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27001 Partnership v. BT Securities Corp.

July 17, 2008

27001 PARTNERSHIP, HONEYWELL INTERNATIONAL INC. MASTER RETIREMENT TRUST, EDWARD JEPSON, BRANDEIS UNIVERISTY, BROWN FAMILY PARTNERSHIP, CENTRAL STATES, SOUTHEAST AND SOUTHWEST AREAS PENSION FUND, CHRISTIAN SCIENTIST TRUSTEES FOR GIFTS AND ENDOWMENTS, EMPLOYEES' RETIREMENT FUND OF THE CITY OF DALLAS, POLICE AND FIRE PENSION FUND OF THE CITY OF DALLAS, DELTA AIR LINES MASTER TRUST, FATHER FLANAGAN'S FOUNDATION FUND, INC., THE FIRST CHURCH OF CHRIST, SCIENTIST, FOUNDATION FOR RESEARCH, GMAN INVESTMENT FUNDS TRUST, GOLDSMITH FAMILY FOUNDATION, ESTATE OF HAROLD GOLDSMITH, EDWIN GOULD FOUNDATION FOR CHILDREN, STATE EMPLOYEE RETIREMENT SYSTEM OF PENNSYLVANIA, HALL FAMILY FOUNDATION, ALLEGHENY TECHNOLOGIES INCORPORATED PENSION TRUST, INTERNATIONAL MONETARY FUND STAFF RETIREMENT PLAN, J.C. PENNEY CORPORATION, INC. PENSION PLAN, MCDERMOTT INCORPORATED MASTER TRUST, MONSANTO COMPANY MASTER PENSION TRUST, EMPLOYEES' RETIREMENT SYSTEM OF MONTGOMERY COUNTY, MARYLAND, KRAFT FOODS MASTER RETIREMENT TRUST, NEW YORK CITY EMPLOYEES' RETIREMENT SYSTEM, NEW YORK CITY FIRE DEPARTMENT PENSION FUND, NEW YORK CITY POLICE DEPARTMENT PENSION FUND, NORTHWEST AIRLINES, INC. MASTER INVESTMENT TRUST, PEOPLES ENERGY CORPORATION PENSION TRUST, RESEARCH DEVELOPMENT FOUNDATION, RETAIL CLERKS PENSION TRUST, REYNOLDS AMERICAN DEFINED BENEFIT MASTER TRUST, SAN DIEGO COUNTY EMPLOYEES' RETIREMENT ASSOCIATION, SPRINT MASTER TRUST, RETIREMENT SYSTEM OF THE TENNESSEE VALLEY AUTHORITY, UNITED AIRLINES, INC. GROUP INVESTMENT TRUST, WAGNER & BROWN, LTD., WESTERN PENNSYLVANIA TEAMSTERS AND EMPLOYERS PENSION FUND, XEROX CORPORATION TRUST TO FUND RETIREMENT PLANS, X.L. INVESTMENT LTD., HORACE MANN EDUCATOR CORP., LOUISIANA STATE EMPLOYEES' RETIREMENT SYSTEM, ALAN GREEN, AND SIMON YOUNG, PLAINTIFFS-APPELLANTS/CROSS-RESPONDENTS,
v.
BT SECURITIES CORPORATION, A SUBSIDIARY OF DEUTSCHE BANC ALEX BROWN, INC., A DELAWARE CORPORATION, DELOITTE & TOUCHE LLP, A DELAWARE LIMITED PARTNERSHIP, DEFENDANTS-RESPONDENTS,
and
ARTHUR ANDERSEN LLP, A DELAWARE LIMITED LIABILITY PARTNERSHIP, DEFENDANT-RESPONDENT/CROSS-APPELLANT.



On appeal from Superior Court of New Jersey, Law Division, Morris County, Docket No. L-3341-06.

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued May 6, 2008

Before Judges Coburn, Fuentes and Grall.

Plaintiffs filed this class action suit alleging securities fraud. The class consists of forty-six investors who purchased senior subordinated notes during the recapitalization of a major supermarket chain in the State of Alabama. The complaint named defendants BT Securities Corporation ("BT Securities"), Deloitte & Touche LLP ("Deloitte"), and Arthur Andersen LLP ("Andersen"). Specifically, plaintiffs sought compensatory and punitive damages for: (1) fraudulent suppression; (2) fraudulent and reckless misrepresentation; (3) fraudulent and reckless deceit; (4) violation of "the New Jersey Securities Act";*fn1 (5) negligent misrepresentation of financial information; (6) civil conspiracy; and (7) aiding and abetting.

Plaintiffs appeal from the order of the Law Division holding that this suit was governed by the law of the State of Alabama. Thereafter, applying the relevant Alabama statute of limitations, the court dismissed plaintiffs' claims as untimely brought. Defendant Andersen cross-appeals from the court's order denying its motion to dismiss plaintiffs' complaint for lack of personal jurisdiction. We now affirm.

I.

Plaintiffs, as a class, consist of a variety of individuals, trust funds, pension plans, state and local government entities, endowment foundations, and other institutional investors. They all utilize the services of W.R. Huff Asset Management Company, an investment manager based in Morristown, New Jersey ("Huff").

In November 1995, Huff began purchasing, on plaintiffs' behalf, senior subordinated notes issued in conjunction with the leveraged recapitalization of Bruno's, Inc., a major supermarket chain in the southeastern United States ("Bruno's"). Defendant BT Securities underwrote much of the Bruno's recapitalization.

During this recapitalization, Kohlberg Kravis Roberts & Company ("KKR"), who is not a party in this case, acquired Bruno's by purchasing more than eighty percent of its common stock. Defendant Deloitte performed due-diligence and investigatory services for KKR during the acquisition process. In May 1995, Deloitte prepared a report for KKR, detailing Deloitte's findings as to the soundness of investing in Bruno's. This report was entitled "Project Crimson."

Plaintiffs allege that Project Crimson concluded that Bruno's had serious financial problems, including: (1) overstated real estate assets, inventory and technology; and (2) understated self-insurance reserves and depreciation. According to plaintiffs, defendants BT Securities and Deloitte purposely kept Project Crimson and its findings secret from plaintiffs, allowing plaintiffs to invest heavily in the Bruno's notes. Specifically, plaintiffs allege that they relied on "misrepresentations and omissions that defendants made in the [Bruno's] Prospectus, Leveraged Recapitalization, road shows and one-on-one meeting, reports filed with the SEC and in other disclosures, such as press releases."

Defendant Andersen, an auditor and accounting firm, presently located in Chicago, Illinois, served as Bruno's independent auditor in 1994 and 1995. Andersen maintained offices in New Jersey during both Bruno's recapitalization, and the time plaintiffs were purchasing Bruno's notes. For reasons unrelated to this case, Andersen has had no presence in New Jersey since August 2002.

Plaintiffs allege that during the Bruno's recapitalization, Andersen "knew or was reckless or negligent in not knowing the true financial condition of Bruno's through its audit work and/or through its receipt of Project Crimson." Further, plaintiffs allege that "Andersen never required that Bruno's audited financial ...


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