Beacon Associates LLC I v. Beacon Associates Management Corp.

Background

The plaintiffs—Beacon Associates LLC I, Beacon Associates LLC II, Andover Associates LP, Andover Associates LLC I, and Andover Associates (QP) LLC—are investment funds whose assets were heavily invested with Bernard L. Madoff Investment Securities LLC. After Madoff’s fraud was discovered, the funds recovered money through litigation and settlements.

The funds brought this declaratory-judgment action to resolve how those recoveries should be distributed among investors. The court ultimately ordered a combination of two methods: the funds would first use a “Net Equity Method,” based generally on each investor’s contributions minus withdrawals, until investors received back their invested principal; later distributions would use the governing documents’ “Valuation Method.” The court entered a Final Distribution Order and Judgment on October 31, 2014, under which the funds distributed more than $49 million.

A later dispute concerned transfers between related Beacon accounts, including a transfer of $6.9 million from an account held by AIJED Associates LLC to an account held by AIJED International LLC. The court ruled on April 8, 2015, that related accounts should be treated as one entity when calculating net equity. After AIJED International withdrew its appeal, the court allowed Beacon to distribute the held-back funds on July 13, 2015.

Fee Motion

Income Plus Investment Fund and David Fastenberg jointly sought $1.4 million in attorneys’ fees and expenses under the common fund doctrine. That doctrine can allow a party whose work creates a fund or substantial benefit for others to recover litigation costs from the fund or from those who benefited. The defendants argued that their challenge to AIJED International’s net-equity calculation created an alleged $5.6 million benefit for most Beacon investors. They later revised their calculation of the alleged common fund to $6.4 million.

Beacon argued that the defendants had not created a common fund or common benefit and that the fee request was filed too late. Beacon also disputed the defendants’ account of who identified the holdback issue and opposed shifting the costs to investors.

Court’s Analysis

The court first held that the fee application was untimely. Federal Rule of Civil Procedure 54(d)(2) generally required the motion to be filed within 14 days after entry of judgment. The defendants filed their motion on September 20, 2019, nearly five years after the October 31, 2014 judgment. The court explained that an appeal did not extend the deadline and that the defendants had not sought an extension based on excusable neglect under Rule 6(b)(1)(B). The court also ruled that retaining jurisdiction over distribution issues did not eliminate the fee-filing deadline. It further stated that the delay could independently support denial based on unreasonable delay that prejudiced Beacon.

The court separately held that the defendants had not shown entitlement to fees under the common fund doctrine. Their work did not create new Madoff-related recoveries or preserve money that was at risk of being lost. Instead, the court characterized the result as a reshuffling of distributions: some investors received more while others received less. The defendants’ work may have helped clarify how to calculate net equity, but it did not increase the total amount available to Beacon investors or put Beacon in a better position than it otherwise would have occupied.

The court also found that the defendants had not adequately supported the amount requested. Their declarations stated total hours, rates, and general descriptions of work but did not include detailed contemporaneous time records, the services performed by each lawyer, the lawyers’ qualifications, or the basis for each hourly rate. The court said such records were required to support a fee award.

Disposition

Judge James L. Cott denied the defendants’ motion for attorneys’ fees and costs. The court relied on the motion’s untimeliness, the failure to establish a qualifying common benefit, and the inadequate supporting evidence.