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Zurich Capital Markets Inc. v. Coglianese

April 25, 2006

ZURICH CAPITAL MARKETS INC., ET AL., PLAINTIFFS,
v.
MICHAEL COGLIANESE, ET AL., DEFENDANTS.



The opinion of the court was delivered by: Amy J. St. Eve, District Court Judge

MEMORANDUM OPINION AND ORDER

Petitioner Wayne J. Aranha, solely as Official Liquidator of M.J. Select Global, Ltd. (the "Liquidator") moves to intervene in an action Plaintiffs Zurich Capital Markets Inc., ZCM Matched Funding Corp., ZCM Asset Holding Company (Bermuda) Limited, and ZCM Asset Holding Company LLC (collectively, "ZCM") brought against Defendants Millennium Fund I, Ltd. ("Millennium") and Relms Limited ("Relms")*fn1 alleging a fraudulent investment scheme in connection with the purchase of shares of M.J. Select Global, Ltd. ("M.J. Select"), a Bahamian mutual fund. The Liquidator's motion seeks leave to intervene and to file the Intervention-Plaintiff's Complaint for Declaratory Judgment Against Intervention-Defendants*fn2 ("Intervention Complaint") and the Objection to ZCM's Motion for Entry of Default Judgment against Millennium and Relms ("Opposition Motion"). For the reasons set forth below, the Court grants the Liquidator's motion to intervene.

BACKGROUND

I. Procedural History

On November 7, 2003, ZCM filed the Complaint with the Court alleging violations of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), Rule 10b-5 promulgated thereunder, the Investment Advisers Act of 1940, 15 U.S.C. §§ 80b-6 and 80b-15, and various state law claims against Defendants, including Millennium and Relms.*fn3 On December 1, 2003, ZCM filed the Amended Complaint. Millennium, Relms and other Defendants (collectively, the "Landmark Defendants") subsequently moved to dismiss the Amended Complaint. On August 2, 2004, the Court granted in part and denied in part the Landmark Defendants' motion to dismiss, granting ZCM leave to replead its claims. On November 22, 2004, ZCM filed the Second Amended Complaint. The Second Amended Complaint alleges the following claims against Millennium and Relms: (1) a violation of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder against Millennium (Count IV); (2) a violation of Section 20(a) of the Exchange Act against Relms (Count V); (3) a breach of investment advisory contracts against Millennium (Count VI); (4) conspiracy to defraud against Millennium and Relms (Count IX); (5) unjust enrichment against Millennium and Relms (Count X); and (6) breach of fiduciary duty against Millennium (Count XIV). On August 12, 2005, the Court denied the Landmark Defendants' motion to dismiss these claims. On December 5, 2005, counsel for Millennium and Relms filed a motion for leave to withdraw as counsel for these two entities, and the Court subsequently granted it. On January 30, 2006, ZCM filed a motion for entry of default against Millennium and Relms and partial judgment by default against Millennium in favor of ZCM Asset Holding Company (Bermuda) Limited on Count X, ZCM's unjust enrichment claim.

II. The Liquidator's Motion to Intervene*fn4

A. The Parties

The Liquidator is an accountant and partner of PricewaterhouseCoopers in the Bahamas.

(R. 203-1; Intervention Complaint at ¶ 4.) He brings the motion to intervene as the official liquidator of M.J. Select. (Id.) Zurich Capital Markets Inc. ("ZCM Inc.") is a Delaware Corporation with its principal place of business in New York, New York. (Id. at ¶ 5.) ZCM Asset Holding Company (Bermuda) Limited ("ZCM Bermuda"), a Bermuda Corporation, is an affiliate of ZCM Inc. operating as a holding company for offshore investments. (Id. at ¶ 6.) ZCM Asset Holding Company LLC ("ZCM Asset"), a Delaware corporation, is a wholly owned subsidiary of ZCM Inc. operating as a holding company for onshore investments. (Id. at ¶ 7.) ZCM Matched Funding Corp. ("ZCM MFC"), a Delaware Corporation, is a wholly owned subsidiary of ZCM Inc. (Id. at ¶ 8.) Millennium is a foreign investment company organized under the laws of the Bahamas. (Id. at ¶ 10.) Relms is a corporation organized under the laws of the Bahamas. (Id. at ¶ 11.) Relms purportedly owns and is the investment manager for Millennium. (Id. at ¶ 10.)

B. The Liquidator's Allegations

The Directors of M.J. Select filed a Petition for Winding Up in the Supreme Court of the Bahamas on September 7, 2001 due to M.J. Select's inability to satisfy its investors' redemption requests. (R. 203-1; Liquidator's Petition for Leave to Intervene at 3.) On October 10, 2001, the Supreme Court of the Bahamas entered an Order for the Winding Up of M.J. Select and appointed the Liquidator and Ishmael Lightborne as the Joint Official Liquidators of M.J. Select. (Id.) After Mr. Lightbourne resigned in August 2004, the Liquidator continued as M.J. Select's sole official liquidator. (Id.) The Liquidator alleges that Bahamian law authorizes him "to take control of the assets of the entity in liquidation and later to distribute its assets to claimants as determined and directed by the Bahamian Supreme Court in Liquidation Proceedings." (Id.) The Liquidator, on December 3, 2002, sent a letter together with a "Proof Investment Form" to all entities that appeared from M.J. Select's records to be shareholder/investors. (Id. at 4.) ZCM responded to the Liquidator's letter that it was a creditor of M.J. Select. (Id.) On December 11, 2002, the Liquidator initiated ancillary proceedings in the United States Bankruptcy Court of the Northern District of Illinois. (Id.) On April 2, 2002, the bankruptcy court entered an agreed preliminary injunction order prohibiting ZCM from seizing M.J. Select's assets in the United States. (Id.)

After ZCM filed its motion for default against Millenium and Relms, on February 14, 2006, the Liquidator moved to intervene in the proceedings before the Court. The Liquidator seeks leave to intervene as a matter of right pursuant to Federal Rule of Civil Procedure 24(a)(2), and seeks leave to file his Intervention Complaint and Opposition Motion. The Liquidator alleges that ZCM's default judgment motion seeks to recover funds allegedly transferred from M.J. Select to Millennium. (Id. at 6.) The Liquidator contends that ZCM "has no direct claim to these assets, but only through its investment in MJ Select and its redemption requests." (Id.) According to the Liquidator, the liquidation proceedings in the Bahamas will resolve ZCM's and other shareholder/investors' completing claims for these assets. (Id. at 7.) The Liquidator asserts that "[i]f ZCM is permitted to obtain and execute upon judgments directed at Millennium or Relms through these proceedings premised upon the transfer of MJ Select's assets to those entities, then the Official Liquidator and the other investors, shareholders and creditors of the Fund will be irreparably harmed because ZCM will be permitted to appropriate to itself a disproportionate share of a limited pool of assets that rightly should be collected and distributed for the benefit of all those who suffered losses arising from investments made into MJ Select." (Id.)

ANALYSIS

I. Legal ...


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