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Commonwealth v. Tradition (North America) Inc.

Appeals Court of Massachusetts, Suffolk

February 21, 2017

COMMONWEALTH
v.
TRADITION (NORTH AMERICA) INC.; RONALD JAMPEL & others, [1] third-party defendants.

          Heard: October 5, 2016.

         Civil action commenced in the Superior Court Department on November 5, 2010.

         Motions to dismiss a third-party complaint against certain third-party defendants were heard by Frances A. Mclntyre, J., and a separate motion to dismiss the third-party complaint against another defendant was considered by Paul D. Wilson, J.

          John E. Roberts (Michael R. Hackett also present) for Tradition (North America) Inc.

          Joseph J. Bial, of the District of Columbia, for FSA Capital Management Services, LLC.

          Douglas L. Wald, of the District of Columbia (Kevin P. Martin also present) for Trinity Plus Funding Company LLC.

          Julia McLetchie for Steven E. Goldberg.

          Jeremy M. Sternberg, for Ronald Jampel, was present but did not argue.

          Present: Meade, Milkey, & Kinder, JJ.

          KINDER, J.

         The Commonwealth brought this enforcement action against the defendant, Tradition (North America) Inc. (Tradition), a broker for transactions involving municipal bond derivatives, claiming that Tradition engaged in bid rigging and other deceptive practices that harmed the Commonwealth in violation of the Consumer Protection Act, G. L. c. 93A, § 2, and the False Claims Act, G. L. c. 12, § 5B. Tradition denied the allegations, asserting that it, too, was a victim of the alleged bid-rigging scheme. Tradition filed third-party claims against individuals and corporations with whom it had consulted in the allegedly fraudulent transactions, including Ronald Jampel, Steven E. Goldberg, Trinity Plus Funding Company LLC (Trinity), and FSA Capital Management Services, LLC (FSA) (collectively, the third-party defendants). The third-party complaint sought contribution from the third-party defendants pursuant to G. L. c. 231B, § 1 (a.), for any liability Tradition might have to the Commonwealth (contribution claims). It also alleged various other claims, including breach of contract, breach of the implied covenant of good faith and fair dealing, common-law indemnification, unfair and deceptive trade practices, fraud and deceit, intentional and negligent misrepresentation, civil conspiracy, unjust enrichment, and tortious interference with contractual relations (noncontribution claims).

         On motions filed pursuant to Mass.R.Civ.P. 12(b)(6), 365 Mass. 754 (1974), a Superior Court judge[2] dismissed Tradition's third-party claims on multiple grounds, principally that the contribution claims were foreclosed by Tradition's failure to secure the release of claims against the third-party defendants in its settlement with the Commonwealth, and the noncontribution claims were time barred by the applicable statutes of limitation. Tradition appeals.

         For the reasons that follow, we conclude that the contribution claims against all third-party defendants, as well as the claims for breach of contract and breach of the implied covenant of good faith and fair dealing against Jampel, were properly dismissed. We conclude that the dismissal of the remaining noncontribution claims was error.

         Background.

         We summarize the facts alleged in Tradition's seventy-page second amended third-party complaint (the third-party complaint), accepting them as true for the purpose of our review of the motions to dismiss. Harrington v. Costello, 467 Mass. 720, 724 (2014) .

         1. Guaranteed investment contracts.

         Government and quasi government entities, like the Massachusetts Water Pollution Abatement Trust (MWPAT), often raise money by issuing tax-exempt municipal bonds. If all of the proceeds from a bond offering are not used immediately, such an entity often invests idle proceeds in a municipal bond derivative, [3] like a government investment contract (GIC), to earn interest. An entity selects a GIC, typically offered by major financial institutions, through a competitive bidding process conducted by an impartial third-party broker. Bids are solicited from at least three parties. The broker distributes the issuing entity's terms and conditions prior to conducting an auction. By submitting a bid at an auction, a bidder represents that it did not consult with any other bidder and was not given a "last look" at competing bids.

         2. Tradition and the consultants.

         Tradition is a subsidiary of Compagnie Financiere Tradition (Compagnie), and provides brokerage services to a select group of sophisticated institutional clients. Compagnie is the third largest broker of such services in the world. Tradition first entered the GIC market as a broker in 1998, after being introduced to Jampel and Adrian Scott-Jones (the consultants). The consultants proposed to conduct GIC auctions on Tradition's behalf in full compliance with all applicable laws and regulations. In reliance on those representations, Tradition entered into an agreement (the consulting agreement) with the consultants' employer, Capital Financial Partners, Inc. (CFP), pursuant to which CFP and the consultants agreed to "work on an exclusive basis on business opportunities acceptable to Tradition . . . including, but not limited to, [GICs]." Over the next ten years, CFP and the consultants conducted approximately 138 GIC auctions across the country on Tradition's behalf. At all times, CFP and the consultants certified to Tradition that the auctions were conducted in a lawful manner. According to the Commonwealth, however, that was not always true.

         3. The 2000 and 2004 MWPAT GIC auctions.

         Tradition served as the broker for MWPAT in connection with GIC auctions held on October 19, 2000, and November 2, 2004, at which Trinity and FSA were the respective winning bidders. Prior to each auction, one of the consultants, Scott-Jones, allegedly informed Goldberg, who was representing Trinity at the first auction and FSA at the second, of the interest rate needed to win the auction. Armed with that information, Trinity and FSA lowered their previously submitted bids and still won the auctions. As a result, MWPAT was deprived of a higher rate of return over the terms of those two contracts. Tradition denies that it knew of the alleged fraudulent conduct, noting, among other things, that it had no financial incentive to engage in such wrongdoing, since it received a flat fee for both auctions that was not contingent upon the interest rate, yield, or other terms associated with the winning bid.

         4. March, 2007, Department of Justice subpoena.

         In March, 2007, Tradition received a subpoena from the United States Department of Justice (DOJ) seeking documents concerning numerous types of "municipal contracts" awarded pursuant to competitive bidding, including GICs, anywhere in the country. The subpoena sought documents related to certain specific persons and companies: "CDR Financial Products of Beverly Hills, California, and/or David Rubin, and/or companies controlled by David Rubin." The subpoena did not identify any specific State or transaction that was under scrutiny. Nor did it identify Tradition, CFP, or the consultants as subjects or targets of the investigation.

         Tradition retained outside counsel to respond to the subpoena and conduct an internal investigation. Outside counsel interviewed Scott-Jones and Jampel, both of whom denied any wrongdoing. Outside counsel also reviewed documents responsive to the subpoena and, ultimately, concluded that there was no evidence of wrongdoing.

         5. May 27, ...


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