11-0348-cv
Archer Investments S.a.r.l. et al. v. Local 282 Welfare Trust Fund, Ontario Teachers’ Pension Plan Board



                                   UNITED STATES COURT OF APPEALS
                                       FOR THE SECOND CIRCUIT

                                                SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT.
CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS
PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE
32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER
IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE
FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION
“SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A
COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

       At a stated term of the United States Court of Appeals for the Second Circuit, held at the
Daniel Patrick Moynihan Courthouse, 500 Pearl Street, in the City of New York, on the 21st day
of February, two thousand and twelve.

Present:
            RALPH K. WINTER,
            PETER W. HALL,
            DENNY CHIN
                        Circuit Judges.
____________________________________________________

Archer Investments S.a.r.l., Congor Investments Limited, Conset Investments S.a.r.l., Southridge
Management S.a.r.l.,
                     Claimants-Appellants,

                   v.                                                                   No.       11-0348-cv

Local 282 Welfare Trust Fund, Ontario Teachers’ Pension Plan Board,
                     Plaintiffs-Appellees.
____________________________________________________

FOR APPELLANTS:                        MALCOLM S. TAUB, Davidoff Malito & Hutcher LLP, New York,
                                       New York

FOR APPELLEES:          EDWARD A. GROSSMAN, (Sanford P. Dumain and George A. Bauer
                        III, Milberg LLP New York, New York on brief) Bernstein
                        Litowitz Berger & Grossmann, LLP, New York, New York
____________________________________________________
       Appeal from an order of the United States District Court for the Southern District of New

York (Hellerstein, J.). ON CONSIDERATION WHEREOF, it is hereby ORDERED,

ADJUDGED, and DECREED that this order is AFFIRMED.

       Claimants-Appellants Archer Investments S.a.r.l., Congor Investments Limited, Conset

Investments S.a.r.l., and Southridge Management S.a.r.l. (“Claimants”) appeal from the district

court’s order denying them the right to participate in proceeds under a settlement agreement of a

class-action lawsuit. The suit was led by Plaintiffs-Appellees Local 282 Welfare Trust Fund and

Ontario Teachers’ Pension Plan Board (“Plaintiffs), who brought claims against Biovail

Corporation and its officers for securities fraud. We assume the parties’ familiarity with the

underlying facts, the procedural history of the case, and the issues on appeal, and we discuss

these only where necessary to explain our decision.

       Claimants, four investment companies owned by certain Cayman Islands Trusts, contend

that the district court erred by ignoring the law of the Cayman Islands when interpreting the

terms of the Settlement Agreement. They also argue that the court erred in determining that a

defendant in the lawsuit, Eugene Melnyk, had a “controlling interest” in the Trusts, which

interest by the terms of the Settlement Agreement, disqualified Claimants from taking part in the

proceeds.1

       The Settlement Agreement contains a New York choice of law provision. Claimants

argue that the New York conflicts of law rule applicable to trusts requires us to apply the law of



       1
        As made clear during oral argument, we assess Claimants’ and the Trusts’ relationship to
each other during the applicable time period when the Claimants purchased Biovail shares
ostensibly making them Class-eligible. During the relevant time, the Claimants were wholly-
owned by the Trusts that were settled by Mr. Melnyk.

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the situs, the Cayman Islands, to determine “the construction and validity of” the Trusts. This

argument is without merit. Paragraph 38 of the Settlement Agreement provides: “The

construction, interpretation, operation, effect and validity of this Stipulation, and all documents

necessary to effectuate it, shall be governed by the internal laws of the State of New York

without regard to conflicts of law, except to the extent that federal law requires that federal law

governs.” “Where, as here, the parties have agreed on the law that will govern their contract,”

that choice of law will be enforced. Finucane v. Interior Const. Corp., 264 A.D.2d 618, 620

(1st Dep’t 1999). New York’s conflict of law rule regarding trusts is not relevant to this case

because paragraph 38 clearly states that in interpreting the Settlement Agreement, New York

“internal” law applies “without regard to conflicts of law.” By the terms of the Settlement

Agreement, questions regarding whether Melnyk had a “controlling interest” in these Trusts are

questions of contract interpretation to be determined under New York law. Cayman Islands law

has no bearing on that interpretation.

       “We review a district court’s interpretation of a settlement agreement de novo . . .

mindful that the consent decree is a contract between the parties, and should be interpreted

accordingly.” Waldman ex rel. Elliott Waldman Pension Trust v. Riedinger, 423 F.3d 145, 148

(2d Cir. 2005) (internal quotation marks omitted). The terms of the Settlement Agreement

exclude “any entity in which any defendant has a controlling interest” from sharing in the

settlement proceeds. The facts bearing on whether Melnyk controlled the Trusts are not in

dispute, but the parties vigorously dispute the inferences that may be drawn from them and the

importance of those inferences as applied to the terms of the Settlement Agreement. The proof

includes the following:


                                                 3
•      Melnyk and his immediate family members were at all relevant times discretionary
       beneficiaries of all the Trusts, but in 2000 he made a revocable disclaimer of his interests
       (but not his family’s) in two of the Trusts. The disclaimer, aside from being revocable,
       was alleged to have been executed to mislead Canadian investigators who were
       conducting inquires into the relationship between Melnyk and the Trusts.

•      Melnyk provided advice and recommendations to the Trustees in relation to certain
       acquisitions and dispositions of Biovail securities.

•      The assets of the Trusts consisted primarily of Biovail shares.

•      Melnyk acted as a signatory to a 2002 amendment to one of the Trusts, and he provided
       his consent to changes in at least two of the Trusts.

•      Three of the four Trusts had the same investment broker. A manager at another broker
       for the investment broker treated the three trusts as a single account because it believed
       Melnyk to be the common owner.

•      The person who was responsible for a substantial number of trades for several of the
       Trusts that made them Class-eligible was a Biovail director and was Melnyk’s personal
       trading representative.

•      In 2004 and 2005, Melnyk directed all of the Trusts be transferred to a new series of
       trusts, and the Trustees took that action.

•      Between April 1998 and December 2003, the Trusts made unsecured loans to Melnyk of
       $88 million USD and $4 million CDN. These loans were on terms favorable to Melnyk.
       In December 2003, the outstanding amounts owed by Melnyk on these loans were $100.2
       million USD and $5.2 million CDN. The Trusts also, at times, turned down Melnyk’s
       request for loans or extensions of credit.

•      In connection with a settlement agreement with Canadian authorities, Melnyk filed
       certain insider reports indicating that he had “control or direction” over the Trusts during
       times relevant to this matter.

       It is beyond cavil that the drafters of the Settlement Agreement understood that these

Trusts were excluded from taking part in the settlement. One need only look at Plaintiffs’

Second Amended Complaint, which alleges that (1) Melnyk exercised “control of the Trusts”

and directed the very trading activities that made the Trusts eligible to participate in the

settlement. and (2) Melnyk used the Trusts to generate proceeds that the Trusts in turn loaned to

                                                  4
Melnyk. The Second Amended Complaint also pleads that “any entity in which any defendant

has a controlling interest” would be excluded from the Class. It cannot seriously be argued that

the drafters of the Settlement Agreement and the signatories to it did not understand that the

Trusts were to be excluded by this very same language from the complaint that was later

repeated in the Settlement Agreement.

       We have considered Claimants’ remaining arguments and find them without merit.

       The order of the district order overruling Claimants’ objection and approving class

distribution is AFFIRMED.

                                             FOR THE COURT:
                                             Catherine O’Hagan Wolfe, Clerk




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