Heard: January 6, 2016.
action commenced in the Superior Court Department on January
to dismiss were heard by Janet L. Sanders, J.
S. Fleishman, of New York (Philip Y. Brown with her) for the
J. Esposito, of New York, for Grant Thornton LLP. William M.
Connolly, of Pennsylvania, for EisnerAmper LLP & another.
Jonathan D. Cogan, of New York, for SS&C Technologies,
Present: Cypher, Grainger, & Meade, JJ.
plaintiffs, Fletcher Fixed Income Alpha Fund, Ltd. (Alpha),
and Massachusetts Bay Transportation Authority Retirement
Fund (MBTARF), Alpha's sole shareholder, appeal from the
dismissal of their claims for accounting malpractice and
negligent misrepresentation against certain entities that
audited and administered Alpha, for failing to discover the
fund manager's fraud. The claims against the defendants,
Grant Thornton LLP (Grant Thornton), and EisnerAmper LLP and
EisnerAmper (Cayman) Ltd. (collectively, EisnerAmper), who
served as auditors, were dismissed for lack of personal
jurisdiction, a Superior Court judge ruling that the
plaintiffs failed to show that their claims arose from the
defendants' transaction of business in Massachusetts. The
claims brought by MBTARF against SS&C Technologies, Inc.
(SS&C), a former Alpha administrator, were dismissed for
failure to state a claim upon which relief can be granted,
the judge reasoning that Alpha was insolvent by the time
SS&C was hired, thereby negating the element of proximate
their appeal to this court, the plaintiffs settled with
EisnerAmper. As to the remaining defendants, the plaintiffs
principally argue that in deciding the issue of specific
jurisdiction, the judge should have taken into account a
broader range of contacts between Grant Thornton and
Massachusetts, and should have considered Grant
Thornton's knowledge that the audit reports would be sent
to a Massachusetts entity. MBTARF also maintains that the
judge held it to an incorrect pleading standard in dismissing
its claims against SS&C for failure to allege facts to
support causation. We affirm.
summarize the undisputed facts from the judge's February
23, 2015, "Memorandum of Decision and Order on the
Defendants' Motions to Dismiss Plaintiffs' Amended
Complaint." MBTARF is a pension fund for public
employees and retirees of Massachusetts Bay Transportation
Authority. In June, 2007, MBTARF invested in Alpha. Alpha,
along with FIA Leveraged Fund, Ltd. (Leveraged), and Fletcher
Income Arbitrage Fund, Ltd. (Arbitrage) (collectively, the
Fletcher funds), were operated in the Cayman Islands as
feeder funds for Fletcher International, Ltd. (FILB), the
master fund. The Fletcher funds were managed by one Alphonse
Fletcher, through Fletcher Asset Management (FAM), based in
New York. MBTARF invested $25 million in Alpha, all of which
it lost the following year when Alpha became insolvent.
December, 2007, FAM hired Grant Thornton to provide auditing
services for a number of Fletcher funds, including Alpha.
Grant Thornton performed the work, and Grant Thornton Cayman
Islands, an entity organized under the laws of the Cayman
Islands, issued the audit reports. Grant Thornton Cayman
Islands issued audit reports for 2007 and 2008, addressed to
the board of directors and the shareholders of the audited
funds. In March, 2010, Grant Thornton notified RAM that it
was withdrawing its audit opinions for Arbitrage and
Leveraged for 2007 and 2008, after the Securities and
Exchange Commission challenged the accounting treatment of
two $80 million "cashless notes" exchanged between
the Fletcher funds. Grant Thornton instructed FAM to notify
persons likely to rely on the withdrawn audit reports.
Neither FAM nor Grant Thornton notified MBTARF, which had
invested only in Alpha, that the reports for Arbitrage and
Leveraged had been withdrawn. FAM then replaced Grant
Thornton with EisnerAmper.
was hired by FAM as Alpha's administrator in April, 2010.
MBTARF previously had been informed by FAM in 2007 that the
calculation of Alpha's value would be made in
consultation with the fund administrator at the time. But
MBTARF was not informed that when SS&C took over that
role from its predecessor, SS&C would not participate in
valuations. MBTARF claims that had it been so informed, it
immediately would have redeemed its investment.
amended complaint alleges that Alphonse Fletcher committed
fraud by inflating the value of the Fletcher funds. The
plaintiffs claim that Grant Thornton is liable for improperly
auditing the Fletcher funds, and that SS&C, as fund