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Plaintiffs Can Sue Madoff Investor for their Individual Losses
(February 2011) By Colleen K. O’Brien
For more information, contact Paul Farquharson.
Wasserman v. Kay,
No. 2836 (Court of Special Appeals of Maryland, Feb. 9, 2011) |
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This case arises from investments made in Bernie Madoff’s
infamous ponzi scheme, which caused Appellants to lose more than $13 million.
Appellants alleged that Mr. Kay, the de facto managing member of their
investment entities, unilaterally and unlawfully took money from the entities,
and invested it with Madoff. Mr. Kay and his company, Kay Investment, moved to
dismiss the suit on a theory that Appellants brought derivative claims, rather
than individual claims, and that the derivative claims failed for various
reasons. The Montgomery County Circuit Court agreed with Mr. Kay, and dismissed
Appellants’ suit. On appeal, the Court of Special Appeals reviewed the
sufficiency of Appellants’ twelve-count Amended Complaint.
The Court of Special Appeals disagreed with the Circuit
Court, and characterized some of Appellants’ claims as individual rather than
derivative, which allowed them to survive. This meant that Appellants could not
recover the more than $10 million lost by their various investment entities, but
they could sue to recover their more than $3.8 million individual losses.
In reviewing the sufficiency of each count of
Appellants’ Complaint, the Court parsed through and provided a thorough
exposition on Maryland’s law governing various entities, including: general
partnerships (controlled by the Maryland Revised Uniform Partnership Act, or
RUPA, codified at Md. Code Ann. Corps. & Assn’s § 9A-101,
et seq.); limited
liability companies (LLC’s) (codified at Md. Code Ann. Corps. & Assn’s §
4A-101(l), et seq.); and, corporations (codified at Md. Code Ann. Corps. &
Assn’s § 2-405, et seq.).
The Court held that Appellants had stated sufficient
claims against Mr. Kay on counts of fraud; aiding and abetting; tortious
interference; breach of agreement; and gross negligence and reckless
misconduct; however, their claims of breach of fiduciary duty; conversion;
civil conspiracy; statutory conspiracy; and unjust enrichment, failed.
Further, they were not entitled to punitive damages as the actual malice
standard was unmet.
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