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Jerome Goodman v. Goldman

December 14, 2010


The opinion of the court was delivered by: Wolfson, United States District Judge:



Plaintiff Jerome Goodman ("Plaintiff" or "Goodman") brings this action against Defendant Goldman, Sachs & Co. ("Defendant" or "Goldman Sachs")*fn1 , alleging that Goldman Sachs failed to advise him to decrease or divest his investments in the now-infamous Madoff Fund. As a result of Goldman Sachs' actions, Plaintiff asserts that he lost his life savings of over 15 million dollars. Plaintiff's claims sound in breach of fiduciary duty, negligent misrepresentation, and gross negligence. Defendant moves to dismiss these claims, arguing that New York law applies and that the claims were filed beyond the statutory limitations period under New York law, are preempted by New York law, and are otherwise insufficiently plead under Federal Rule of Civil Procedure 12(b)(6). While the Court concludes that a final determination on choice of law is premature at this pleading stage, applying the law of the forum state of New Jersey, the Court nonetheless grants Defendant's motion, pursuant to Federal Rule of Civil Procedure 12(b)(6).


As I must on a motion to dismiss, I take the following allegations from Plaintiff's Complaint as true. Plaintiff is a 69 year old retiree, who lives with his wife in New Jersey. Compl., ¶ 33. Beginning in 1971, Plaintiff owned and operated North Shore Agency, Inc., a collection agency based in Long Island, New York. Id. at ¶ 38. In 1997, Plaintiff sold the business for approximately 20 million dollars. Id. This amount represented "virtually all of [Plaintiff's] net worth." Id. at ¶ 39. According to Plaintiff, he was, and still is, an unsophisticated investor. Id. at ¶ 33.

In or around 1998, Plaintiff invested the bulk of his funds with The Ayco Company, L.P. ("Ayco")*fn1 , a company he retained as his financial advisor. Id. at ¶ 44. Ayco advised Plaintiff to first invest 4 million dollars in the Madoff Fund in 1998, and then to increase his investment to 12 million dollars in 2004. Id. at ¶ 50. By September 2008, Plaintiff was investing 15 million dollars in the Madoff Fund. Id. According to Plaintiff, these figures represent, respectively, 26%, 70% and 87% of Plaintiff's assets. Id. at ¶ 51. Plaintiff alleges that, throughout this time frame, Ayco led him to believe that it was properly taking into consideration his risk tolerance in advising him to invest such a large percentage of his net worth in the Madoff Fund. Id. at 49.

Meanwhile, Ayco was purchased by Goldman Sachs, a New York-based company, in or around 2003.*fn2 On Ayco's letterhead, Ayco was identified as "a Goldman Sachs Company." Id. at

53. Shortly thereafter, in or around late 2003 or early 2004, Larry Abrahams ("Abrahams"), an employee of Ayco, contacted Plaintiff's family ("the Goodman Family") to inform Plaintiff of Goldman Sachs' purchase of Ayco. Id. at ¶ 54. (Indeed, it is alleged throughout the Complaint that communications intended for Plaintiff were often made to the Goodman Family or to Plaintiff's son, Kevin Goodman. See e.g., id. at ¶¶ 58, 64.) Plaintiff alleges that Abrahams and other Ayco representatives told the Goodman Family, both verbally and in writing, that Goldman Sachs would work "in tandem" with Ayco to provide financial advisory services to Plaintiff. Id. at ¶ 55. Abrahams then requested permission from the Goodman Family to share Plaintiff's confidential financial information with Goldman Sachs. Id. at ¶ 58. After permission was granted, Abrahams proposed a meeting to Kevin Goodman by email dated January 28, 2004, which email stated:

[Goldman Sachs] is giving us a platform in terms of investment recommendations and managing client portfolios that we never had. . . . We now have access to two things we never had before at Ayco: a huge choice of hedge funds for clients and investment professionals to supplement what we do at Ayco. While I certainly can make recommendations . . . your family will be better served by bringing someone to supplement me. The focus of the meeting would be: what is their value added as it relates to Madoff substitutes Id. at ¶ 57. There is no allegation in the Complaint that Plaintiff ever entered into a retainer agreement with Goldman Sachs.

In or around the spring of 2004, Abrahams along with Christopher Duda ("Duda"), Vice President of the Private Wealth Management Group of Goldman Sachs, contacted the Goodman Family to schedule the proposed meeting ("the 2004 Meeting"). Id. at 64. The purpose of the meeting was for Goldman Sachs to present its investment advice to Plaintiff. Id. at ¶ 64. Plaintiff, however, did not attend the meeting-his son Kevin Goodman attended it instead. Id. at ¶ 65. The meeting took place in or around May 2004, at the Seven Seas diner in Great Neck, New York. At the meeting, Duda made a presentation to Kevin Goodman in which he recommended that Plaintiff maintain at least 7 million dollars in the Madoff Fund and transfer 5 million dollars to Goldman Sachs hedge funds, which funds were in the same category of higher risk "alternative investments" as the Madoff Fund. Id. at ¶ 67. Plaintiff alleges that Goldman Sachs advised him to leave at least 7 million in the Madoff Fund despite an alleged internal ban through which Goldman Sachs had prohibited its own asset managers from investing in that fund. Id. at ¶ 66. Notably, Plaintiff does not allege that he heeded Goldman Sachs' advice to transfer 5 million dollars to Goldman Sachs' hedge funds. It appears from the Complaint that he left all of his investment in the Madoff Fund.

In the most general fashion, Plaintiff alleges that Goldman Sachs "maintain[ed] direct contact with the Goodman Family in the years following the 2004 [M]eeting." Id. at ¶ 75. The Complaint does not allege how many, or in which, "years" Goldman Sachs maintained contact. In addition, the Complaint does not point to any specific communications, their subject matter, or whether the communications were oral or written.

In 2008, Plaintiff alleges that Jerry DelSordo ("DelSordo"), another representative at Ayco, falsely advised Plaintiff that his investments in the Madoff Fund were insured for full face value by private insurance. Id. at ¶ 77. By way of example, Plaintiff points to an email from DelSordo dated October 10, 2008. In that email, DelSordo states that "[u]nder the consumer protection act, your net equity assets are covered even if the firm were to go bankrupt. In cases, [sic] of fraud or missing assets, SIPC covers up to $500,000, and I was told they have insurance such as CAPCO that covers the amounts exceeding $500,000. Id. at ¶ 78 (emphasis in original).

In short, Plaintiff alleges that he would have divested himself from the Madoff Fund if Goldman Sachs had warned him that his principal was at risk because it was "dangerously over-concentrated in a single investment," or if Goldman Sachs had informed him of its alleged internal ban against investing with Madoff. Id. at ¶ 81. Plaintiff filed his Complaint on March 9, 2010, asserting claims sounding in breach of fiduciary duty, negligent misrepresentation, and gross negligence. After being granted an extension of time to answer, Defendant filed the instant motion to dismiss on statute of limitations, preemption, and Rule 12(b)(6) grounds. The Court now rules upon Defendant's motion. For the following reasons, Defendant's motion is granted.


When reviewing a motion to dismiss on the pleadings, courts "accept all factual allegations as true, construe the complaint in the light most favorable to the plaintiff, and determine whether, under any reasonable reading of the complaint, the plaintiff may be entitled to relief." Phillips v. County of Allegheny, 515 F.3d 224, 233 (3d Cir. 2008) (citation and quotations omitted). In Bell Atlantic Corporation v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), the Supreme Court clarified the 12(b)(6) standard. Specifically, the Court "retired" the language contained in Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957), that "a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Id. at 1968 (quoting Conley, 355 U.S. at 45-46). Instead, the factual allegations set forth in a complaint "must be enough to raise a right to relief above the speculative level." Id. at 1965. As the Third Circuit has stated, "[t]he Supreme Court's Twombly formulation of the pleading standard can be summed up thus: 'stating ... a claim requires a complaint with enough factual matter (taken as true) to suggest' the required element. This 'does not impose a probability requirement at the pleading stage,' but instead 'simply calls for enough facts to raise a reasonable expectation that discovery will reveal evidence of' the necessary element." Phillips, 515 F.3d at 234 (quoting Twombly, 127 S.Ct. at 1965).

The Third Circuit recently reiterated that "judging the sufficiency of a pleading is a context-dependent exercise" and "[s]ome claims require more factual explication than others to state a plausible claim for relief." West Penn Allegheny Health System, Inc. v. UPMC, --- F.3d ----, 2010 WL 4840093, *8 (3d Cir., Nov. 29, 2010). This means that, "[f]or example, it generally takes fewer factual allegations to state a claim for simple battery than to state a claim for antitrust conspiracy."

Id. That said, the Rule 8 pleading standard is to be applied "with the same level of rigor in all civil actions." id. at *7 (quoting Ashcroft v. Iqbal, ---U.S. ----, 129 S.Ct. 1937, 1953, 173 L.Ed.2d 868 (2009)).

A court generally may not consider matters outside the pleadings when ruling on a motion to dismiss. However, the court may rely on documents "integral to or explicitly relied upon in the complaint." In re Rockefeller Ctr. Props. Sec. Litig., 184 F.3d 280, 292-93 (3d Cir.1999). In addition, public documents and prior judicial proceedings may be considered in deciding a motion to dismiss. See Southern Cross Overseas Agencies, Inc. v. Wah Kwong Shipping Group, Ltd., 181 F.3d 410, 426 (3d Cir.1999); see also Herring v. United States, 2004 WL 2040272, at *7 (E.D.Pa. Sept.10, 2004). When relying on such documents, the court need not convert the motion to dismiss into one for summary judgment. In re Rockefeller Ctr. Props. Sec. Litig., 184 F.3d at 292-93.


Defendant makes three arguments in support of its motion to dismiss-that Plaintiff's claims are time barred, the Complaint fails to state a claim for which relief can be granted, and preemption under New York law. Because Plaintiff argues that New Jersey law should apply, this Court must first address choice of law principles in connection with each claim. For the reasons that follow, I conclude that there is insufficient factual development at this stage for the Court to make a final choice of law ruling. Instead, I find it appropriate to apply New Jersey law at this juncture and conclude that Plaintiff fails to state a claim with respect to each of his causes of action.

A. Choice of Law

As a federal district court sitting in diversity, this Court must apply the choice of law rules of the forum state of New Jersey. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Warriner v. Stanton, 475 F.3d 497, 499-500 (3d Cir. 2007). In so doing, the Court must accept the decisions of the highest state court as the ultimate authority on state law. Edwards v. HOVENSA, LLC, 497 F.3d 355, 361 (3d Cir. 2007). Where the highest state court has not spoken on a particular issue, the Court must predict how the highest court would rule by giving due regard to the decisions of lower courts in the state. Id.

New Jersey generally applies the Restatement's "most significant relationship" test to tort claims. P.V. v. Camp Jaycee, 197 N.J. 132, 142-43 (2008). In applying the test, courts must first determine whether there is an actual conflict between the competing state laws. "The second prong of the most significant relationship test requires the court to weigh the factors enumerated in the Restatement section corresponding to the plaintiff['s] cause of action." Nafar v. Hollywood Tanning Sys., Inc., 339 Fed.Appx. 216, 220 (3d Cir. 2009) (citing Camp Jaycee, 197 N.J. at ___). Those sections may further require courts to consider general conflict of law factors enumerated in Restatement § 6. See e.g., Restatement (2d) Conflicts, § 148 (1) (directing that "the local law of this state determines the rights and liabilities of the parties unless, with respect to the particular issue, some other state has a more significant relationship under the principles stated in § 6 to the occurrence and the parties, in which event the local law of the other state will be applied."); Buccilli v. Nat. R.R. Passenger Corp., Civ. No. 08-4214, 2010 WL 624113, *5 (D.N.J., Feb. 17, 2010) (applying § 6 factors to negligence claim).

Restatement (2d) Conflicts § 148 applies specifically to negligent misrepresentation claims. See Nafar, 339 Fed.Appx. at 220 (applying § 148 to misrepresentation claims); In re Mercedes-Benz Tele Aid Contract Litig., 267 F.R.D. 113, 124-25 (D.N.J. 2010) (discussing Nafar); Intarome Fragrance & Flavor Corp. v. Zarkades, Civ. No. 07-873, 2009 WL 931036, *6-10 (D.N.J. Mar. 30, 2009). There is no specific section of the Restatement that applies to breach of fiduciary duty claims, thus, courts apply the factors of Restatement § 145(2)-the catch-all tort section-to said claims. Clark v. Prudential Ins. Co. of America, Civ. No. 08-6197, 2009 WL 2959801, *17 (D.N.J., Sept. 15, 2009) (collecting cases). The same is true for Plaintiff's "gross negligence" claim, for which there is no specifically applicable Restatement section. See Air Prods. and Chem., Inc., v. Eaton Metal Prods. Co., 227 F.Supp.2d ...

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