In re Beacon Associates Litigation: Judge Certifies Class of Benefit Plans Tied to Madoff Ponzi Scheme

A district court judge in the Southern District of New York has certified a class of benefit plans alleging that they lost money when fiduciaries placed investments with the now-incarcerated Bernard Madoff. See In re Beacon Assocs. Litig., No. 09-CV-00777 (S.D.N.Y. May 3, 2012) (order on motion to certify class) (available here).  Plaintiffs allege that Ivy Asset Management (“Ivy”) breached its fiduciary duty to the plans principally by failing to perform due diligence on Bernard L. Madoff Investment Securities LLC (“Madoff Securities”), particularly in light of the extraordinary rates of return claimed by Madoff, well above the historical returns for even the most successful investors.  See Order at 2-4.  Moreover, plaintiffs allege that J.P. Jeanneret Associates, Inc. (“JPJA”), was negligent in its lax supervision of Ivy’s work.  See id.

On the pivotal commonality determination, Judge Leonard B. Sand found questions common to the entire class, thus satisfying this prerequisite.  Id. at 12.  He determined that (1) whether Ivy was acting as a fiduciary when it invested benefit plan assets in Madoff Securities, and (2) whether Ivy breached the attendant duties to the plans when it invested despite the implausible rates of return claimed by Madoff, were among the common questions capable of determining liability.  Id. at 9-12.

While the numerosity element is rarely seriously contested, defendants raised issues in this case that might have precluded certification; the plaintiff class consists of only 29 plans, at the lower end of the federal numerosity threshold.  See id. at 6-9.  However, Judge Sand held that numerosity was to be assessed with reference to the plans’ roughly 100 trustees — easily satisfying the requirement — rather than the 29 plans.  Id.  Thus, despite agreeing with the defendant that the number of plans is pertinent, Judge Sand concluded that because the numerosity analysis focuses on whether joinder is practicable, and joinder of the 100 trustees would not be practicable, numerosity was satisfied.  Id.  Moreover, in dicta potentially useful to plaintiffs moving to certify small classes, the court also took issue with the defendant’s contention that 29 plans could not satisfy this prerequisite, stating that the geographic dispersal of the plans could in fact support numerosity.  See id. at 8.