Free Trial Brief - District Court of Colorado - Colorado

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THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Honorable Marcia S. Krieger Case No. 04-cv-1225-MSK-BNB (Consolidated with 04-cv-1226-MSK-BNB)

MALIK M. HASAN, M.D., an individual; and SEEME G. HASAN, an individual, Plaintiffs, v. GOLDMAN SACHS 1998 EXCHANGE PLACE FUND, L.P., a Delaware limited partnership; GOLDMAN SACHS 1999 EXCHANGE PLACE FUND, L.P., a Delaware limited partnership; GOLDMAN SACHS MANAGEMENT PARTNERS, L.P., a Delaware limited partnership; GOLDMAN SACHS MANAGEMENT, INC., a Delaware corporation; THE GOLDMAN SACHS GROUP, INC., a Delaware corporation; GOLDMAN, SACHS & CO., a New York limited partnership; JOHN DOES 1-100, individual persons whose true identities are unknown; and LENDER PARTIES 1-100, business entities whose true identities are unknown, Defendants. T EN ME D F N A T ' R A B I F H A D E E D N ST IL RE

INTRODUCTION Plaintiffs assert a variety of claims against the Named Defendants in connection with p i isi et eti to e w rl id a nr i ,o m n r e to as the 1998 ln f 'n s n n w D l a i t pr e h scm ol e rred a tf v m s a e m e t sp y f and 1999 Exchange Funds. The Named Defendants have moved pursuant to the Federal Arbitration Act, 9 U.S.C. §§ 1-1 ( A " ts yh at n ed g riao o p i is 6 " A ) o t t s co pni a t t n f ln f ' F , a i i n b ri a tf claims. The Named Defendants contend that plaintiffs are bound to arbitrate their claims under t epese s f )h a iao poio i p i isMu i h xr t m o 1 t r t t n rv i n ln f ' l-Party Account Agreement e s r e bri sn a tf t

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with Goldman, Sachs & Co., executed by the Hasans dated July 31, 1998; and 2) arbitration provisions in the Limited Partne h A r m n gvri t H sn'net etit 19 r i ge et oe n h aasi s n n h 98 sp e s ng e v m s e and 1999 Exchange Funds. Currently pending are two arbitrations, one in New York and one in Denver, under the rules of the American Arbitration Association, each of which embraces all of plain f 'lm it s co;riapnlhv be api e adh i tler g hv tf c i sn h at na t lae ae en po t n t n i ha ns ae is a i i br s nd e ia i been held in each arbitration.1 The Court has set a two-day mini-trial for November 9 and 10, 2005 on the issue of arbitrability. Much of that hearing may be taken up with ­ a large proportion of the and depositions and exhibits submitted to the Court deal with ­ ln f 's roshthy int p i isas t n t t d o a tf ei a e d receive bound subscription booklets, but only the signature pages (which they executed) and several additional pages from those booklets; that Dr. H snsi a ri t s 98 usr t n aa's nt en h 19 sbc p o g u i ii was not notarized in his presence; and that plaintiffs did not receive the Private Placement Memorandums for the Exchange Funds before they invested. The Named Defendants contend that these assertions by plaintiffs are baseless as a matter of fact, but more important, they are irrelevant as a matter of law, for two separate reasons. First, the Named Defendants contend (and plaintiffs have never disputed) that those factual assertions relate only to the Exchange Fund arbitration clauses and have no bearing at all on the arbitration provision in the Multiparty Account Agreement, which poses a pure question of law (i.e., interpretation of the contract). The claims are arbitrable under this Agreement, regardless of

1

On August 20, 2004 the Named Defendants initiated an arbitration in New York, pursuant to the terms of the Limited Partnership Agreements, seeking, among other requests for relief, a declaration t tlo p i isc i s h a f ln f ' lm a l a tf a are without merit. On October 15, 2004, plaintiffs initiated an arbitration in Denver, pursuant to the Multi-Party Account Agreement, seeking damages for alleged losses incurred trading technology stocks; the Named Defendants have filed a conditional counterclaim, substantially identical to their claim for relief in the New York arbitration, to take effect only in the event that it is held that arbitration in New York is for some reason inappropriate.

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other issues raised by plaintiffs. Second, the Named Defendants contend that the facts which plaintiffs have now admitted, or which otherwise are now undisputed as a result of the analyses o bt s e'xe sw o are in essential agreement), compel arbitration under the Limited f o i sepr ( h h d t Partnership Agreements as a matter of law. The Named Defendants respectfully set forth below governing authority on which they rely concerning the specific issues pertinent to arbitrability. I. THE ARBITRATION PROVISION IN THE MULTI-PARTY ACCOUNT AGREEMENT The Sole Issue Plaintiffs do not dispute that they executed the Multi-Party Account Agreement, which contains a comprehensive arbitration clause.2 Pa tf slbs fr poi a ln f 'o ai o ops g r i is e s n bitration under the clause is their assertion that their claims in this action do not come within the scope of the arbitration provision; the Named Defendants contend that the claims do come within the scope of the arbitration provision. Set forth below is governing law on this issue. 1. Because the arbitration provision is contained in a written agreement and relates

to securities transactions, it evidences a transaction involving interstate commerce; its scope and
2

The Multi-Party Account Agreement reads, in pertinent part: Y u[ o m nScs adCi t e b ar t tefl wn wt r pc t ayo Ci t o G l a ah] n ln hr y ge o h o o i i e eto n f ln s d e e e l g h s e' accounts with you and all transactions with you: . . . Any controversy between you (together with your affiliates also involved in such controversy) or any of your or their Managing Directors, officers, directors or employees on the one hand, and Client o Ci t aeto t o e hn, r ln s gn n h t r ad e' s e h arising out of or relating to this agreement, the transactions contemplated hereby, or the accounts established hereunder, shall be settled by arbitration, in accordance with the rules then obtaining of any one of the American Arbitration Association or The New York Stock Exchange, Inc., or any other exchange of which you are a member, or the National Association of Securities Dealers, Inc. or the Municipal Securities Rulemaking Board, as Client may elect. Multi-Party Account Agreement at p.1 (emphasis added).

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interpretation are therefore governed by the FAA. See, e.g., O C no vRF L fr &C ., 'onr . .. a et fy o 965 F.2d 893, 901 (10th Cir. 1992) (customer agreement between broker and investor to transact in securities involves interstate commerce invoking applicability of the FAA). 2. The FAA creates an exceptionally strong presumption in favor of the validity and

enforceability of arbitration agreements; a presumption so strong that Congress has taken the unusual step of providing (in 9 U.S.C. § 16) that an order adverse to arbitrability is subject to an immediate interlocutory appeal. Mastrobuono v. Shearson Lehman Hutton, Inc., 514 U.S. 52, 62 n (95 ( . 19)" Arbitration Act establishes that, as a matter of federal law, any doubts 8 The concerning the scope of arbitrable issues should be resolved in favor of arbitration, whether the problem at hand is the construction of the contract language itself or an allegation of waiver, dl ,r l e e neo riait " Ansari v. Qwest Communications Corp., 414 F.3d e yo ai df s ta t b i . ; a k e b r ly ) 1214, 1216 (10th Cir. 2005) (granting interlocutory appeal of order denying arbitration); Armijo v. Prudential Ins. Co. of Am., 72 F.3d 793, 797 (10th Cir. 1995) (" ]et n o a iait [ usos fr t b i Q i b r ly m sb adesd i a el y ea frh f e lo c f oi a iao,adhs ute dr e wt hah r r o t e r ply a r g r t t n n t , s h t gd e d a i v n b ri " u "n dutcne ay ob ocr the scope of arbitrable issues should be resolved in favor of s ning a iao.; r t t n )Zink v. Merrill Lynch Pierce Fenner & Smith, 13 F.3d 330, 332 (10th Cir. 1993). bri " 3. Under the FAA, a d pt i u ia ial"n sim y e a wtpsi i u ds es r t b ul st a b si i oiv s e s br e e d h te

assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted d pt"United Steelworkers of Am. v. Warrior & Gulf Nav. Co., 363 U.S. 574, 582-83 (1960); iu. s e ARW Exploration Corp. v. Aguirre, 45 F.3d 1455, 1461 (10th Cir. 1995). 4. T e r u p o if o o a iao "pls i ee get fr " hn h pe m t nn a r fr t t n ap e wt vn r e oc w e s i v bri i h ar e

pre ar ta ia c i s a s g u o o r an t a i n uj t ae t tut a i ge o r t t lm "ri otf re t go g e sb cm tr h qo d ts e b r e a in li " v e t; a e

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phrase is in the Multi-Party Account Agreement (see supra note 2). P&P Indus., Inc. v. Sutter Corp., 179 F.3d 861, 871 (10th Cir. 1999) (citation omitted); Shearson Lehman Hutton, Inc. v. Wagoner, 944 F.2d 114, 121 (2d Cir. 1991); see also Brown v. Coleman Co., 220 F.3d 1180, 1184 (10th Cir. 2000) ( " When a contract contains a broad arbitration clause, matters that touch t udr i cn athu b a ia d ) h ne y g ot csol e r t t . . e ln r d bre " 5. In construing arbitration provisions, courts apply the plain, objective meaning of

t a iao poio wt u r a t t pre'uj t en n Cogswell v. Merrill h r t t n rv i i ote r oh a i sb cv i et e bri sn h gd e ts ei t . Lynch, Pierce, Fenner & Smith, Inc., 78 F.3d 474, 478 (10th Cir. 1996); Gomez v. Am. Elec. Power Serv. Corp., 726 F.2d 649, 651 (10th Cir. 1984). 6. The Multi-Pr A cut gem n epes nm s a ia s o G l a, a y con A r etxr l a e "flt " f o m n t e sy fie d

Sachs & Co. as beneficiaries of the arbitration provision (see supra note 2). An intended beneficiary has the right to enforce the arbitration provision even if it is not a signatory of the agreement. O C no vRF L fr &C ., 965 F.2d 893, 901 (10th Cir. 1992). Entities 'onr . .. a et fy o related by common control are affiliates. See Bak L wDcoay (8th ed. 2004). l ' a ii r 63 cs tn Plaintiffs admit and allege that the Named Defendants are related by common control and are affiliates. (See Second Am. Compl. (Doc. #130) ¶¶ 1, 10-15, 24A and 26A). 7. Independently, equitable estoppel allows a nonsignatory to compel arbitration

w e a i a r " i s lgt n o ..us n ayn reednad ocr d hn s nt y r s aeaos f .sbt tl i e pnetn cne e g o ae l i a il t d t misconduct by both the nonsignatory and one or more of the signatories to the cn at ot c"GATX r . Management Servs., LLC v. Weakland, 171 F. Supp. 2d 1159, 1166 (D. Colo. 2001) (internal citations omitted). Plaintiffs allege interdependent and concerted misconduct by Goldman,

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Sachs & Co. and the other Named Defendants. (See Second Am. Compl. (Doc. #130) ¶¶ 1, 1015, 22-36, 42, 43, 51, 53.) 8. Claims found to be within the scope of a valid and enforceable arbitration

provision must be arbitrated even if intertwined with nonarbitrable claims. Dean Witter Reynolds, Inc. v. Byrd, 470 U.S. 213, 217 (1985); Moe H C n Me 'H s.. ruy ss . oe m l opvMecr Constr. Corp., 460 U.S. 1, 20 (1983). II. THE ARBITRATION PROVISIONS IN THE LIMITED PARTNERSHIP AGREEMENTS Plaintiffs do not dispute that Dr. Hasan (1998) and both Hasans (1999) executed the signature pages of the Subscription Agreements. The Named Defendants contend that plaintiffs agreed to the arbitration provisions in the Limited Partnership Agreements by thus executing the Subscription Agreements, which contain a provision appointing the General Partner of the pr e h p i isaetn aony a nr i ln f ' gn ad t re-in-fact to execute the final (and amended) Limited t s p a tf t Partnership Agreements.3 Plaintiffs do not dispute that this is the customary method by which investors in limited partnerships involving many investors (here, 400 in each Exchange Fund) agree to the provisions of the applicable partnership agreement (the form of which is incorporated by reference into the Subscription Agreement).

3

The two Limited Partnership Agreements contain the following arbitration clause: 16.17 Arbitration. Any dispute or controversy arising out of or relating to this Agreement shall be determined and settled by arbitration in The City of New York, State of New York in accordance with then prevailing Commercial Arbitration Rules of the American Arbitration Association. The award rendered by the arbitrator shall be final and conclusive. The expenses of the arbitration shall be borne equally by the parties to the arbitration; provided that each party shall pay for and bear the costs of its own experts and legal counsel.

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The Named Defendants set forth below binding law on the specific issues raised by p i isati t df ss ln f 'n c a d e ne. a tf ip e e The Specific Issues (a) 1. Applicability Of The FAA And Case Law Thereunder The Exchange Fund Limited Partnership Agreements concern transactions in

interstate commerce. In consequence, the FAA and the holdings of cases discussed in Point 1 supra, apply with equal force to the Exchange Fund transactions. (b) 1. Choice Of Law Choice of law issues in a federal court are governed by the conflict of laws

principles applied by the forum state. Loveridge v. Dreagoux, 678 F.2d 870, 877 (10th Cir. 1982). 2. Colorado holds that choice of law agreements such as found in the Subscription

Agreements are valid and enforceable, and therefore Colorado would apply New York or Delaware law, as appropriate.4 Hansen v. GAB Bus. Servs., Inc., 876 P.2d 112, 113 (Colo. Ct. App. 1994). 3. Inh asne f co e fa poio, o r o pls " oti icn t bec o a hi o l rv i C l a ap e a m ss n i t e c w sn o d i g fa

r aosi t tfreo i cnlt fa s usosn ot ccss Vitkus v. Beatrice e t nh "e " r l n ofco l qet n icn atae. li p s o s v g i w i r " Co., 127 F.3d 936, 941 (10th Cir. 1997). " h m ss n i n r aosit teu e u t T e oti ic te t nh e r i s so g f a li p s q r consider five factors: place of contracting, place of negotiation, place of performance, location

4

The Subscription Agreements contain choice of law provisions requiring application of the Delaware Revised U i r Lm t Pr e h A t" R L A )ad t r i N wY r l . h Lm t Pr e h nf m i id a nr i c( U P " n o e s e ok a T e i id a nr i o e t sp D , hw e w e t sp Agreements contain choice of law provisions requiring application of the DRULPA and Delaware law.

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of the subject matter of the contract, and the domicile, residence, or place of business of the pre. Id. ai " ts 4. State laws that discriminate against arbitration are preempted by the FAA.

D c r Asc. n.. aao o517 U.S. 681, 686 (1996); A eo E ggIcvSa x126 ot ' s s IcvC srt , os o , t vdn n',n..et , e F.3d 1279, 1287 (10th Cir. 1997). (c) The Specific Issues Concerning The Subscription Agreements

The Subscription Agreements expressly adopt and incorporate by reference the terms and conditions of the form, and final version, of the Limited Partnership Agreements, and authorize the General Partner to execute the final Limited Partnership Agreements on behalf of the subscriber.5 The subscriber represents, warrants and agrees in the Subscription Agreements that, among other things, he or she has received, read and understands the Private Placement Memorandum and Form of Limited Partnership Agreement and agrees to be bound by the Lm t Pr e h A r m n T e usr e" peetad a at i m d ty bv i id a nr i ge et h sbc br r r n n w r n "m eie aoe e t sp e . i e s s r s al the signature lines on the signature page of each of the 1998 and 1999 Subscription Agreements
5

Pr r h 0 fah usr t n gem n udrh hai " dp o o Pr e h A r m n ad o e a ga 1 o ec S bc p o A r et net ed g A ot n f a nr i ge etn P w r a p ii e , e n i t sp e o At ny s t : f t re" te o as Subscriber, desiring to become a Limited Partner of the Partnership, by executing this Agreement hereby accepts, adopts and agrees to all of the terms and provisions of the Partnership Agreement and agrees to be bound thereby. Subscriber hereby constitutes and appoints the General Partner and each officer and director of the General Partner, with full power of substitution, as S bc br t eadl fl gn adaony atnS bc br nm , l eads a t usr e sr n a u aet n t re-in-f i usr e s a e p c n t d o i ' u w t c i ' a e take any and all such actions and to make, execute, swear to and acknowledge, amend, file, record and deliver (i) the Partnership Agreement and any amendments thereto in accordance therewith and (ii) Certificate of Limited Partnership of the Partnership or any amendment thereto, required or permitted to be filed on behalf of the Partnership, and (iii) any other documents and certificates deemed by the General Partner to be necessary or appropriate for the formation of the Partnership and the conduct of its operations and the admission of Subscriber and others as General Partner of the Partnership as contemplated by the Memorandum and the Partnership Agreement. The power of attorney hereby granted . . . is a special power of attorney, shall be deemed to be coupled with an interest and shall be irrevocable and shall survive and no b a et b S bc br t e f c d y usr e s f e i ' subsequent death, adjudication of incompetence or insanity, disability, incapacity, cessation of eiec a aea ety S bc br bnrp y d sl i o t m nt no ay evr b x t e s l l n t usr e s akut , i o t n re iao r n dl e y sn g i, i ' c s uo r i i y Subscriber of an assignment o t w o o ay ot n f usr e s n s fh hl rn pro o S bc br U i. e e i i ' t

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t tec o the above representations, agreements, or understandings set forth herein applies to h "ah f a t S bc br h usr e" e i . The first page of the representation and warranties section of the Subscription Agreement cn i t fl wn l gae net hai " cnweg etf ee t otn h o o i a ug udrh ed g A ko l m n o R ci " as e l g n e n d p: Subscriber hereby acknowledges receipt of a copy of the [Private Placement] Memorandum, as well as a copy of the form of the Limited Pr e h A r m n o t Pr e h ( e Pr e h A r m n ) n t a nr i ge et fh a nr i t "a nr i ge et ad h t sp e e t sp h t sp e " e other documents relating to an investment in the Units that were included as part of the Memorandum or were received by Subscriber from the Partnership or from another party acting on behalf of the Partnership prior to executing this A r m n ( lcvl t " f r g ou et ) T r s sdhr nwt u ge etc l t e ,h O f i D cm n " e ue e i i ot e oe i y e en s. m e h definition shall have the meanings assigned thereto in the Memorandum. All of the foregoing acknowledgments, representations and warranties are contained on pages of the Subscription Agreements that plaintiffs incontrovertibly received. We set forth below the relevant case law from each of the three potentially relevant jurisdictions, to the extent each jurisdiction ruled on each issue. 1. A party to a written agreement is bound by the contract regardless of whether he

or she has read or understands it. Adams v. Merrill Lynch, Pierce, Fenner & Smith, 888 F.2d 696, 701 (10th Cir. 1989); Gold v. Deutsche Aktiengesellschaft, 365 F.3d 144, 149 (2d Cir. 2004); Lewin Chevrolet-Geo-Oldsmobile Inc. v. Bender, 639 N.Y.S.2d 180, 181 (N.Y. App. Div. 1996); Graham v. State Farm Mut. Auto. Ins. Co., 565 A.2d 908, 913 (Del. 1989); Cordillera Corp. v. Heard, 592 P.2d 12, 14 (Colo. Ct. App. 1978). 2. An investor who represents and warrants in a subscription agreement that he or

she has received, read and understands the offering materials for the investment is bound by such representation and may not seek to repudiate the representation. Zobrist v. Coal-X, Inc., 708

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F.2d 1511, 1517-18 (10th Cir. 1983); DaPuzzo v. Globalvest Mgmt. Co., L.P., 263 F. Supp. 2d 714, 733-34 (S.D.N.Y. 2003); Silas La Bier v. Merrill Lynch, Pierce, Fenner & Smith, 575 N.Y.S.2d 746, 747-48 (N.Y. App. Div. 1991) (limited partner bound by representation in subscription agreement that he had read prospectus). 3. Investors are charged with constructive knowledge of the contents of the

investment offering materials. Zobrist v. Coal-X, Inc., 708 F.2d 1511, 1518 (10th Cir. 1983) ( nweg o i om t n otnd n popc s rn qi l t ou etu oi d y " o l e fn r ao cn i i a rset o a eu a ndcm n at r e b k d f i ae u ve h z statute or r u t nsol b i pt ti et s h f lo ed uh ou et )Dodds v. e li ,hu em u do n s rw o a tr sc dcm n " g ao d e v o i a s; Cigna Securities, Inc., 12 F.3d 346, 351 (2d Cir. 1993) (unsophisticated investor presumed to hv r d ei et et a r l " f l eo edh popc sss excused because of aee hrn s n m t is a au tr t rset e inot a v m ea ; ir a e u t dcm n 'eg .. h ou et l t " e s n h) 4. Constructive knowledge of the materials is even more clearly applied to a highly

sophisticated investor and businessman such as Dr. Hasan. Zobrist v. Coal-X, Inc., 708 F.2d 1511, 1518 (10th Cir. 1983); Nat'U i Fr IsC .f isug, envWe , 517 l n n i n. ooPtbrhP n.. i o e t r N.Y.S.2d 141, 142 (N.Y. App. Div. 1987) (sophisticated investor presumed to have read forum selection clause in indemnification and pledge agreement). 5. Terms and conditions adopted and incorporated by reference into a written

contract are part of the agreement. Progressive Cas. Ins. Co. v. C.A. Reaseguradora Nacional De Venezuela, 991 F.2d 42, 46 (2d Cir. 1993); Lipson v. Anesthesia Servs., P.A., 790 A.2d 1261, 1278 (Del. Sup. Ct. 2001); Level Export Corp. v. Wolz, Aiken & Co., 111 N.E.2d 218, 221 (N.Y. 1953); Columbine Valley Constr. Co. v. Bd. of Directors, Roaring Fork Sch. Dist. RE-1J, 626 P.2d 686, 691 (Colo. 1981) (en banc).

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6.

A party to a written agreement is bound by an arbitration provision adopted and

incorporated by reference regardless of whether he or she has read or understands it. Progressive Cas. Ins. Co., 991 F.2d at 46-47; DaPuzzo, 263 F. Supp. 2d at 733-34 (investor bound by arbitration provision incorporated by reference into subscription agreement); Cheshire Place Assocs. v. West of Eng. Ship Owners Mut. Ins. Assoc. (Luxembourg), 815 F. Supp. 593, 597 (E.D.N.Y. 1993); Lipson, 790 A.2d at 1278; Level Exp. Corp., 111 N.E.2d at 220; B & B Livery, Inc. v. Riehl, 960 P.2d 134, 138 n.5 (Colo. 1995); Rasmussen v. Freehling, 412 P.2d 217, 219 (Colo. 1996); Cordillera Corp. v. Heard, 592 P.2d 12, 14 (Colo. App. 1978); Roberts v. Adams, 47 P.3d 690, 696 (Colo. App. 2001). 7. A person who enters into a written agreement without obtaining documents

referenced therein is bound by such documents, regardless of whether he or she is familiar with them. Progressive Cas. Ins. Co., 991 F.2d at 42 (contracting party should have asked for a copy of the referenced document if it was unfamiliar with it; having failed to do so, it is deemed as a matter of law to have agreed to all aspects of document, including the arbitration provision.) B & B Livery, 960 P.2d at 138 n.5; Rasmussen, 412 P.2d at 219; Cordillera, 592 P.2d at 14; Roberts, 47 P.3d at 696.6

6

This principle applies to the Private Placement Memorandum not only because of the references to it in the Subscription Agreement, but also in the Executive Summaries and Inspection Reports, which plaintiffs concede they received. The Cover Page and Last Page of each Executive Summary contain the following language (in boldface): The above summary does not contain a complete description of the Fund, has been prepared solely for the information of prospective investors in the Fund and is subject to and qualified i i et e b rf ec t temoedtidifr t ni teF n ' C niet l n t ni t y e rne o h s ry e r e l nomai n h u ds o f ni ae o d a P i t Pae n Me rn u ( e " moa d m" a d te F n ' P r esi r ae l met moa d m t v c h Me rn u ) n h u ds at rhp n Agreement as well as to the statutes, rules and regulations referenced in the Memorandum. If, based upon a review of this summary, any investors wish to consider an investment in the Fund, such investors should obtain from their placement agent a copy of the Memorandum and review carefully the Memorandum in its entirety. This summary does not constitute an offer of the securities described herein, which can only be made by the Memorandum.

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8.

Under DRULPA §17-204(b) a subscriber may authorize an agent or attorney in

fact to execute a limited pa nr io h o hr ea . " n so e i poi dn h r e h n i r e bhl ( l s t r s rv e it t sp s f U e hw e d e partnership agreement, any person may . . . enter into a partnership agreement or amendment thereof by an agent, including an attorney-in-fact. An authorization, including a power of attorney, to . . . enter into a partnership agreement or amendment thereof need not be in writing, need not be sworn to, verified or acknowledged, and need not be filed in the Office of the Secretary of State, but if in writing, must be retained by a general pr e" 6 eC § 7 a nr) D l . 1t . . 204(b) (2005). 9. A party who elects not to read a contract and to leave the terms and conditions to

the discretion of the other party is bound by the contract notwithstanding his or her ignorance of the terms. Adams v. Merrill Lynch, Pierce, Fenner & Smith, 888 F.2d 696, 701 (10th Cir. 1989) ( is generally presumed that one who executes an instrument has read it and understands its " It cn n .; Ciaramella v. State Farm Ins. Co., 709 N.Y.S.2d 296, 297 (N.Y. App. Div. 2000); ot t" e s) Smith Barney Shearson, Inc. v. Defries, NO. 94CIV0020 (WK), 1994 WL 455178, at *2 (S.D.N.Y. Aug. 19, 1994) (customer bound by arbitration provision despite claim that stockbroker failed to point out the provision and told him that his signature was a mere formality) (unreported opinions attached at Ex. A). 10. Courts apply the plain language of representations and warranties in a written

agreement in accordance with their objective meaning. Mariani v. Dyer, 597 N.Y.S.2d 358, 360 (N.Y. App. Div. 1993); Aspen Advisors LLC v. United Artists Theatre Co., 843 A.2d 697, 704705 (Del. Ch. 2004); Allen v. Pacheco, 71 P.3d 375, 378 (Colo. 2003).

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(d) 1.

Receipt Of Investment Materials Containing Arbitration Clause An investor who represents and warrants that he has received the investment

materials is conclusively bound by such representations. Zobrist v. Coal-X, Inc., 708 F.2d 1511, 1517-18 (10th Cir. 1983). See also case law cited at ¶¶ 3, 4, and 5 in (c) above. 2. Independently, there is a presumption that investment materials mailed are

received. C ue iC r.. o m r fn ra R vne161 F.2d 809, 810 (10th Cir. 1947); rd Ol opvC m 'oIt nl eeu, e Mekl. ot R sC ., 758 F.2d 811, 816 (2d Cir. 1985); Nassau Ins. Co. v. Murray, 386 cevC n l e. o ' N.E.2d 1085, 1086 (N.Y. 1978); Mount Vernon Fire Ins. Co. v. East Side Renaissance Assocs., 893 F. Supp. 242, 245 (S.D.N.Y. 1995); N t Mo r IcvN w a, 484 P.2d 125, 126 (Colo. a l t s n.. e m n ' o, App. 1971). 3. Proof of mailing may be established through evidence of regular business

practices. Meckel, 758 F.2d at 817; Mount Vernon Fire Ins. Co., 893 F. Supp. at 246; Kurz v. Chase Manhattan Bank USA, N.A., 319 F. Supp. 2d 457, 464 (S.D.N.Y. 2004); N t Mo r al t s ' o, Inc., 484 P.2d at 126. 4. A self-serving denial of receipt of documents mailed does not rebut the

presumption of receipt. Nassau Ins. Co., 386 N.E.2d at 1086; Mount Vernon Fire Ins. Co., 893 F. Supp. at 246. (e) A b r i Madt B H sn' ud g riao t t n na d y aasF ni e n Of Their Limited Partnerships Interests An agreement to arbitrate need not be signed to be effective. Med. Dev. Corp. v.

1.

Indus. Molding Corp., 479 F.2d 345, 348 (10th Cir. 1973). 2. Sophisticated investors are deemed to have actual or constructive knowledge that

limited partnerships are governed by partnership agreements. Greenwald v. Weisbaum, 785 13

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N.Y.S.2d 664, 667 n.4 (N.Y. Sup. Ct. 20)" ] i i, cm e il spii t 04 ( Pln f a o m r ay oh ta d [ a tf cl sc e accountant, knew or should have know the terms of the [partnership agreement] before cm ii t[ e a nr i .. o m tn o t pr e h ]) tg h t s p" 3. An investor who obtains a limited partnership interest with constructive

knowledge that the partnership agreement contains an arbitration provision is bound such arbitration provision. Greenwald, 785 N.Y.S. 2d.at 667 n.4 (compelling accountant to arbitrate pursuant to arbitration provision in partnership agreement even though he did not receive or read a copy of the partnership agreement before joining); see also Eldor Contracting Corp. v. County of Nassau, 708 N.Y.S.2d 447, 448 (N.Y. App. Div. 2000) (party accepted the terms and conditions of a counteroffer by commencing performance). (f) 1. Est pl R ti t n eu i Fo Pa tf Ca s¶ 91 O Scn o e/ af ao R sln rm ln f ' lm ( ,0 f eod p ic i tg i is i ¶ Amended Complaint) Seeking To Enforce The Limited Partnership Agreement A party who seeks to enforce a written agreement containing an arbitration

provision is estopped from denying the arbitration provision. Am. Bureau of Shipping v. Tencara Shipyard S.P.A., 170 F.3d 349, 353 (2d Cir. 1999); Deloitte Noraudit A/S v. Deloitte Haskins & Sells, U.S., 9 F.3d 1060, 1064 (2d Cir. 1993); Cherry Creek Card & Party Shop v. Hallmark Mktg. Corp., 176 F. Supp. 2d 1091, 1098 (D. Colo. 2001). 2. Independently, an investor ratifies and is estopped from denying the

enforceability of an arbitration provision where he or she fails timely to object to the provision after learning of it. Graham, 565 A.2d at 913; DaPuzzo, 263 F. Supp. 2d at 734. (g) 1. Pa tf Ca O Fad n h Idcm n ln f ' lm f r I T enue et i is i u In order to sustain a defense to an arbitration clause based on alleged fraud in the

inducement, plaintiffs must establish all the elements of fraud in the inducement specifically with 14

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respect to the arbitration clause itself; a showing that the contract as a whole was induced by fraud is insufficient to invalidate the arbitration clause. Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 403-04 (1967); Meyer v. Dans un Jardin, S.A., 816 F.2d 533 (10th Cir. 1987). 2. T poer d nh i ue et ln f m sso " )hth df dn o rv f u i t n cm n p i is uthw ( t t e nat a e d , a tf 1 a e e

made a representation, (2) as to a material fact, (3) which was false, (4) and known to be false by the defendant, (5) that the representation was made for the purpose of inducing the other party to rely upon it, (6) that the other party rightfully did so rely, (7) in ignorance of its falsity, (8) to his i uy Computerized Radiological Servs. v. Syntex Corp., 786 F.2d 72, 76 (2d Cir. 1986); n r. j " (citation omitted); see also Universal Drilling Co. v. Camay Drilling Co., 737 F.2d 869, 872 (10th Cir. 1984). 3. An alleged misrepresentation contrary to the express language of a written

agreement or document cannot serve as the basis of a claim for fraud in the inducement. Masters v. Visual Bldg. Insps., Inc., 643 N.Y.S.2d 599, 599-600 (N.Y. App. Div. 1996) (home buyers could not assert claim for fraud in the inducement contrary to their express representation in the purchase contract that they had inspected the property); Marine Midland Bank, N.A. v. Cafferty, 51 ... 6860 NY A pDv19)" ]pc id c i edsos lgt n t t 7 NYS2 2,3 ( .. p. i 91 ( A seic i lm r et y aeaosh d . [ f sa r l i a the agreements were executed in reliance upon contrary oral misrepresentations."( ti )cao it n omitted); Humble Oil & Refining Co. v. Jaybert Esso Serv. Station, Inc., 294 N.Y.S.2d 190, 192 ( .. p. i 16)"i eh w ie i t m ncn i t m d f etrmt s NY A pDv 98 ( n t rt n r etotn e s ie nf h e . S c e tn su as r fr o o allegedly orally represented, and [defendant] is presumed to have read the writing, he may not

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c i h r i o t r r eti s )cao o ie)Sentinel Acceptance Corp. v. Colgate, lm eee nh e e n t n. ( ti m td; a ld e p s ao " it n t 424 P.2d 380, 382 (Colo. 1967) (en banc). 4. Fraud in the inducement cannot be premised on a failure to disclose unless there

was a duty to disclose. Progressive Cas. Ins. Co., 991 F.2d at 47. Stockbrokers do not have a duty to point out and explain arbitration provisions in written contracts for their clients. Adams v. Merrill Lynch, Pierce, Fenner & Smith, 888 F.2d 696, 701 (10th Cir. 1989); Smith Barney, 1994 WL 455178 at *2. (h) 1. Pa tf Ca T aT e r ec O ln f ' lm ht h Pe ne f i is i s Non-signatory Defendants Defeats Arbitration Claims against non-signatory affiliated entities must be arbitrated if they are

intertwined with arbitrable claims against a signatory. S i /no C gnrt n t PSi, mt E rn oeea o Ld 'h . h i . p IcvS i C gnrt n n l n., 198 F.3d 88, 98 (2d Cir. 1999); WorldCrisa Corp. v. n..mt oeea o It, c h i 'I Armstrong, 129 F.3d 71, 76 (2d Cir. 1997); Pritzker v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 7 F.3d 1110, 1122 (3rd Cir. 1993); GATX Mgmt. Servs., LLC v. Weakland, 171 F. Supp. 2d 1159, 1163 (D. Colo. 2001); Roe v. Gray, 165 F. Supp. 2d 1164, 1174 (D. Colo. 2001); Provident Bank v. Kabas, 141 F. Supp. 2d 310, 319 (E.D.N.Y. 2001); Societe Nationale Pour La Recherche, La Production, Le Transport, La Transformation et La Commercialisation des Hydrocarbures v. Gen. Tire and Rubber Co., 430 F. Supp. 1332, 1334 (S.D.N.Y. 1977). 2. Plaintiffs allege claims against certain defendants in their capacity as agents of the

General Partner of the Exchange Funds. Agents of a party to an arbitration agreement have the right to compel arbitration of claims against them arising out of their principal/agent relationship. Gibson v. Wal-Mart Stores Inc., 181 F.3d 1163, 1170 n.3 (10th Cir. 1999); Campaniello Imports Ltd. v. Saporiti Italia S.p.A., 117 F.3d 655, 668 (2d Cir. 1997). 16

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(i) 1.

Pa tf O j t n o riao I N wY r ln f ' b co T A b r i n e ok i is e i ttn Choice of venue provisions in arbitration agreements are valid and enforceable.

Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595 (1991); DaPuzzo, 263 F. Supp. 2d at 734-35. 2. Where a contract contains a severance clause, as do the Limited Partnership

Agreements here (¶ 16.10) an unenforceable choice of venue provision must be severed and the remainder of the arbitration provision enforced pursuant to its terms. N.L.R.B. v. Tulsa Sheet Metal Works, Inc., 367 F.2d 55, 59 (10th Cir. 1966); Fuller v. Pep Boys ­ Manny, Moe & Jack of Del., Inc., 88 F. Supp. 2d 1158, 1162 (D. Colo. 2000). 3. A federal court must stay litigation of the claims within the scope of an

enforceable arbitration provision even if it (by reason of venue or otherwise) lacks power to compel arbitration of such claims under § 4 of the FAA. 9 U.S.C. § 3; Ansari v. Qwest Communications Corp., 414 F.3d 1214, 1216 (10th Cir. 2005) (affirming stay of action pending determination of arbitrability and arbitration in District of Columbia). (j) 1. Pa tf Ca O " nosi ait ln f ' lm fU cnc nb i " i is i o ly Ad pry f a a i pw r os o cntu "nosi ait i i a to br i n o ede ntost e ucnc nb i "n s i gn g it o ly

connection with enforcement of an arbitration clause. Adams v. Merrill Lynch, Pierce, Fenner & Smith, 888 F.2d 696, 700 (10th Cir. 1989); Graham, 565 A.2d at 912. 2. The fact that arbitration provides more limited discovery than court proceedings

de ntedrn riao c ue ucnc nb . Gilmer v. Interstate/Johnson Lane os or ea a t t n l s "nosi al" n bri a o e Corp.,0 US 2,1 19)A b r i ao s ln f " f r pot i t peethi 50 ..03 (91 ( riao l w p i is aa opr n yo r nt r ttn l a tf i ut s e c i s ad ti t tn gem n ta ia ncs ry lm , n s t gh a ar eto r t t ees i includes a trade of more elaborate a " an a e bre al

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cut rcdr frt s p cyi om lyad xeio o a iao.; orpoeue o " e i li , fr at n epd i fr t t n )Booker v. s h m it n i, tn bri " R brH lIt,n. oet a n l c 315 F. Supp. 2d 94, 102-04 (D.D.C. 2004). f 'I ,

DATED: November 2, 2005

Respectfully submitted,

/s/ Bruce Featherstone Bruce A. Featherstone Matthew D. Collins FEATHERSTONE DESISTO LLP 600 17th Street, Suite 2400 Denver, Colorado 80202 Telephone: (303) 626-7100 Facsimile: (303) 626-7101 E-mail: [email protected] E-mail: [email protected]

Max Gitter Nancy I. Ruskin CLEARY GOTTLIEB STEEN & HAMILTON LLP One Liberty Plaza New York, New York 10006 Telephone: (212) 225-2000 E-mail: [email protected] ATTORNEYS FOR THE NAMED DEFENDANTS

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CERTIFICATE OF SERVICE I hereby certify that on November 2, 2005, I electronically filed the foregoing THE N ME D F N A T ' A D E E D N S TRIAL BRIEF with the Clerk of Court using the CM/ECF system, which will send notification of such filing to the following e-mail addresses: Glenn W. Merrick SENN VISCIANO KIRSCHENBAUM MERRICK P.C. [email protected]

/s/ Bruce Featherstone Bruce A. Featherstone FEATHERSTONE DESISTO LLP 600 17th Street, Suite 2400 Denver, Colorado 80202 Telephone: (303) 626-7100 Facsimile: (303) 626-7101 E-mail: [email protected] ATTORNEYS FOR THE NAMED DEFENDANTS

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