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Amorim Holding Financeria, S.G.P.S., S.A. v. C.P. Baker & Co., Ltd.

United States District Court, D. Massachusetts

September 30, 2014

AMORIM HOLDING FINANCERIA, S.G.P.S., S.A., Plaintiff,
v.
C.P. BAKER & CO., LTD. and CHRISTOPHER P. BAKER, Defendants

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For Amorim Holding Financeira, S.G.P.S., S.A., Plaintiff, Counter Defendant: Anthony S. Fiotto, LEAD ATTORNEY, Goodwin Procter, LLP, Boston, MA.

For C. P. Baker & Co., Ltd., Christopher P. Baker, Defendants, Counter Claimants: Daniel J. Dwyer, LEAD ATTORNEY, Murphy & King, PC, Boston, MA.

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MEMORANDUM AND ORDER

DOUGLAS P. WOODLOCK, UNITED STATES DISTRICT JUDGE

Amorim Holding Financeira S.G.P.S., S.A. (" Amorim Holding" ) filed this suit against C.P. Baker & Co., Ltd. and its principal, Christopher P. Baker (collectively, " Baker" ), alleging violations of the Massachusetts Securities Act, fraud, negligent misrepresentation, breach of fiduciary duty, and unfair and deceptive trade practices in violation of Massachusetts General Laws chapter 93A in connection with certain investments Amorim made with Baker. Baker answered the complaint with counterclaims for misrepresentation, breach of warranty, and indemnification against Amorim. The parties have presented cross motions for summary judgment as to each other's claims.

I. BACKGROUND

A. Amorim's Introduction to Baker

Amorim Holding Financeira S.G.P.S., S.A. (" Amorim Holding" ) is a family-owned company located in Portugal. In 2003, the president of Amorim Holding, Americo Amorim (" Amorim" ), had fallen short on an investment in a company called FiNet. Bob Beuret, an employee of C.P. Baker & Co., Ltd., a Delaware investment management company with a principal place of business in Boston, suggested that Amorim meet with Christopher Baker, the president and CEO of C.P. Baker & Co for help making up the deficit in the FiNet investment. Baker specialized in venture capital and private equity investments. After meeting Amorim and his representatives, Baker agreed to help Amorim with the FiNet investment.

In a February 2004 meeting with Amorim, Baker explained his investment philosophy of leveraging his managerial expertise to create value in private companies. He highlighted his investment experience and successes, such as his investment of a few million dollars in a company called Zone Perfect that turned into a $165 million sale in 2003. Baker also gave Amorim a tour of his office in Boston. Amorim was impressed, and agreed to invest with Baker. Baker mentioned during the meeting that he was starting an investment fund, called the Anasazi III Offshore Fund (" Anasazi III" ). By the end of the meeting,

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Amorim agreed to invest in Anasazi III.

1. Morris Holdings Invests with Baker

Shortly thereafter, a Gibraltar-based entity, Morris Holdings Ltd., invested $5 million in Anasazi III. Morris Holdings is a holding company for two Lichtenstein trusts, the beneficiaries of which are individual members of the Amorim family. Morris Holdings was represented by counsel for each of its investments, but is not a named plaintiff in this case.

From 2004 through 2006, Morris Holdings also invested in a number of start-ups and other privately held companies through Baker. It invested in On-Card Inc., a direct-mailing company; Z-Force Partners LLC, a children's action cartoon production company; American Entertainment Holding Company, LLC, a movie-script intellectual property licensing company; and Chime Entertainment LLC, a music production company.

Each investment was subject to a purchase or subscription agreement, and Amorim Holding alleges that Baker made misrepresentations about each and every investment Morris Holdings made. Morris Holdings continues to hold some of the investments, has sold some, and has transferred others to other Amorim-affiliated entities. I summarize below the purchase or subscription agreements associated with each individual investment, along with the misrepresentations Baker allegedly made in connection with those investments. I also note the status of the investment as of the briefing and argument of the summary judgment motions. The parties have not further supplemented this information.

a. Anasazi III

i. The Investment

The Application Form Morris Holdings signed on April 2, 2004 as a part of its investment of $5 million in Anasazi III represented that it possessed " the knowledge, expertise and experience in financial matters to evaluate the risks of investing" in Anasazi III and understood " the risks inherent in investing" in Anasazi III, including " the risk of loss of [its] entire investment." Morris Holdings also received a private placement memo which, among other things, warned Morris Holdings that it could lose everything it invested in Anasazi III, and could not rely on any representation or warranty not contained in the written documents it had received or any representation or warranty relating to the economic return of Anasazi III.

The Application Form contained a section titled " Indemnification," wherein Morris Holdings acknowledged that it would indemnify " the Fund, the Manager, the Administrator and their respective directors, officers and employees against any loss, liability, cost or expense (including without limitation attorneys' fees, taxes and penalties) which may result directly or indirectly, from any misrepresentation or breach of any warranty, condition, covenant or agreement set forth herein or in any other document delivered by the Investor to the Fund." Baker was listed as the " Manager" of Anasazi III.

ii. Alleged Misrepresentations

The private placement memo also represented that the value of the companies which Anasazi III had an interest in would be valued at a " fair value as determined in good faith by [Baker], in consultation with the Administrator" of the Fund. Amorim Holding contends that Baker did not consult the Administrator of Anasazi III in valuing the companies Anasazi III had an interest in, nor did he provide a fair valuation in good faith.

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iii. Transfer of Interest

Morris Holdings sold its shares of Anasazi III to Amorim Alternative Investments, a wholly-owned subsidiary of Amorim Holding, for $1.8 million in the fall of 2008.

b. On-Card

i. The Investment

Morris Holdings made four separate investments in On-Card. These were in the amounts of $700,000 on November 23, 2004; $900,000 on December 9, 2004; $200,000 on November 3, 2005; and $100,000 on January 31, 2006.[1]

Each investment involved execution of a Subscription Agreement with On-Card. By signing the On-Card Subscription Agreement, Morris Holdings " recognize[d] that the [investment] involve[d] a high degree of risk." The Agreement warned that the investments were illiquid, because " transferability [was] extremely limited." It also warned that Morris Holdings could lose its entire investment. Morris Holdings warranted that it was " sufficiently experienced in financial and business matters to be capable of evaluating the merits and risks of an investment in the company" and that it had, in fact, " evaluated the merits and risks of [its] proposed investment." The Subscription Agreement also noted that Morris Holdings would have to hold the shares for an indefinite period of time.

Like many of the other agreements, the On-Card Subscription Agreement included an integration clause, stating that the " Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof. This agreement supersedes all prior negotiations, letters and understandings relating to the subject matter hereof." It also included an indemnification clause, wherein Morris Holdings agreed to indemnify On-Card " and its affiliates, directors, officers, trustees, managers, employees and representatives . . . from and against any Losses suffered, sustained, incurred or required to be paid by any such [party] due to, based upon or arising out of any material inaccuracy in, or any material breach of, a representation or warranty of the Subscriber contained in this Agreement." Baker was defined in the agreement as On-Card's " Placement Agent."

ii. Alleged Misrepresentations

On October 25, 2004, Baker sent Amorim Holding an email suggesting that it invest in On-Card because On-Card's " product margins are extremely attractive." That email represented that Baker and the Anasazi Funds had already invested $900,000 in On-Card, and suggested that Amorim Holding and Baker " should . . . jointly invest a total of $1.4 million ($700k/$700k)" more in On-Card. On June 11, 2005, Baker sent Amorim Holding an email suggesting that On-Card was " exploding," and on October 21, 2005, continued to assert that On-Card had " great potential."

Amorim Holding alleges that in a May 2006 meeting, Baker told it that On-Card would have an initial public offering within two years, and that such an offering would lead to a two to five times return on its initial investment. In late 2006, Baker also allegedly assured Amorim Holding

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that he would replace On-Card's CEO with a more experienced one to improve the management of the company. Amorim Holding contends that all of these representations were false.

iii. No Transfer of Interest

Morris Holdings continues to hold the interest it purchased in On-Card in the four investments from 2004 through 2006.

c. Z-Force

i. The Investment

As with the Anasazi III investment, Morris Holdings signed a Subscription Agreement for a $900,000 investment in Z-Force on December 28, 2004.[2] By signing the Agreement, Morris Holdings acknowledged that its investment " involves an extremely high degree of risk and is suitable only for sophisticated investors." It agreed that it would " continue to bear the economic risk of [the] investment for an indefinite period" because the stock was not registered and thus could not be sold. The Agreement also warned that Baker could have potential and actual conflicts of interest arising from the investment as a result of his managerial role with the company, and Morris Holdings acknowledged those potential conflicts by signing the Agreements. Unlike many of the other investment agreements, the Morris Holdings Z-Force agreement did not include an indemnification clause.

ii. Alleged Misrepresentations

In e-mails to Amorim, Baker suggested that the two were " partners" and that Baker would match some of Amorim's investments dollar for dollar. Amorim Holding claims that although it invested $900,000, Baker invested only between $300,000 and $500,000 in Z-Force, when Baker had said that the investment would be " [i]n keeping with our 'full partner' philosophy," which Baker stated at his deposition meant that " [g]enerally speaking, we would invest similar amounts of money in the deals."

Amorim Holding claims that Baker represented to it in December 2004 that the minimum return on its investment in Z-Force would be double its initial investment within two to three years, but that such a return has not come to light.

iii. Transfer of Interest

In 2007, Morris Holdings transferred its Z-Force shares for face value to AHFB-IV, a wholly owned subsidiary of Amorim Holding, through a simultaneous redemption/repurchase transaction.

d. American Entertainment Holding

i. The Investment

Morris Holdings invested $2.5 million in American Entertainment Holding on June 15, 2005. In a Subscription Agreement executed on that date, Morris Holdings represented that it carefully reviewed and understood all of the documents and records pertaining to the investment that it needed; that it had a reasonable opportunity to ask questions about the investment; and that it was sufficiently experienced in financial and business matters to make its own judgment about the investment. The American Entertainment Agreement also included an integration clause in which Morris Holdings agreed that the Subscription Agreement " sets forth the entire agreement and understanding among the parties hereto . . . and supersedes any and

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all prior agreements and understandings relating to the subject matter hereof."

Under a provision titled " Indemnification," Morris Holdings agreed to indemnify American Entertainment Holding " and its Managers against any and all Damages incurred in connection with or arising out of or resulting from (i) any inaccuracy or breach of any representation or warranty made by [Morris Holding] in or pursuant to this Agreement . . . ." Damages is defined in the agreement as " costs, losses (including, without limitation, diminution in value), liabilities, damages, lawsuits, deficiencies, claims, taxes and expenses . . . including, without limitation, interest, penalties, reasonable attorneys' fees and all amounts paid in investigation, defense or settlement of any of the foregoing." Baker signed the agreement on behalf of American Entertainment Holding as its Managing Member, and is defined in the agreement as one of the " Managers" of the Company.

ii. Alleged Misrepresentations

In an email dated October 6, 2004, Baker said that American Entertainment was " one of those truly great investments." Amorim Holding alleges that Baker told it in June 2005 that American Entertainment was the type of deal that always makes money, and that a film fund of $100 million was being arranged. It also alleges that during a meeting in July 2006, Baker represented that American Entertainment was expected to have an initial public offering " in the very short term." Amorim Holding contends that all of these statements were false.

iii. Transfer of Interest

On September 28, 2011, after the initial discovery deadlines in this case, Morris Holdings transferred its interest in American Entertainment Holding to AHFB-I, Inc., a wholly-owned subsidiary of Amorim Holding, for $250,000.

e. Chime

i. The Investment

Morris Holdings wired $1.5 million to Chime in installments between June 28, 2005 and September 6, 2005, and signed a purchase agreement on August 23, 2005. In the Chime Purchase Agreement, Morris Holdings acknowledged that it was " a sophisticated investor" that " could bear the economic risk of the investment, and has such knowledge and experience in financial or business matters in general and in particular with respect to this type of investment as to be capable of evaluating the merits and risks of an investment" in Chime. Morris Holdings explicitly acknowledged that its investment in Chime was " highly speculative and involve[d] numerous risks and uncertainties," and that it " evaluated and underst[ood] the risks and terms of investing" in Chime. The agreement also included an integration clause.

The Chime Purchase Agreement also included an exhibit titled " Risk Factors" disclosing the risks of investing in Chime. That exhibit began by warning Morris Holdings that it would " be required to bear the financial risks of [the Chime investment] for [an] indefinite period of time," and that the investment was " highly speculative and involve[d] a high degree of risk." The risk factors included things such as that the shares could not be transferred or resold except under a few exceptions; that the company had " no operating history" and thus " there can be no assurance that the business of [Chime] will, over the long term, be a viable commercial enterprise" ; and that the company's revenues came from a small number of properties and was seasonal, mainly dependant upon holiday sales, among other risks.

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The Chime Purchase Agreement included an indemnification clause wherein Morris Holdings agreed to indemnify Chime " and the Managers from and against all losses or liabilities (including, without limitation, reasonable attorneys' fees) asserted by, or on behalf of, the Investor or any beneficiary thereof against the Managers, its members, or partners, or any of their respective controlling persons, shareholders, members, principals, directors, officers, employees and other agents, in connection with this Agreement, for any act taken or omitted in good faith in discharging its obligations hereunder to the extent that such act or omission does not involve gross negligence, willful default, fraud, dishonesty, reckless disregard of a material obligation or duty, or violation of applicable law." Baker signed the Chime Purchase Agreement on behalf of Chime as its " Managing Member."

ii. Alleged Misrepresentations

Amorim Holding contends that in August 2005, Baker assured Amorim that any investment in Chime would have a minimum return of five times the initial investment within two to three years. On December 13, 2005, Baker sent Amorim Holding an email stating that it " [l]ooks like Chime will be working with Coca-Cola, Starbucks, and Starwood Hotels." On January 18, 2006, Baker sent another email to Amorim Holding suggesting that it " consider increasing [its] investment" in Chime because the company " is flying" and has been having " a large number of very positive things happening." Amorim Holding contends that these statements were false.

iii. Transfer of Interest

In 2007, Morris Holdings transferred its Chime shares to AHFB-I, Inc., for face value, through a simultaneous redemption/repurchase transaction.

2. Sotomar Invests with Baker

Morris Holdings was not the only company affiliated with Amorim to invest with Baker. A company named Sotomar Empreendimentos Industriais E Imobiliarios, SA, invested through Baker in a voice-over-IP telephony company called One IP Voice, then known as Farmstead Telephone Group.[3] Amorim is on the board of Sotomar. Sotomar, however, is not a named plaintiff in this case.

1. The Investment

The February 8, 2006 One IP Voice Purchase Agreement, signed by Sotomar, contained a section of warranties made by Sotomar to One IP Voice. In that section, Sotomar acknowledged that it understood that the shares it was purchasing were not registered and therefore it would have to hold them " indefinitely unless they are registered," and that " no public market now exists for any of the securities issued by [One IP Voice]."

The Purchase Agreement also contained an integration clause, which stated that the Purchase Agreement " constitute[d] the entire agreement between the parties . . . and any and all other written or oral agreements existing between the parties" were thereby " expressly canceled, and no party shall be liable or bound to any other party in any manner by any warranties, representations, or covenants, expect as specifically set forth herein." Sotomar also agreed that it was " not relying upon any person, firm or corporation, other than [One IP Voice] and its representatives, in

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making its investment or decision to invest in [One IP Voice]."

Unlike a number of the other purchase agreements, the One IP Voice agreement did not include an indemnification clause. It did include a provision specifying that " [i]f any action at law or in equity . . . is necessary to enforce or interpret the terms of any of the Transaction Documents, the prevailing party shall be entitled to reasonable attorney's fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled."

2. Alleged Misrepresentations

Amorim Holding alleges that Baker told it that its investment in One IP Voice would yield a five-fold return within ten months, because another investor was lined up to redeem Amorim Holding's investment. ...


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