parent corporation for Alpine and Alpine Leasing. (Id.) Pittock and Dickerson served in director and/or officer roles for several entities implicated herein. (Id. ¶¶ 8-9, 17.) Plaintiff claims Pittock and Dickerson were "control persons" of Alpine Capital, and that, as investment advisors to Alpine, they are liable because they had ownership, control, and executive positions within the entities responsible for Alpine's bad investments. Plaintiff also states that Pittock and Dickerson had the power to influence the management of Alpine, Alpine Capital, and Alpine Leasing, including the establishment and payment of commissions for the investment decision to purchase and sell the municipal leases at issue in this case and to determine the average daily net asset valuation of CMAT and NMAT. (Id. ¶¶ 21, 22.)
Defendants Gilbert W. Acheson, Paul A. Fregosi, Larry D. Hayden, David Kerr, and Robert R. Woodworth served as trustees of Alpine (collectively the "Trustees") during the following time periods:
Hayden June 11, 1986 - December 31, 1990
Woodworth October 20, 1988 - August 22, 1989
Kerr March 15, 1989 - November 9, 1990
Acheson October 31, 1989 - October 31, 1990
Fregosi November 9, 1990 - December 5, 1991
Plaintiff's claims against these defendants are based on the notion that, as independent trustees, they were "control persons" responsible under the ICA for overall management of the transactions at issue. Thus, plaintiff claims each of the defendants, except Woodworth, is liable for recklessly failing to periodically review the investment advisor's programs, procedures, and portfolio investments to assure they were in conformity with the Funds' fundamental objectives and restrictions. (Id. ¶ 33.) Defendants Hayden, Woodworth, and Kerr are also liable, according to plaintiff, because they approved the assignment of a management agreement from Alpine to Alpine Capital on April 18, 1989. (Id. ¶ 74.) On June 22, 1989, these defendants submitted the management agreement to Alpine's shareholders for approval, and on July 31, 1989, the shareholders approved the agreement. (Id. ¶ 75.) According to plaintiff, liability arises from these actions because defendants breached their duty to request and evaluate pertinent terms of the advisory contract between the Funds and the investment advisor. (Id. ¶ 76.) Plaintiff maintains that Fregosi is similarly liable for approving a management agreement on July 26, 1991. (Id. ¶¶ 81-84.)
There are essentially five lease transactions and one loan at issue in this case. The following Indian leases are among the improper transactions: (1) the Absentee Shawnee Bandage Group, purchased in part on January 31, 1990, and in part on September 20, 1990; (2) the Kiowa Tribe of Oklahoma, assigned June 15, 1990; (3) the Comanche Enterprise and Investment Authority, Ltd., purchased October 31, 1990; and (4) the Chippewa Cree Development Company, purchased November 8, 1990. (Id., Ex. 1.) The fifth transaction involved in this dispute is the Alpine lease, which Alpine Leasing assigned to NMAT on April 4, 1990. (Id., Ex. 3.) According to plaintiff, each of these transactions involved defendants' improper "investments in municipal obligations, leases and other assets, i.e., securities." (Id. ¶ 26.) Plaintiff maintains that defendants authorized a course of dealing with respect to these transactions which was (1) unsuitable, (2) inconsistent with and in violation of the Funds' investment objectives, and (3) inconsistent with and in violation of accepted investment practices. (Id.) Although plaintiff's complaint does not establish specific problems associated with the leases, plaintiff states in his response to defendants' motions that the leases were speculative and, therefore, improper because the...
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