Opinion
03 Civ. 2387 (LAK)
February 27, 2004
ORDER
Over a period of less than three months in the fail of 2002. Beacon Hill Asset Management LLC ("Beacon Hill"). Safe Harbor Asset Management LLC. and their principals — managers of three hedge funds called Bristol Fund. Ltd. Safe Harbor Fund L.P., and Milestone Plus Partners. L.P ("Milestone") — announced that the net asset value of the funds had declined by 61.22 percent from that reported as of August 31, 2002, This revelation has prompted a grand jury investigation, an action by the Securities and Exchange Commission, and a number of civil actions, including this one, by unhappy investors. This case now is before the Court on a motion by defendants AAC and Milestone Global Advisors L.P. ("Milestone Global"), Milestone's general partner and investment advisor, to dismiss or stay the claims of plaintiffs Balentine Global Hedge Fund L.P. and Balentine Global Hedge Fund Select L.P. (collectively. "Balentine") on the grounds mat the chums are subject to mandatory arbitration or, alternatively, tail to stale claims upon which relief may be granted.
Beacon Hill is half owned by Asset Alliance Corporation ("AAC"').
I
The allegations of the 60-page complaint in this action are not common to all of the investor plaintiffs, Balentine claims that it purchased limited partnership interests in Milestone in January and December 2001 and that Milestone Global breached the Milestone limited partnership agreement by changing Milestone's promised investment strategy and misstating its net asset value in the month end reports for July, August and September 2002. It alleges further that AAC is responsible for Milestone Global's actions on the theory that it owns 99 percent of Milestone Global and controls Milestone.
Cpt. ¶¶ 12(h)-(k), 164-65, 167,
172-73. Id. ¶ 164.
The complaint, insofar as it is brought on behalf of Balentine, initially asserted five claims for relief against both AAC and Milestone Global:
• Breach of contract (count 11)
• Violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") (counts 32 and 13, respectively)
15 U.S.C. § 78j(b), 78t(a).
• Common law fraud (count 14)
• Breach of fiduciary duty (count 16)
It asserted two additional claims against AAC alone, viz. aiding and abetting Milestone Global's alleged fraud (count 1 5) and breach of fiduciary duty (count 17). Its brief on this motion, however, abandoned its Exchange Act claims without prejudice to renewal after discovery. Thus, Balentine's only present claims are the common law contract and tort claims.
PI. Mem. 55 n. 24.
II
The Court is obliged at the outset to consider whether it has subject matter jurisdiction,
The only alleged bases of subject matter jurisdiction in this case are the presence of claims arising under the Exchange Act and supplemental jurisdiction. Balentine's abandonment of its Exchange Act claims eliminates any independent basis of jurisdiction over its claims against AAC and Milestone Global. It nevertheless argues that the Court should exercise supplemental jurisdiction over its common law claims on the theory that they arise out of a nucleus of operative facts common with the claims of other plaintiffs against other defendants.
Cpt. ¶ 25.
The supplemental jurisdiction statute, enacted in 1990. provides in relevant part as follows;
"(a) Except as provided in subsections (b) and (c) or as expressly provided otherwise by Federal statute, in any civil action of which the district courts have original jurisdiction, the district courts shall have supplemental jurisdiction over all other claims that arc so related to claims in the action within such original jurisdiction that they form part of the same case or controversy under Article 111 of the United States Constitution. Such supplemental jurisdiction shall include claims that involve the joinder or intervention of additional parties.
"(c) The district courts may decline to exercise supplemental jurisdiction over a claim under subsection (a) if —
(1) the claim raises a novel or complex issue of State law.
(2) the claim substantially predominates over the claim or claims over which the district court has original jurisdiction,
(3) the district court has dismissed all claims over which it has original jurisdiction, or
(4) in exceptional circumstances, there arc other compelling reasons for declining jurisdiction."
28 U.S.C. § 1367 (emphasis added).
Subsection (a) is simply a codification of the rule of United Mine Work v. Gibbs, which held that the judicial power of the United States extends to cases and controversies arising out of a common nucleus of operative fact. The italicized language overruled the Supreme Court's decision in Finley v. United States. which had disapproved of pendent party jurisdiction, and conferred subject matter jurisdiction on district courts to hear claims in circumstances such as Balentine claims exist here. Hence, if Balentine's common law claims arise out of a nucleus of operative facts common to those of the other plaintiffs, and if the other plaintiffs state legally sufficient claims under the Exchange Act, the exercise of supplemental jurisdiction over its claims would be appropriate, as none of the circumstances described in subsection (c) now exists.
383 U.S. 715 (1966).
490 U.S. 545 (1989).
There is much to suggest that Balentine's claims do bear a relationship to the claims of the other plaintiffs sufficient to warrant the exercise of subject matter jurisdiction. By separate order of even date, however, the Court is dismissing the federal claims of the other plaintiffs with leave to replead. It therefore remains to be seen whether there will be any federal claims that might form a basis for the exercise of supplemental jurisdiction with respect to the common law claims of Balentine.
III
Accordingly, Balentine's claims against Milestone Global and AAC are dismissed for lack of subject matter jurisdiction, provided, however, that the dismissal is with leave to replead, on or before June 30, 2004, in the event any of the other plaintiffs avails itself of the right to replead afforded by the other order of even date. This order resolves docket item 21.
SO ORDERED.