Public Sector Pension Inv. Bd. v Saba Capital Mgt.., L.P.

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Public Sector Pension Inv. Bd. v Saba Capital Mgt.., L.P. 2016 NY Slip Op 32344(U) November 22, 2016 Supreme Court, New York County Docket Number: 653216/2015 Judge: Anil C. Singh Cases posted with a "30000" identifier, i.e., 2013 NY Slip Op 30001(U), are republished from various state and local government websites. These include the New York State Unified Court System's E-Courts Service, and the Bronx County Clerk's office. This opinion is uncorrected and not selected for official publication. [* 1] SUPREME COURT OF THE STATE OF NEW YORK ,: . COUNTY OF NEW YORK: PART 45 -----------------------------------------------------~~---)( PUBLIC SECTOR PENSION INVESTMENT BOARD, . Plaintiff, DECISION AND ORDER -against- Index No. 653216/2015 SABA CAPITAL MANAGEMENT, L.P., ; SABA CAPITAL OFFSHORE FUND, LTD;.~, SABA CAPITAL, LLC and BOAZ h WEINSTEIN, i Defendants. Mot. Seq. 003-004 :· I •I ------------------------------------------------------'----)( HON. ANIL C. SINGH, J.: In this action for, inter alia, breach o~ contract and fiduciary duty, plaintiff ~: moves pursuant to CPLR 2221 and 3025(b) ifor an order for reargument (mot. seq . .I' 1J :i 003) and an order for leave to file an am(fnded complaint (mot. seq. 004). For . !~ . . purposes of this decision, both motions have been consolidated. Analysis I Motion for Reargument Plaintiff's motion for reargument is: denied. "A motion for reargument, '· :, ,. addressed to the discretion of the court, is designed to afford a party an opportunity to establish that the court overlooked or 4isapprehended the relevant facts, or :ii misapplied any contr.olling principle of law. Its purpose is not to serve as a vehicle to permit the unsuccessful party to argue onte again the very questions previously 1 2 of 10 I ·1 : [* 2] decided. Nor does reargument serve to provide a party an opportunity to advance If 1i" arguments different from those tendered on fhe original application. It may not be employed as a device for the unsuccessful': party to assume a different position inconsistent with that taken on the original mJtion." Foley v. Roche, 68 A.D.2d 558, 567-568 (lst Dept 1979). I Reargument is denied as movant fails t? show that the Court misconstrued the facts and misapplied any controlling principles of law. ii Motion for Leav~: to Amend :j ~ 11; d Plaintiffs motion for leave to amend is denied in part and granted in part. " Leave to amend a pleading is freely granted. See CPLR 3025[b]; see also MBIA Ins. :! Corp. v. Greystone & Co., 74 A.D.3d 499 (1st Dept 2010). In determining a party's application for a leave to amend, the party must show that "the proffered amendment ! is not palpably insufficient or clearly devoid of merit." Fairport Cos., LLC v. Vella, IJ .1 134 A.D.3d 645, 645 (1st Dept 2015). Ho'1~ver, concern for the conservation of judicial resources warrants examination oftJe merit underlying a proposed cause of !! L action. East Asiatic Co. v. Corash, 34 A.:B.2d 432, 434 (1st Dept 1970); see also Mayers v. D'Agostino, 58 N.Y.2d 696, 698 (1982); Wieder v. Skala, 168 i A.D.2d 355 (1st Dept 1990). i; 2 r. . l ~ 3 of 10 [* 3] ' Where no cause of action is stated, leave to amend will be denied '.=..;..:=== Crimmins ' Contr. Co. v. City of New York, 74 N.Y.28 166 (1989); Daniels v. Empire-Orr, l Inc., 151 A.D.2d 370, 371 (1st Dept 1989). ~motion to leave to amend a pleading is also p"roperly denied where a party seeks tb reassert a cause of action previously d,; dismissed in an earlier action. Blum v. New l1iork Stock Exchange, 298 A.D.2d 343, '.'1\. 345 (2d Dept 2002). :1 PSP 's Motion to Amend the Breach bf Contract Cause ofAction Public Sector Pension Investment BoJd's ("Plaintiff' or "PSP") motion for 'i ~ ' leave to amend its first cause of action for b}each of contract against Saba Capital 1: ' Management L.P. ("Saba") is granted. Under:.New York law, motions to amend a ~ complaint are freely granted and are denied ih limited circumstances such as when ~ . amendment is "palpably insufficient or cleprly devoid of merit." Fairport, 134 i A.D.3d at 645; CPLR 3025(b). Here, at this preliminary stage, Saba has not j adequately shown that PSP's proposed amen<;ied complaint for breach of contract is Q insufficient or devoid of merit. Therefore, PSP;s motion to amend the first cause of action for breach of contract is granted. i · ~ Breach ofFiducfaty Duty " .: ' II 'I ~ ,, '. PSP's motion for leave to amend its se~ond cause of action for breach of fiduciary duty against Saba is denied. "[Wi]h,ile causes of action for breach of 3 , ( 4 of 10 I [* 4] i ! ~ fiduciary duty that merely restate contract claims must be dismissed, conduct i amounting to breach of a contractual obligation may also constitute the breach of a ·~ duty arising out of the relationship created by contract which is nonetheless . ~ independent of such contract." Bullmore v Ernst & Young Cayman Is., 45 A.D.3d ~ . 461, 463 (1st Dept 2007) (internal citations omitted). ,;! 1i A breach of fiduciary duty claim is • pr}:~erly dismissed where "the agreement :1 'covers the precise subject matter of the alleged fiduciary duty."' Celle v. Barclays Bank P.L.C., 48 A.D.3d 301, 302 (1st Dept;2008) quoting Pane v. Citibank, N.A., 19 A.D.3d 278, 279 (1st Dept 2005). Howev~r, when a party to a contract is also a fiduciary to the other party, it owes a duty ou~side the scope of the agreement which 1! I can support a claim of negligence arising from the same facts as a breach of contract ~ . i; claim. Sergeants Benev .. Ass'n Annuity Fund v. Renck, 19 A.D.3d 107 (1st Dept ' ' 2005). A contracting party may be charged wtth a separate tort liability arising from a breach of duty distinct from, or in addition ~to, the breach of the contract. Meyers v. Waverly Fabrics, Div. ofF. Schumacher &i Co., 65 N.Y.2d 75 (1985). ;j .; "A fiduciary relationship 'exists between two persons when one of them is II , under a duty to act for or to give advice for tlie~benefit of another upon matters within the scope of the relation."' EBC I, Inc. v. Goldman, Sachs & Co., 5 N.Y.3d 11, 19 ' .I (2005), quoting Restatement [Second] of· forts § 874, Comment a). "Such a relationship, necessarily fact-specific, is grolmded in a higher level of trust than 4 1i II i -·--------- --- - 0 ~ . ~--- 5 of 10 ----- ~-- -- ---- -- ·'· [* 5] normally present in the marketplace betweenlhose involved in arm's length business transactions" Id. "It is elemental that a fid&ciary owes a duty of undivided and undiluted loyalty to those whose interests thf fiduciary is to protect." Birnbaum v. Birnbaum. 73 N.Y.2d 461, 466 (1989). i 111· ,I The case at hand deals with a fairly unsettled area of the law, namely whether ,. '· II an investment manager, such as Saba, owes fiduciary duties to PSP, who is an 11: 11 ~ investor in the hedge fund Saba manages, Saba Capital Offshore Fund Ltd. (the "Fund"). PSP's reliance on the ruling in Bullmore, in which the liquidators for the 11 Ii funds sued the investment manager of related~ hedge funds for violation of fiduciary duties owed to. those. funds, is misguided in that the First Department has I I: j . ' subsequently held Bullmore to be limited to the facts of that case. Bullmore "does not stand for the proposition that a manager (dr an entity like a hedge fund ... has any 1: duties to the individual investors in the funds it manages." Cobalt Partners, L.P. v. GSC Capital Corp., 97 A.D.3d 35, 43 (1st n:ept 2012). 11, ' This court also finds the holding in Goldstein v. S.E.C., 451 F .3d 873, 881 l (D.C. Cir. 2006), regarding the possibility Jr. an investment manager owing a duty i i to both the fund and investors, persuasive. Although the court focuses on the SEC's · II . ' regulation of hedge funds under the Invesiti\ent Advisers Act of 1940, the court discusses whether investors of a fund are owe~d a duty by the investment advisers of II the fund, 5 I! -··-- -·---- --- . -----~·-- - ·--- - ···- 6 of 10 A -·. . -·· ·--- --- ·-- ..,:_ __ ~~- --- -- --- - - - - [* 6] If the investors are owed a fiduciary dhty and the entity is also owed a fiduciary duty, then the adviser will in~vitably face conflicts of interest. Consider an investment adviser to a ~edge fund that is about to go bankrupt. His advice to the fund will likely include any and all measures to remain solvent. His advice to an inveistor in the fund, however, would likely be to sell ... It simply cannot be the case that investment advisers are the servants of two masters in this ,,~ay. Id.; see also Barneli & Cie S.A. v. Dutch Book Funds, SPC, Ltd., 28 Misc. 3d ! 1232(A), at *6 (Sup. Ct. N.Y. Cnty. May 29~ 2012). However, Goldstein does not "creaf~ a categorical rule that hedge fund 11. advisers can never have fiduciary duties to tqeir individual investors." Goldenson v. Steffens, 802 F.Supp.2d 240, 267 (D. Me. 20l l); see also United States v. Lay, 612 i F.3d 440 (6th Cir. 2010). Rather the court clust engage in a fact-specific inquiry as II! to whether a fiduciary relationship exists. See Goldenson, 802 F.Supp.2d at 268. In ~ ! making this determination, the court should vreigh the following, 11 [A] client of an investment advisJr typically is provided with individualized advice that is based on,,th,e client's financial situation and investment objectives. In contrast,·· the investment adviser of an investment company need not consider the individual needs of the company's shareholders when making .investment decisions, and thus has no obligation to ensure that ~abh security purchased for the company's portfolio is an appropriate 1 if).vestment for each shareholder. Goldstein, 451 F.3d at 880. This court has already engaged in t4e ltask of undergoing ~ factual analysis 11 . • regarding whether there is a fiduciary duty o.Jed PSP, and has determined that there is no fiduciary duty owed. See Pub. Sector Pension Inv. Bd. v. Saba Capital Mgmt., " d I ~ 6 7 of 10 [* 7] L.P., 2016 WL 2869747 (Sup. Ct. N.Y. CQty. May 16, 2016). As this court has previously stated, Saba did not undertake any further duties when it allegedly made u i oral agreements to work with PSP to ensure that PSP would receive fair value for its !I, . . Fund shares. This is expressly because the terms of the side letter agreement, dated February 29, 2012 (the "Side Letter"), con~rolled ,, any oral agreements. See Side Letter at 17 ("any Inconsistency between the terms of this letter agreement and the II terms of any other document or agreement relating to investment in the Fund .... shall be controlled by this letter agreement .... [t]hi~lletter agreement may be amended only in writing."). ·1! i;j Furthermore, PSP's argument that this court has held that Saba conceded it p owed a fiduciary duty to PSP is without merit. See Supplemental Memo. of Law in Support, at *3. This court did hold in Pub. Sector Pension Inv. Bd. v. Saba Capital j Mgmt., L.P., 2016 N.Y. Slip Op. 30215(U), ai *6 that Saba "has conceded it owed a 11 ·I . ii fiduciary duty to PSP ... and the affirmative representation illuminates the scope of =. • that duty." However, this finding was based or,i what was then, an incomplete record . .~ . Namely, Saba had not yet introduced the Side;' Letter into the record. The Side Letter fundamentally changed this court's analysis.!ISee supra. ,, Similarly, PSP's reliance on the Soutl~J,rn District's ruling in Fraternity Fund I ' Ltd. v. Beacon Hill Asset Management LLC,. 376 F.Supp.2d 385 (S.D.N.Y. 2005), i is unpersuasive. The case involved three h~dge funds, which were all eventually . 1 111 8 of 10 . [* 8] 1:. managed by a feeder fund. Id. at 390. The cl~e revolved around the loss of value in the net asset values. PSP is correct that the court held that the advisors had a fiduciary ·' duty to the shareholders. Id. at 411. Howeve~! this ruling is conclusory in nature, and is only mentioned by the court in passing anp without any further elucidation. This . I . court finds the reasoning in Goldstein far m~re persuasive, particularly when.read in conjunction with Cobalt Partners, which te#pers the seemingly expansive reading id . of Bullmore that an investment manager owes any duties to the individual investors : i in the fund. Therefore, this court finds that Saba does not owe any fiduciary duties to PSP. Aiding and Abetting Breach ofFiduciary!nuty Claim Against Mr. Weinstein !I II: PSP' s third amended cause of action for aiding and abetting a breach of q fiduciary duty is also denied. It is axiomati9 that a party may not bring a claim for ' aiding and abetting a breach of fiduciary dut:Yi where there is no breach of a fiduciary duty. See OFSI Fund II, LLC v. Canadian I~perial Bank of Commerce, 82 A.D.3d 53 7, 540 (1st Dept 2011) ("as there is no br,~ach of fiduciary duty claim, there can II be no claim for aiding and abetting breach of fiduciary duty."); Fiala v. Metropolitan '~ Life Ins. Co., 6 A.D.3d 320, 323 (1st Deptl 2004) ("because the Fiala plaintiffs' primary claims for breach of fiduciary duty were properly dismissed, their I claim ... for aiding and abetting a breach of fiduciary duty cannot stand.") Since this court finds that there is no claim for a breapfu. of fiduciary duty against Saba, there 'i1·' I ~ 8 !i 9 of 10 [* 9] •: can likewise be no cause of action for aiding.and abetting a breach of fiduciary duty against Mr. Weinstein. Accordingly, it is ORDERED that PSP's motion for reatgument is denied; and it is further ORDERED that PSP's motion to ame~d the first cause of action for breach of contract is granted; and it is further ORDERED that PSP's motion to ametld the second cause of action for breach of fiduciary duty is denied; and it is further I ORDERED that PSP' s motion to amend the third cause of action for aiding and abetting a breach of fiduciary duty is denied. II Date: November 22, 2016 New York, New York 10 of 10

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