Alonso v. Weiss

301 F.Supp.3d 885

Michael ALONSO, et al., Plaintiffs,

v.Leslie J. WEISS, et al., Defendants.

Randall S. Goulding, Plaintiffs,

v.Leslie J. Weiss, et al., Defendants.

Case No. 12 C 7373

Case No. 15 C 4693

United States District Court, N.D. Illinois, Eastern Division.

Signed March 14, 2018

Eric W. Berry, Berry Law PLLC, New York, NY, Adam B. Goodman, Goodman Tovrov Hardy & Johnson LLC, Chicago, IL, Randall S. Goulding, Law Offices of Randall S. Goulding & Associates, Deerfield, IL, for Plaintiffs.

Stephen Novack, Andrew P. Shelby, Rebekah Hava Parker, Timothy John Miller, Novack & Macey, Chicago, IL, for Defendants.

OPINION AND ORDER

Joan H. Lefkow, U.S. District Judge This case began in 2012, when a group of limited partners in one or more investment funds (collectively, the "Funds")¹ managed by The Nutmeg Group, LLC ("Nutmeg"), filed an individual and shareholder derivative action on behalf of the Funds against Leslie J. Weiss, the court-appointed receiver for Nutmeg and the Funds;² Barnes & Thornburg LLP ("Barnes"), the law firm retained by Weiss to perform legal services;³ Nutmeg; and the Funds. (Dkt. 1.)⁴ After significant briefing on a motion to dismiss,⁵ this court dismissed Count I—plaintiffs' federal claim under § 206(4) of the Investment Advisors Act of 1940 ("IAA"), 15 U.S.C. § 80b–6, and SEC Rule 206(4)–2 because it fell outside the applicable statute of limitations (dkt. 35 at 11)—as well as breach of fiduciary duty counts II and III, finding that Weiss was absolutely immune from liability on the theory that receivers who execute judicial orders are entitled to such immunity. (Dkt. 55 at 9–10.) This court also dismissed all claims against Nutmeg without prejudice, all legal malpractice claims against Weiss and Barnes with prejudice, and all claims against Barnes for aiding and abetting or vicarious liability with prejudice. (Id. at 24.) Defendants now move for summary judgment on all remaining counts, which include breach of fiduciary duty claims against Weiss contained in counts IV–XX and a breach of fiduciary duty claim against Barnes contained in count XIX. (Dkt. 180.)⁶ For the reasons stated below, the motion is granted.

LEGAL STANDARD

Summary judgment obviates the need for a trial where there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). A genuine issue of material fact exists if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). To determine whether any genuine fact issue exists, the court must pierce the pleadings and assess the proof as presented in depositions, answers to interrogatories, admissions, and affidavits that are part of the record. Fed. R. Civ. P. 56(c). In doing so, the court must view the facts in the light most favorable to the non-moving party and draw all reasonable inferences in that party's favor. Scott v. Harris , 550 U.S. 372, 378, 127 S.Ct. 1769, 167 L.Ed.2d 686 (2007).

The party seeking summary judgment bears the initial burden of proving there is no genuine issue of material fact. Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In response, "[a] party who bears the burden of proof on a particular issue may not rest on its pleadings, but must affirmatively demonstrate, by specific factual allegations, that there is a genuine issue of material fact which requires trial." Day v. N. Ind. Pub. Serv. Co. , 987 F.Supp. 1105, 1109 (N.D. Ind. 1997) ; see also Insolia v. Philip Morris Inc. , 216 F.3d 596, 598 (7th Cir. 2000). If a claim or defense is factually unsupported, it should be disposed of on summary judgment. Celotex , 477 U.S. at 323–24, 106 S.Ct. 2548.

LOCAL RULE 56.1

Unless otherwise noted, the facts set out below are taken from the parties' Local Rule 56.1 statements, and are construed in the light most favorable to the non-moving party. The court will address many but not all of the factual allegations in the parties' submissions, as the court is "not bound to discuss in detail every single factual allegation put forth at the summary judgment stage." Omnicare, Inc. v. UnitedHealth Grp., Inc. , 629 F.3d 697, 704 (7th Cir. 2011). In accordance with its regular practice, the court has considered the parties' objections to the statements of fact and includes in its opinion only those portions of the statements and responses that are appropriately supported and relevant to the resolution of this motion. Any facts that are not controverted as required by Local Rule 56.1 are deemed admitted.

Preparation of this opinion has been made particularly difficult by plaintiffs' counsel's failure to comply with Local Rule 56.1 in preparing and responding to statements of material facts. This court's standing order directs counsel to read Malec v. Sanford , 191 F.R.D. 581 (N.D. Ill. 2000), and Buttron v. Sheehan , 2003 WL 21801222 (N.D. Ill. Aug. 4, 2003), which detail the oft-occurring pitfalls encountered when preparing summary judgment filings. Plaintiffs' counsel has apparently not recently reviewed Malec or Buttron , since their submissions run afoul of the helpful guidance in those cases: (1) a response to a movant's statement of facts is neither the place for argument nor additional facts that do not actually dispute the factual statement; (2) "a general denial is insufficient to rebut a movant's factual allegations; the nonmovant must cite specific evidentiary materials justifying the denial";⁷ (3) the paragraphs in a statement of facts should be short and not argumentative or conclusory; (4) paragraphs also must contain specific references that support the factual allegation, and the specific references provided should not be so voluminous that they send the court on a wild goose chase nor should they rely on inadmissible material such as hearsay; and (5) "supporting documents submitted with a motion that are not referred to in the statement of facts will be ignored." See Malec , 191 F.R.D. at 583–87 ; Buttron , 2003 WL 21801222, at *1–6. The motion could likely have been granted by simply rejecting plaintiffs' Local Rule 56.1 submissions. The court has done its best, however, to winnow the facts to those supported by the record to resolve the case on the merits.

BACKGROUND

Nutmeg—a registered investment advisor formerly managed by Randall Goulding—was the sole general partner of the Funds, which are limited partnerships under either Illinois or Minnesota law in which plaintiffs are investors. (Dkt. 201, Plaintiffs' Response to Defendants' Local Rule 56.1 Statement of Material Facts ("Pl. Resp.") ¶¶ 1, 4, 15–16.) Among other things, the Funds entered into private-investment-in-public-equity ("PIPE") transactions, providing funding to companies, some of which traded on the sub-penny market at prices less than $0.01 per share, in exchange for convertible debentures that could be converted to stock in that company. (Pl. Resp. ¶¶ 17–21.)

On March 23, 2009, the Securities and Exchange Commission ("SEC") filed suit against Nutmeg, Goulding, and others. See SEC v. Nutmeg, LLC , No. 09 C 1775 (N.D. Ill. Mar. 23, 2009). The SEC subsequently filed a motion requesting the appointment of a receiver for Nutmeg who would "review and exercise independent judgment on pending and future transactions involving the Funds' assets." (Pl. Resp. ¶ 26; Dkt. 183, Def. Ex. 22; SEC dkt. 48 ¶ 4.) The court granted the motion and entered an order appointing Weiss as receiver in August 2009 ("Appointment Order"). (Pl. Resp. ¶¶ 27–28; Dkt. 183, Def. Ex. 23; SEC dkt. 66.) The Appointment Order specified that Weiss would be "the agent of this Court and solely the agent of this Court in acting as Receiver" and would "oversee all aspects of Nutmeg's operations and business which include, but are not limited to, serving as general partner and investment advisor to" the Funds. (Dkt. 183, Def. Ex. 23 §§ II.A, II.B.1.) The Appointment Order also vested Weiss with authority to, among other things:

• "[S]ell or liquidate any assets, property, holdings, or positions of Nutmeg and the Funds" and "monitor and approve transactions, disbursements or receipt of funds, or any other disposition relating to such funds, assets or property, and with full power to take such steps as she deems necessary to secure such premises, funds and property." (Id. § II.B.3.)

• "Continue and conduct the business of Nutmeg in such manner, to such extent, and for such duration as the Receiver may in the exercise of her business judgment and in good faith deem to be necessary or appropriate." (Id. § II.B.4.)

• "Engage and employ [Barnes], as well as other professionals ("Retained Personnel") to assist in carrying out her duties." (Id. § II.B.9.)

• "Take such action as necessary and appropriate to prevent the dissipation or concealment of any funds or assets constituting Receivership Property and otherwise preserve any such funds and assets." (Id. § II.B.10.)

• "[B]ring, defend, continue, or compromise such legal actions based on law or equity in any state, federal, or foreign court as she deems necessary or appropriate in discharging her duties as Receiver." (Id. § II.B.12.)

The court ordered Crowe Horwath LLP ("Crowe") to continue as the court-appointed accountant for Nutmeg and the Funds, required Weiss to file periodic reports detailing her acts and transactions in her capacity as receiver, and determined that the receiver and retained personnel were entitled to reasonable compensation and expense reimbursement from Nutmeg and the Funds' assets. (Id. §§ II.B.7, II.D, II.E.) Weiss and any retained personnel also received the following protection:

The Receiver and Retained Personnel are entitled to rely on all outstanding rules of law and Court orders and shall not be liable to anyone for their own good faith compliance with any order, rule, law, judgment or decree. In no event shall the Receiver or

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