Opinion
Case No. 3:16-cv-00580-AC
01-25-2021
LAWRENCE P. CIUFFITELLI, for himself and as Trustee of CIUFFITELLI REVOCABLE TRUST; GREG and ANGELA JULIEN; JAMES and SUSAN MACDONALD, as Co-Trustees of the MACDONALD FAMILY TRUST, R.F. MACDONALD CO.; WILLIAM RAMSTEIN; GREG WARRICK, for himself and, with SUSAN WARRICK, as Co-Trustees of the WARRICK FAMILY TRUST, individually and on behalf of all others similarly situated, Plaintiffs, v. DELOITTE & TOUCHE LLP; EISNERAMPER LLP; SIDLEY AUSTIN LLP; TONKON TORP LLP; TD AMERITRADE, INC.; INTEGRITY BANK & TRUST; and DUFF& PHELPS, LLC, Defendants.
FINDINGS AND RECOMMENDATION :
This court previously approved a class action settlement arising out of alleged violations of Oregon Securities Law in connection with the sale of certain securities issued by affiliates and subsidiaries of Aequitas Capital Management ("Aequitas"). The Settlement proceeds have been paid into settlement accounts under the oversight of the court and Settlement Class Counsel, and now awaits distribution to Class Members pursuant to the court-approved Plan of Allocation. A dispute has arisen over whether Lake Avenue Funding EC V, LLC ("Lake Avenue") or OL Group, Ltd. ("OL Group") is the appropriate party to receive the pro-rata share of the settlement distribution related to Northern Lights Fund Trust's ("Northern Lights") purchase of Secured Subordinated Promissory Notes issued by Aequitas. Now before the court is Settlement Class Counsel's Motion for a Determination of the Appropriate Party to Receive a Pro-Rata Distribution of the Settlements (the "Motion") (ECF No. 625). For the reasons discussed below, the court finds that Lake Avenue is the appropriate party to receive the distribution.
Factual Background
From 2013 through 2015, Aequitas issued, marketed, and sold various Secured Subordinated Promissory Notes to investors via private placement memoranda ("PPMs"). (Second Am. Compl. ¶ 47.) Northern Lights, through its Granite Harbor Tactical Fund and the Granite Harbor Alternative Fund (the "Funds"), purchased a total $9,800,000 of Secured Subordinated Promissory Notes issued by Aequitas Commercial Finance (the "ACF Notes"). The ACF Notes at issue include the following: SCA Absolute Return Fund (purchased July 5, 2013); Granite Harbor Tactical Fund (purchased January 17, 2014); Granite Harbor Alternative Fund (purchased February 28, 2014); Granite Harbor Alternative Fund (purchased June 3, 2015); and Granite Harbor Tactical Fund (purchased July 5, 2015). (Joint App. of Exs. Related to Settlement Class' Mot. for Determination ("Joint App.") Ex. A.) It is undisputed that Northern Lights' purchases of the ACF Notes occurred during the relevant class period.
The parties are intimately familiar with the facts and extensive procedural history of this case; therefore, the court provides only those facts pertinent to resolution of the instant motion.
OL Group is an investment holding company incorporated in the Cayman Islands, with its principal place of business in Dubai, United Arab Emirates. (Decl. David Thompson ("Thompson Decl.") ¶ 2, ECF No. 644.) OL Group is advised by VR Advisory Services Ltd. ("VR"), which focuses its business on distressed securities and event-driven investment situations. (Id. ¶¶ 2, 4.) Lake Avenue is a Delaware company engaged in the business of purchasing securities class action settlement claims. (Decl. Shane P. Kinahan Supp. Class' Motion ("Kinahan Decl.") ¶ 3, ECF No. 650.)
On approximately February 2, 2016, Aequitas informed investors that it had been unable to meet redemption requests since November 2015 and was preparing to liquidate its assets. (Id. ¶ 184.) On February 8, 2016, Aequitas disclosed that it had retained FTI Consulting to assume management and advise on possible restructuring. (Id. ¶ 185.) On March 10, 2016, the Securities and Exchange Commission ("SEC") filed an action against Aequitas and its corporate subsidiaries, affiliates and principals, SEC v. Aequitas Management, LLC, Case No. 3:16-cv-00438-JR ("SEC Action"). The SEC alleged that Aequitas, its subsidiaries, affiliates, and principals were engaged in a Ponzi-like scheme, that is, using new investment money to pay older obligations. (SEC Action Compl., ECF No. 1.) On April 4, 2016, Plaintiffs commenced the instant class action, Ciuffitelli v. Delloitte & Touche, LLP, 3:16-cv-00580-AC, against third parties who served as Aequitas' accountants and lawyers, alleging they facilitated the sale of unregistered securities through material misstatements and omissions in violation of Oregon Securities Laws. (Second Am. Compl., ECF No. 257.) On April 14, 2016, Ronald Greenspan was formally appointed as Receiver for Aequitas. (SEC Action, ECF No. 156.)
At some point after February 2016, VR saw an investment opportunity in Aequitas' distressed notes. (Thompson Decl. ¶ 14.) VR portfolio manager David Thompson had principal responsibility for analyzing and executing the investment opportunity on behalf of OL Group. (Id.) Thompson states that as OL Group began contemplating an investment in distressed Aequitas Notes, he joined conference calls conducted by the Receiver for investors and lenders of Aequitas securities. (Id. ¶ 15.) Of note, the Receiver formed an Investment Advisory Group on March 6, 2016, and began conducting teleconferences on April 27, 2016. (Receiver's Report at 31-32, SEC Action, ECF No. 246 at 34-35.)
OL Group used a broker to identify interested sellers of distressed Aequitas notes. (Thompson Decl. ¶ 16.) The broker connected Thompson and Peter DeCaprio, a representative of Crow Point Partners, LLC, who advised Northern Lights on the Funds' winding-up operation. (Id.) DeCaprio informed Thompson that the Funds wished to sell their distressed ACF Notes. (Id.) Thompson also worked with Michael Dubinsky of Genesis LLC, an advisor working with Northern Lights/Granite Funds, to complete the paperwork for the assignment of the ACF Notes from Northern Lights to OL Group. (Id. ¶ 17.) Email correspondence between Thompson and Dubinsky shows OL Group and Northern Lights reached agreement by March 31, 2016, on the purchase price for the ACF Note assignment. (Kinahan Decl. Ex. C, ECF No. 650-3 at 17-18.)
On April 14, 2016, Northern Lights assigned to OL Group $8.8 million face value ACF Notes pursuant to two identical Assignment and Assumption of Secured Subordinated Promissory Notes ("A&As"). (Joint App. Ex. B.) In the A&As, Northern Lights assigned to OL Group "all of its right, title and interest" in the ACF Notes, including all "rights to receive moneys due and to become due" under the ACF Notes. (Joint App. Ex. B at 1.) The Receiver consented to the assignment of ACF Notes to OL Group, as evidenced by his signature on the A&As on April 14, 2016. (Id. at 3.)
The difference between the initial $9.8 million face value and the $8.8 million value assigned to OL Group is due to Northern Lights' prior redemption of two notes worth $1 million. (Thompson Decl. ¶ 16 n.1.)
On April 21, 2016, Northern Lights filed a notice on EDGAR that the Funds would cease operations on May 20, 2016. (Decl. Andrew Podolin ("Podolin Decl.") Ex. 1, ECF No. 645-1.) Northern Lights' notice stated that the Funds were liquidating their portfolios and that all shares in those funds would be redeemed by May 20, 2016. (Id.)
On May 4, 2016, Northern Lights sold its "Claims" to Lake Avenue pursuant to an Asset Purchase and Sale Agreement ("Lake Avenue Agreement"). (Corrected Ex. C to Joint App., ECF No. 630.) Northern Lights assigned to Lake Avenue "all rights to recover and receive any and all amounts," including "any pending, threatened and/or previously settled class action lawsuit." (Id. at 1, ECF No. 630 at 5.) The Lake Avenue Agreement included all Northern Lights' securities claims for the duration of the Funds' existence. (Kinahan Decl. ¶ 6.)
On November 2017, OL Group negotiated with Carl Maker, a portfolio manager for a separate investment fund, IMS, to acquire additional distressed Aequitas notes. (Thompson Decl. ¶ 19.) On November 15, 2017, OL Group executed an Assignment and Assumption of Secured Subordinated Promissory Note Agreement with IMS to purchase the rights and interests in IMS's distressed Aequitas notes. (Thompson Decl. ¶ 20 & Ex. 3.) The Receiver consented to that assignment on December 7, 2017. (Id.)
On November 13, 2018, Thompson contacted Timothy DeJong of Stoll Berne, co-lead counsel of this class action, to inquire about the status of the litigation, and he informed DeJong that he believed OL Group clearly was a class member. (Thompson Decl. ¶ 23 & Ex. 4 a 1-2.) On November 14, 2018, Thompson provided DeJong with the A&As and other documentation concerning OL Groups' acquisition of the ACF Notes. (Id. ¶ 23 & Ex. 4 at 1.)
On August 7, 2019, the court entered an Order preliminarily approving a global settlement in this class action. (Order, ECF No. 585.) In that Order, the court provisionally certified a settlement class, preliminarily approved a plan of allocation of the settlement proceeds, approved Epiq as the Claims Administrator, approved the form and manner of Class Notice, and set a Fairness Hearing for November 26, 2019. (Id.) On August 8, 2019, Thompson emailed DeJong to inquire about the status of the Settlement, and informed DeJong that "My strong belief is that we are in the class as relates to . . . our Private Note holdings but I've never gotten formal confirmation that this is the case and would appreciate if you could please confirm it for me." (Id. Ex. 5 at 2.) On August 12, 2019, Thompson sent another email to DeJong indicating that "[w]e received by hardcopy a 'Notice of Determination of Your Claim' (NOD) several months ago[,]" that the NOD implied that they had a valid claim, and he was attempting to confirm OL Group's status. (Id. Ex. 5 at 1.) DeJong replied that he could not confirm until the Claims Administrator obtained all the records from the Receiver, "but that all indications are that you are in the Class." (Id.)
On September 10, 2019, Thompson emailed DeJong conveying that the Receiver would not be making factual determinations about who were eligible class members, and that the Receiver had directed Thompson to follow up directly with DeJong. (Id. Ex. 6 at 6.) DeJong responded that OL Group is on the list to receive Notice and confirmed that the Claims Administrator mailed multiple Notices to OL Group's address. (Id. Ex. 6 at 4-5.) On September 17, 2019, Thompson confirmed that the Claims Administrator would re-mail the notices and he inquired about obtaining an estimate of the amount of its potential recovery so that OL Group could determine whether it would opt in or out of the class Settlement or object. (Id. Ex. 6 at 3-4.)
In October 2019, Lake Avenue notified Class Counsel and the Claims Administrator that Northern Lights had assigned its securities claims to Lake Avenue and provided them with documents substantiating the May 4, 2016 assignment. (Kinahan Decl. ¶ 10.)
On October 16, 2019, Thompson sent an email to DeJong confirming that he received the Notices, and inquired about the Entity name, stating that the Notices were sent to the Funds, not the OL Group. (Thompson Decl. Ex. 6 at 3.) DeJong responded by email asking whether the payee issue was because OL Group purchased Granite Harbor's interest and again requested proof of purchase and ownership. (Id. Ex. 6 at 2.) Thompson responded via email, re-sending the A&As and documentation previously sent on November 14, 2018. (Id. ¶ 27 & Ex. 7 at 1.) On October 23, 2019, Thompson emailed DeJong to inquire whether the documentation was sufficient to establish proof of ownership, to which DeJong replied that the information had been forwarded to the Claims Administrator. (Id. Ex. 6 at 2.) At the Fairness Hearing on November 26, 2019, there were no objections to Class Action Settlements and this court recommended they be approved. (Minutes of Proceedings, ECF No. 618; F&R, ECF No. 619.)
On December 3, 2019, the Claims Administrator informed Thompson that the payee issued had been resolved and checks would issue to OL Group. (Id. ¶ 29 & Ex. 6 at 2.) On December 16, 2019, the district judge entered final approval of the Class Action Settlements in this case. (Order, ECF No. 621.) On January 30, 2020, Thompson emailed DeJong to inquire about OL Group's loss determination because he had been informed that the next step was to receive checks. (Thompson Decl. Ex. 8 at 1.) On February 24, 2020, Thompson emailed DeJong to inform him that Class Counsel determined that the misrepresentation claims did not transfer with the underlying notes. (Id. Ex. 8 at 1.) Later that day, Thompson spoke with Class Counsel Karl Barth, who informed him that the litigation rights and attendant recovery rights were transferred to Lake Avenue. (Id. ¶¶ 33-34.)
Unable to reach a resolution of the question which entity is entitled to receive Northern Lights' pro-rata distribution of the settlement proceeds - Lake Avenue or OL Group - the Settlement Class Counsel filed the instant Motion.
Discussion
I. Oregon Law Governs
OL Group and Lake Avenue contend that the court should apply Oregon law to resolve the present dispute. OL Group contends that the A&As specifically anticipate application of Oregon law; therefore, Oregon law applies. (Joint App. Ex. B at 2) (providing that Oregon law governs all disputes arising out of the assignment). Lake Avenue argues that whether a party has standing to contest an assignment is a procedural matter governed by the law of the forum state, which here is Oregon. See Deep Photonics Corp. v. LaChapelle, 303 Or. App. 699, 710-11, rev. allowed, 367 Or. 115 (2020) (stating that under conflict of laws principles, law of the forum applies to judicial procedures); see also Royal Park Invs., SA/NV v. Stanley, 165 A.D.3d 460, 461 (N.Y. 1st Dept. 2018) (providing that standing to assert assignment rights is procedural, not substantive, and law of forum governs). Although the Lake Avenue Agreement specifies New York law, Lake Avenue recognizes that New York's and Oregon's law for construing assignments is the same. (Lake Avenue Br. in Supp. at 10, ECF No. 648.) For these reasons, the court applies Oregon law. \ \ \ \ \
II. Oregon Contract Interpretation
Under Oregon law, the court must interpret a contract to give effect to the parties' agreed-upon intentions. McKenzie Law Firm, P.A. v. Ruby Receptionists, Inc., Case No. 3:18-cv-01921-SI, ___ F. Supp. 3d ___, 2020 WL 6780341, at *2 (D. Or. Nov. 18, 2020); SCI Collaboration, LLC v. Sports Car Int'l, LLC, Case No. 3:20-cv-00170-AC, 2020 WL 6531912, at *3 (D. Or. Nov. 5, 2020). Oregon courts have established a three-step process for interpreting contracts. Yogman v. Parrott, 325 Or. 358, 361 (1997); Ross Dress for Less, Inc. v. Makarios-Oregon, LLC, 210 F. Supp. 3d 1259, 1263 (D. Or. 2016). First, "the court examines the text of the disputed provision, in the context of the document as a whole." Yogman, 325 Or. at 361. To do so, the court looks at the four corners of the contract, with emphasis on the provision or provisions in question, and considers the entire contract. Id. (quoting Eagle Indus., Inc. v. Thompson, 321 Or. 398, 405 (1995)). In making this determination, the court determines whether the relevant contract provision is ambiguous. Ross Dress for Less, 210 F. Supp. 3d at 1263; SCI Collaboration, 2020 WL 6531912, at *3. "A contractual provision that can, 'in context, reasonably be given more than one plausible interpretation,' is ambiguous." SCI Collaboration, 2020 WL 6531912, at *3 (citing Williams v. RJ Reynolds Tobacco Co., 351 Or. 368, 379 (2011)). If possible, the court must construe a contract to give effect to all its provisions. Id. If the contractual provision is unambiguous, the court's analysis ends. Ross Dress For Less, 210 F. Supp. 3d at 1263.
If the provision is ambiguous, the court proceeds to the second Yogman step. Yogman, 325 Or. at 363. "At the second step, the trier of fact examines extrinsic evidence of the contracting parties' intent and construes the disputed contractual provision consistent with that intent, if such a resolution can be determined." Ross Dress For Less, 210 F. Supp. 3d at 1263. "Absent direct evidence of the parties' intent, a court may look to the parties' course of dealing or their performance during the term of the contract as relevant circumstantial or inferential evidence of their common understanding, if any, of the ambiguous provision." SCI Collaboration, 2020 WL 6531912, at *3. "Absent direct or circumstantial evidence of the parties' intent, the third step under Yogman is to apply any relevant maxims of construction." Id.; Yogman, 325 Or. at 363-64.
III. Northern Lights' Causes of Action Must Be Expressly Assigned
OL Group and Lake Avenue generally agree that Northern Lights' securities fraud claims are assignable. The current dispute centers on whether Northern Lights also assigned its fraud claims when it transferred the underlying ACF Notes to OL Group upon executing the A&A's in April 2016. Under OL Group's theory, because Northern Lights assigned its securities fraud claims to OL Group in April, it had nothing left to assign when it executed the Lake Avenue Agreement in May 2016.
"'It is well-established under federal securities law that securities fraud claims are not automatically transferred to a subsequent purchaser upon the sale of the underlying security.'" Keystone Assocs. LLC v. Fulton, 2019 WL 3731722, at *2 (D. Del. Aug. 8, 2019) (quoting U.S. Trust Co. of New York v. Alpert, 10 F. Supp. 2d 290, 303 (S.D.N.Y. 1998)); see also Bluebird Partners v. First Fidelity Bank, N.A., 85 F.3d 970, 974 (2d Cir. 1996) (holding that claims under Trust Indenture Act are not automatically assigned with the underlying bond). "It is clear in the Ninth Circuit as well as other circuits that securities claims are not automatically assignable." Dobyns v. Trauter, 552 F. Supp. 2d 1150, 1154 (W.D. Wash. 2008). Courts have reasoned that fraud and misrepresentation torts are not contractual rights attached to the securities themselves, but rather are personal rights that belong to the purchaser. "A cause of action arising from reliance on misrepresentation is personal to those persons who relied; it does not follow the security to remote purchasers who had no basis for reliance." In re Nucorp Energy Securities Litig., 772 F.2d 1486, 1490 (1985); see also Axial Vector Engine Corp. v. Transporter, Inc., Case No. CV 05-1469-AS, 2007 WL 9808125, at *3 (D. Or. Mar. 14, 2007), adopted 2007 WL 9808130 (June 12, 2007) (recognizing that 10(b) securities claims are not automatically assignable). See also Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 751 (1975) (recognizing that "holders of puts, calls, options, and other contractual rights or duties to purchase or sell securities" are "purchasers" or "sellers" of securities and may assert Rule 10b-5 claims, but misrepresentation claims are not automatically assignable). Courts recognizing that fraud and misrepresentation claims are assignable require that it be done expressly. Axial Vector, 2007 WL 9808125, at *4-5 (finding express assignment of 10b-5 claim was valid); DNAML Pty, Ltd. V. Apple, Inc., Case No. 13cv6516, 2015 WL 9077075, at *4 (S.D.N.Y. Dec. 16, 2015) (recognizing that a "chose in action" must be expressly assigned). Thus, it follows that any cause of action arising from Northern Lights' reliance on misrepresentations in the ACF Notes is personal to it, and thus must have been expressly assigned to be valid.
IV. The A&As Did Not Assign Northern Lights' Securities Claims to OL Group
OL Group argues that the language used in the A&As was sufficiently specific to transfer the securities fraud claims in April 2016, such that there was nothing remaining to assign when Northern Lights entered the May 2016 agreement with Lake Avenue.
The court first examines the text of the disputed A&As provision. Section 1(a) provides in relevant part:
As of the Effective date . . . the Assignor hereby transfers, conveys and assigns to the Assignee all of its right, title and interest in and to the Subordinated Note, including, without limitation, all (i) rights to receive moneys due and to become due under or pursuant to the Subordinated Note, and (ii) rights to perform thereunder and to compel performance, and otherwise exercise all rights and remedies thereunder.(Joint App. Ex. B at 1.) By this language, the A&As assigned the right to receive moneys due under the Notes and the right to performance or to compel performance under the Notes. Section 1(a)(i) transfers all its "right, title and interest in and to the Subordinated Note" without limitation, and section 1(a)(ii) transfers all rights and remedies under the Notes. A plain reading of Section 1(a) reveals that these provisions transferred the rights and obligations under the ACF Notes themselves, and nothing more. See Allegro Corp v. Only New Age Music, Inc., Case No. 01-790-HU, 2002 WL 32806161, at *6 (D. Or. Oct. 4, 2002) ("In the absence of an ambiguity, the court construes the words of a contract as a matter of law.") The phrase "all rights, title and interest" does not specifically mention the securities fraud claims or recovery rights tied to litigation, and thus fails to expressly assign those rights to OL Group.
OL Group insists the phrase "all of its right, title and interest" and "without limitation" constitutes assignment of the rights to the payments on the underlying Notes as well as the rights to the fraud claims, relying on Axial Vector. It contends that "all rights and remedies" in section (ii) clearly encompasses the fraud claims. OL Group's reliance on Axial Vector misplaced.
Axial Vector involved the acquisition of a technology company in which Axial as the purchaser was "to sell its own securities to Della Penna and Werner in exchange for the contractual right to acquire all of Transporter's stock." Axial Vector, 2007 WL 9808125, at *3. Also, as part of the purchase agreement, Axial was assigned "all rights, titles, or interests" in the intellectual property of Transporter by IEP, another entity. Id. The court concluded that Axial had standing as a purchaser or seller of securities to pursue its state and federal securities fraud claims, and alternatively had standing to pursue its securities fraud claims as an assignee when it acquired those rights from IEP. Id. The Axial Vector court found that the parties executed a separate assignment agreement concurrently with the purchase agreement in which IEP expressly assigned its rights, including its 10b-5 rights, to Axial. Id. *4-5. Moreover, the Axial Vector court concluded that absent from its case were the policy and evidentiary concerns in Blue Chip, because Axial was integral to the acquisition of the company and was misled by the seller's misrepresentations. Id. at *5. Unlike the situation in Axial Vector, the A&As here contain no express assignment of the fraud claims; as such, the language "all right, title and interest in the Subordinated Notes" and "without limitation" did not assign Northern Lights' securities fraud claims to OL Group. See Banque Arabe et Internationale D'Investissement v. Maryland Nat'l Bank, 57 F.3d 146, 151-52 (2d Cir. 1995) (finding assignment of all "rights, title and interest" in contract failed to expressly assign fraud claim).
The A&As language here is akin to that analyzed in Dexia SA/NV, Dexia Holdings, Inc., v. Stanley, 2013 WL 5663259, at *3 (N.Y. Sup. 2013). There, the New York Supreme Court determined that Dexia, Dexia Holdings, and Dexia Credit (collectively "Dexia") lacked standing to sue for fraudulent inducement for purchasing residential mortgage-backed securities ("RMBS"). In that action, FSA Asset Management LLC ("FSAM") purchased twenty-nine RMBS's for $626 million, which it later assigned to Dexia for face value via a "put option transaction." Id. By the time the lawsuit was filed, all RMBS's had been downgraded to junk status. Id. Dexia argued they relied on the defendants' fraudulent misrepresentations about the RMBS's and paid far more than the securities were worth. Id. at *2. The defendants contended that Dexia lacked standing to because the assignment from FSAM to Dexia did not include the fraud claims.
The Dexia court examined the agreements' assignment language that conveyed "all right, title and interest in the Put Settlement Assets." Id. at *3. The Dexia court recognized that under New York law, "absent language demonstrating an intent to do so, tort claims do not automatically pass to an assignee." Id. Therefore, the court concluded that the put option transaction agreement assigned only the "right, title and interest" in the RMBS, and not the fraud claims. Id. at *4. As in Dexia, here the A&As' plain language includes no express language indicating an intent to transfer Northern Lights' securities fraud claims to OL Group.
Likewise, the provision indicating that OL Group was assigned the "rights and remedies" does not express an intent to transfer Northern Lights' securities fraud claims. The plain language of this phrase, when read in the context of the disputed provision, reveals that the rights and remedies are limited to the right to "receive moneys due" or "become due under or pursuant" to the Notes, or to compel performance under the Notes. (Joint App. Ex. B. at 1.) The moneys and performance are limited to those occurring under and pursuant to the Note itself. The text of this phrase contains no language suggesting a broader interpretation, and certainly gives no indication that the rights and remedies include Northern Lights' tort claims. Thus, the text of this provision in the context of the A&As as a whole fails to expressly identify any intent to transfer the securities fraud claims to OL Group.
Absent an express assignment, the A&As are susceptible to only one plausible interpretation: Northern Lights did not transfer its fraud claims to OL Group. Accordingly, OL Group is not entitled to receive Northern Lights' pro-rata settlement distribution.
V. Northern Lights Assigned Its Fraud Claims in the Lake Avenue Agreement
Conversely, examining the text of the May 4, 2016 Lake Avenue Agreement and the pertinent portions of those provisions within the contract as whole, Northern Lights clearly expressed its intent to assign its securities claims to Lake Avenue. \ \ \ \ \
For instance, in the recitals, Lake Avenue is identified as "engaging in the business of purchasing historical securities trading data and the rights to any underlying claims to recover funds from class action lawsuit settlements and/or judgments from such trading data." (Joint App. Ex. C. at 1.) The recitals further provide that Northern Lights may have or will become entitled to file claims and receive payments based on the securities transactions in its historical trading data, and Northern Lights expressed its "desire to sell and transfer its rights to file such claims and receive such payments" to Lake Avenue. (Id.)
Section 2 of the Lake Avenue Agreement, entitled Purchase and Sale of the Assets, unambiguously provides that Northern Lights assigned the securities fraud claims at issue here to Lake Avenue. Section 2(a) states that Lake Avenue is purchasing from Northern Lights "all of the Fund's right, title and interest in the Assets, including, without limitation, all rights to recover and receive any and all amounts now or hereafter payable pursuant to any Recovery Rights[.]" (Joint App. Ex. C. at 3.) Section 2(b) echoes that provision, providing that "the Fund shall, and hereby does, sell, assign, convey and transfer to [Lake Avenue] all of the Fund's right, title and interest in the assets, including, without limitation, all rights to recover and receive any and all amounts now or hereafter payable pursuant to any Recovery Rights." (Joint App. Ex. C. at 3.)
Section 1's definitions underscores the clear meaning of these provisions. There, "Assets" are defined as "all of a Fund's right, title, and interest in and to any and all (i) rights to file Claims, (ii) Claims previously filed by or on behalf of a Fund, (iii) Recovery Rights, and (iv) any other amounts payable or recoverable, in each case in connection with any Securities transactions contained in the Historical Trading Data. (Id. at 1.) Section 1.7 clearly defines the claims being assigned: \ \ \ \ \
"Claim" means any claim related to the ownership of, or any transaction in, any Included Securities against any of the Defendants or Potential Defendants, including, without limitation, any and all of the following:
(Joint App. Ex. C at 1.) Further, "Recovery Rights" are defined as the "aggregate amounts which a Fund now or hereafter is, or may become, entitled to receive pursuant to any Settlement and/or Judgment in connection with such Claim[.]" (Id. at 2.)(a) any pending, threatened and/or previously settled class action lawsuit (whether or not the claims filing deadline for any such settled class action lawsuit has passed) or any Judgment thereon or other lawsuits against any of the Defendants or Potential Defendants, to the extent related to a Fund's ownership of, or any transaction in, any Included Securities, whether currently known, unknown or unknowable[.]
Eliminating all doubt as to whether Northern Lights intended to assign its recovery rights pursuant to the ACF Notes, Northern Lights and Lake Avenue inserted a specific provision into Section 2 of their Agreement. That provision states: "[s]imultaneously with the execution of this Agreement, the Fund [Northern Lights] shall execute and deliver to Purchaser [Lake Avenue] a Notice of Assignment" identified as Exhibit C. (Id. at 3.) The Notice of Assignment in Exhibit C expressly states that the assignment of "Claims" includes all recovery rights related to the Fund's ownership or transactions in the Fund's portfolio of securities from September 9, 2011, and ending on April 18, 2016, including "any pending, threatened and/or previously settled class action lawsuit." (Joint App. Ex. C, ECF No. 630 at 17.) Those specific dates in the Notice of Assignment roughly correspond with the dates of the purported class in the instant class action. (Compl. ¶ 157, ECF No. 1) (indicating purported class would begin with notes purchased on June 29, 2011 continuing through date of complaint); (Order Approving Global Settlement and Providing Notice ¶ 2, ECF No. 586) (defining class as those who purchased notes on or after June 9, 2010 through March 31, 2016). Reviewing the Notice of Assignment's language in the context of the Lake Avenue Agreement as a whole, it is abundantly clear that Northern Lights unambiguously assigned its recovery rights in the present action to Lake Avenue. Yogman, 325 Or. at 1021. Northern Lights' expressly did so in the Lake Avenue Agreement and the Notice of Assignment in Exhibit C.
Therefore, the court finds that when reading the various textual provisions of the Lake Avenue Agreement, there is only one plausible interpretation of the Lake Avenue Agreement: that it unambiguously provides that Northern Lights assigned its securities fraud claims to Lake Avenue. Accordingly, the court finds that Lake Avenue is the proper entity to receive Northern Lights' pro-rata distribution of Settlements in this action.
VI. Extrinsic Evidence is Unnecessary
Because there is only one plausible interpretation of the above contracts, the court need not turn to extrinsic evidence to resolve this dispute. Assuming arguendo that any ambiguity remains, the extrinsic evidence presented by OL Group fails to demonstrate that Northern Lights intended to assign its rights to OL Group and, thus, further supports the court's determination that Northern Lights intended to assign its securities fraud claims to Lake Avenue. For example, in the negotiations between Thompson and Dubinsky for transferring the ACF Notes to OL Group, none of the correspondence mentions assignment of Northern Lights' securities fraud claims, and nothing in the correspondence suggests it was the parties' intent to do so. (Kinahan Decl. Ex. C, ECF No. 650-3.) Next, Thompson's assertions that the sum paid for the distressed ACF Notes was based partially on information provided by the Receiver is undermined by the record. The first investor conference call occurred on April 27, 2016, after the A&As were executed. (Receiver's Report, SEC Action, ECF No. 246.) Lastly, the court is not persuaded that IMS's assignment of its recovery rights to OL Group in a wholly separate transaction has any relevance to Northern Lights' alleged intent to assign its fraud claims to OL Group, even if the agreements contain similar language. On this point, any potential relevance is undermined by Class Counsel approval of IMS's assignment of its fraud claims to OL Group after IMS and OL Group executed a clarifying Addendum stating as much. (Decl. Karl Barth Ex. A, ECF No. 660-1.)
Conclusion
Based on the above, the court recommends that the court enter an Order determining that Lake Avenue is the appropriate party to receive Northern Lights' pro-rata distribution from the Settlements.
Scheduling Order
These Findings and Recommendations will be referred to U.S. District Judge Marco A. Hernandez. Objections, if any, are due within fourteen (14) days. If no objections are filed, then the Findings and Recommendations will go under advisement on that date.
If objections are filed, then a response is due within fourteen (14) days after being served with a copy of the objections. When the response is due or filed, whichever date is earlier, the Findings and Recommendations will go under advisement.
DATED this 25 day of January, 2021.
/s/_________
JOHN V. ACOSTA
United States Magistrate Judge