Firefighters' Retirement System et al v. Citco Group Limited et al

Filing 883

RULING denying 732 MOTION for Partial Summary Judgment filed by New Orleans Firefighters' Pension & Relief Fund, Municipal Employees Retirement System of Louisiana, Firefighters' Retirement System. Signed by Chief Judge Shelly D. Dick on 12/18/2018. (SWE)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF LOUISIANA

FIREFIGHTERS’ RETIREMENT
SYSTEM, ET AL
CIVIL ACTION
VERSUS
13-373-SDD-EWD
CITCO GROUP LIMITED, ET AL
RULING
This matter is before the Court on the Motion for Partial Summary Judgment1 filed
by Plaintiffs, collectively known as the Louisiana Funds. Defendants, The Citco Group
Limited (“Citco Group”), Citco Banking Corporation N.V. (“Citco Banking”), Citco Fund
Services (Cayman Islands) Limited (“CFS Cayman”), and Citco Technology
Management, Inc. (“CTM”) (collectively, the “Citco Defendants”) have filed an
Opposition.2 For the following reasons, the Court finds that Plaintiffs’ Motion should be
denied.
I.

FACTUAL AND PROCEDURAL BACKGROUND
Plaintiffs are the administrators of public pension plans that provide benefits for

firefighters and other municipal employees in Louisiana. The instant suit arises out of
Plaintiffs’ collective $100 million investment in FIA Leveraged Fund (“Leveraged”) in 2008.
Among other claims, Plaintiffs assert that the Citco Defendants are liable to Plaintiffs for
their “failure to register”3 the Series N Shares in accordance with the registration

1

Rec. Doc. No. 732.
Rec. Doc. No. 812.
3
Rec. Doc. No. 1-3, p. 27 at ¶ 103.
2

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provisions of the Louisiana Securities Law; that they are liable as “seller[s]”4 for certain
“misrepresentations and omissions”5; and that they have secondary “control person”
liability for those same misrepresentations and omissions because they had “the power
to influence and control”6 the actions of Leveraged.
Plaintiffs in this Motion seek partial summary judgment on two issues. First, they
argue that summary judgment is merited with respect to their contention that the
Millennium Cayman Island Foundation (hereinafter “Millennium”) was a “control person”
of Leveraged under the Louisiana Securities Law.7 Citing primarily to the incorporating
documents of Leveraged, Plaintiffs aver that Millennium “was the sole shareholder with
voting rights”8 in Leveraged and, as such, “elected the board of directors of Leveraged
and approved . . . the creation of the Series N Shares purchased by the Louisiana
Funds.”9 Thus, Plaintiffs argue, “the facts are uncontested that Millennium had the power
to influence and control, and exercised such influence and control, directly or indirectly,
the decision making of Leverage [sic].”10
Defendants oppose partial summary judgment on the issue of whether Millennium
was a “control person” of Leveraged. First, they contend, Plaintiffs’ motion is procedurally
improper because Millennium is not a defendant in this case and as such, granting
summary judgment on this issue cannot have the effect intended by the summary

4

Id. at. p. 29, ¶ 114.
Id.
6
Id. at p. 30, ¶ 122.
7
Specifically, La. R.S. 51:714(B).
8
Rec. Doc. No. 732-2, p. 8.
9
Id. at p. 5.
10
Id. at p. 8.
5

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judgment mechanism, namely, to “’simplify the trial or save time and expense.’”11
Secondly, the Citco Defendants claim that summary judgment is inappropriate because
“genuine disputes of material fact clearly exist as to whether Millennium”12 was a “control
person.”
Next, Plaintiffs seek partial summary judgment on the question of whether the
Citco Defendants violated the “failure to register” provisions of the Louisiana Securities
Law when they offered the unregistered Series N Shares. Per Plaintiffs, in addition to
violating the Louisiana Securities Law, the Citco Defendants also failed to honor
jurisprudential interpretations of securities law that required them to provide the Louisiana
Funds with “access to the kind and type of information which registration would disclose”13
regarding their investment in Leveraged.
The Citco Defendants reject Plaintiffs’ summary of what is required by the
Louisiana Securities Law, citing § 709(7) of that Law, which carves out an exemption to
registration requirements for securities that are sold to a pension, as the Series N Shares
were here. Even if the shares were required to be registered, which they dispute, the
Citco Defendants argue that partial summary judgment is not warranted due to the factual
disputes surrounding the issue. Further, they assert that Plaintiffs’ “failure to register”
claim is prescribed under the two-year prescriptive period for such claims as set forth in
the Louisiana Securities Law.

11

Rec. Doc. No. 812, p. 2 (citing Dore Energy Corp. v. Prospective Inv. & Trading Co., 2010 WL 4068802
at *5 (W.D. La. 2010).
12
Rec. Doc. No. 812, p. 2.
13
Rec. Doc. No. 732-2, p. 9.

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II.

LAW AND ANALYSIS
A. Summary Judgment Standard
“The court shall grant summary judgment if the movant shows that there is no

genuine dispute as to any material fact and the movant is entitled to judgment as a matter
of law.”14 In assessing whether a dispute to any material fact exists, the Court considers
all of the evidence in the record but must refrain from making credibility determinations or
weighing the evidence.15 A party moving for summary judgment “must ‘demonstrate the
absence of a genuine issue of material fact,’ but need not negate the elements of the
nonmovant’s case.”16 If the moving party satisfies its burden, “the non-moving party must
show that summary judgment is inappropriate by setting ‘forth specific facts showing the
existence of a genuine issue concerning every essential component of its case.’”17
However, the non-moving party’s burden “is not satisfied with some metaphysical doubt
as to the material facts, by conclusory allegations, by unsubstantiated assertions, or by
only a scintilla of evidence.”18
Notably, “[a] genuine issue of material fact exists, ‘if the evidence is such that a
reasonable jury could return a verdict for the nonmoving party.’”19 All reasonable factual
inferences are drawn in favor of the nonmoving party.20 However, “[t]he Court has no

14

Fed. R. Civ. P. 56(a).
Delta & Pine Land Co. v. Nationwide Agribusiness Ins. Co., 530 F.3d 395, 398-99 (5th Cir. 2008).
16
Guerin v. Pointe Coupee Parish Nursing Home, 246 F.Supp.2d 488, 494 (5th Cir. 2003)(quoting Little v.
Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994)(en banc)(quoting Celotex Corp. v. Catrett, 477 U.S.
317, 323-25, 106 S.Ct. at 2552)).
17
Rivera v. Houston Independent School Dist., 349 F.3d 244, 247 (5th Cir. 2003)(quoting Morris v. Covan
World Wide Moving, Inc., 144 F.3d 377, 380 (5th Cir. 1998)).
18
Willis v. Roche Biomedical Laboratories, Inc., 61 F.3d 313, 315 (5th Cir. 1995)(quoting Little v. Liquid Air
Corp., 37 F.3d 1069, 1075 (5th Cir. 1994).
19
Pylant v. Hartford Life and Accident Insurance Company, 497 F.3d 536, 538 (5th Cir. 2007)(quoting
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)).
20
Galindo v. Precision American Corp., 754 F.2d 1212, 1216 (5th Cir. 1985).
15

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duty to search the record for material fact issues. Rather, the party opposing the summary
judgment is required to identify specific evidence in the record and to articulate precisely
how this evidence supports his claim.”21 “Conclusory allegations unsupported by specific
facts … will not prevent the award of summary judgment; ‘the plaintiff [can]not rest on his
allegations … to get to a jury without any “significant probative evidence tending to
support the complaint.”’”22
B. “Control Person” Under the Louisiana Securities Law
1. Applicable Law
Section 712(A) of the Louisiana Securities Law makes it unlawful to sell securities
in violation of the various provisions of that Law.23 In turn, Section 714(A) of the Louisiana
Securities Law imposes liability on “[a]ny person who violates [Section] 712(A).”24 In
addition to liability for the primary violator, the Law imposes so-called “control person”
liability, which “is secondary only and cannot exist in the absence of a primary violation.”25
That secondary control person liability is set forth in Section 714(B), which provides that:
Every person who directly or indirectly controls a person liable under
Subsection [714] A of this Section . . . is liable jointly and severally with and
to the same extent as the person liable under Subsection A of this Section
unless the person whose liability arises under this Subsection sustains the
burden of proof that he did not know and in the exercise of reasonable care
could not have known of the existence of the facts by reason of which
liability is alleged to exist.26

21

RSR Corp. v. International Ins. Co., 612 F.3d 851, 857 (5th Cir. 2010).
Nat’l Ass’n of Gov’t Employees v. City Pub. Serv. Bd. of San Antonio, Tex., 40 F.3d 698, 713 (5th Cir.
1994)(quoting Anderson, 477 U.S. at 249).
23
La. R.S. §51:712(A).
24
La. R.S. § 51:714(A).
25
Indiana Elec. Workers' Pension Tr. Fund IBEW v. Shaw Grp., Inc., 537 F.3d 527, 545 (5th Cir. 2008).
(quoting Southland, 365 F.3d at 383).
26
La. R.S. §51:714(B).
22

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The Louisiana Securities Law defines “control” as “the possession, direct or
indirect, of the power to direct or cause the direction of the management and policies of
a person, whether through the ownership of voting securities, by contract, or otherwise.”27
The United States Court of Appeals for the Fifth Circuit has noted that “Louisiana
precedent is thin on when a defendant ‘controls’ a primary violator of Section 712,”28 and
suggested that courts should “look to federal law for instruction.”29 The Fifth Circuit has
further held that “[c]ontrol person liability does not require participation in the fraudulent
transaction. But a plaintiff ‘must at least show that the defendant had an ability to control
the specific transaction or activity upon which the primary violation is based.’”30
2. Analysis
The Court agrees with the Citco Defendants that, because Millennium is not a
defendant in this case, granting partial summary judgment on this issue would be unlikely
to simplify the factual issues or narrow the scope of evidence at trial. The Court further
recognizes that it would not be unprecedented to deny partial summary judgment on that
basis alone.31 Here, however, a denial of summary judgment is further supported by the
existence of genuine issues of material fact regarding Millennium’s status as a “control
person.”

27

La. R.S. § 51:702.
Heck v. Triche, 775 F.3d 265, 283 (5th Cir. 2014).
29
Id.
30
Heck v. Triche, 775 F.3d 265, 283 (5th Cir. 2014) (citing Meek v. Howard, Weil, Laboisse, Friedrichs,
Inc., 95 F.3d 45, at *3 (5th Cir.1996) (unpublished decision) (citing Abbott v. Equity Group, Inc., 2 F.3d 613,
619–20 (5th Cir.1993)).
31
See Dore Energy Corp. v. Prospective Inv. & Trading Co., No. 2:05 CV 1657, 2010 WL 4068802, at *5;
(W.D. La. Oct. 14, 2010); Stumbo v. Double Bull Archery, LLC, No. 07-CV-01098-REB-MJW, 2008 WL
2721746, at *1 (D. Colo. July 10, 2008); Member Servs., Inc. v. Sec. Mut. Life Ins. Co. of New York, No.
06-CV-1164, 2010 WL 3907489, at *16 (N.D.N.Y. Sept. 30, 2010).
28

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In the instant Motion, Plaintiffs describe how Millennium was the sole shareholder
with voting rights in Leveraged and conclude that, therefore, it was a “control person.”
That conclusory allegation is not sufficient to merit summary judgment, especially
because Defendants identify several places in the record where Millennium’s power to
control Leveraged is called into question. Indeed, as Defendants note, Plaintiffs’ own
Petition for Damages casts doubt on Millennium’s “control person” status where it alleges
that, in fact, “[t]he Fletcher Defendants had direct and supervisory involvement and
control in the day-to-day-operations of Leverage [sic] as the investment manager and
directors of Leverage [sic].”32
Additionally, the Citco Defendants cite the terms of Leveraged’s incorporating
document, the Articles of Association,33 as evidence that Millennium was not a “control
person” under the statute. Under that document, many of the powers that Plaintiffs ascribe
to Millennium as managing shareholder are clearly reserved to the Board of Directors, of
which Millennium was not a member. For example, while Plaintiffs claim that Millennium
“approved the issuance of the Series N Shares”34 when it issued a consent to amend the
Articles of Association, the Citco Defendants note that the Articles did not require
Millennium’s consent. In fact, the Citco Defendants cite the resolution issued by the Board
of Directors on March 31, 2008, which stated that “the Directors now wish to create a new
class of participating shares . . .”35 and proposed an amendment to the Articles to reflect
such. This evidence suggests that Millennium was controlled by the Board, not vice versa,

32

Rec. Doc. No. 1-3, p. 40 at ¶ 183.
Rec. Doc. No. 733-9.
34
Rec. Doc. No. 732-2, p. 7.
35
Rec. Doc. No. 812, p. 8.
33

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and Plaintiffs’ conclusory assertion that their consent was “required” to issue the shares
is not sufficient for summary judgment on this issue, especially since Wiekert Weber, who
signed that consent on behalf of Millennium, stated in his sworn declaration that he signed
it “after receiving express instructions from the board of directors of Leveraged, which
controlled these decisions at all times.”36
As for Plaintiffs’ allegation that Millennium was a “control person” because it
elected Leveraged’s Board of Directors, the Citco Defendants note that two of the three
directors of Leveraged at the time of Plaintiffs’ investment were actually elected to the
Board before Millennium received its management shares in 2006.
Other provisions in Leveraged’s Articles of Association cited by the Citco
Defendants spell out a broad role for Leveraged’s Board of Directors, which, again, did
not include Millennium. Per the Articles, the Series N Shares were “designated . . . by the
Board of Directors and . . .subject to the restrictions and fixed and determined by the
Directors.”37 Moreover, the Articles specify that the Directors have broad control over
redemptions, including the provision that “the Directors shall be entitled to cause the
Company to suspend . . . redemptions for such period or period as the directors
determine.”38
The Citco Defendants further point to the deposition testimony of Denis Kiely, one
of the three directors of Leveraged, as tending to prove that Millennium did not have the
type of influence and control that Plaintiffs allege. Kiely testified that “all investment

36

Rec. Doc. No. 812-14, p. 2 at ¶ 6.
Rec. Doc. No. 733-9, p. 8.
38
Rec. Doc. No. 733-9, p. 11.
37

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decisions are made by Buddy Fletcher,”39 the head of Fletcher Asset Management, which
was the investment manager for Leveraged.
Based on the above evidence, the Court concludes that Plaintiffs are not entitled
to summary judgment on this issue, especially when the evidence is viewed in the light
most favorable to the Citco Defendants as non-movants. Plaintiffs’ assertion that “the
facts are uncontested that Millennium had the power to influence and control”40 is
contradicted by numerous forms of competent summary judgment evidence.
C. “Failure to Register” Under the Louisiana Securities Law
1. Applicable Law
Section 705(A) of the Louisiana Securities Law provides in pertinent part that:
It shall be unlawful for any person to offer for sale or sell any securities in
this state unless any of the following conditions are met: (1) They are
subject to an effective registration statement under this Part. (2) The
security or transaction is exempt under R.S. 51:708 or 709.41
The pertinent exemption is spelled out in Section 709(7), which provides that the
registration requirements of Section 705 “shall not apply” to “[a]ny transaction involving
the sale of securities to a . . . pension or profit-sharing plan or trust.”42 A claim arising out
of a “failure to register” a security prescribes two years from “the date of the contract for
sale or sale, if there is no contract for sale.”43 “Because the time period ... is prescriptive
and not preemptive, the period does not begin to run until the plaintiff[ ] ha[s] either actual

39

Rec. Doc. No. 812-3, p. 5, lines 15-16.
Rec. Doc. No. 732-2, p. 8.
41
La. R.S. § 51:705.
42
La. R.S. § 51:709.
43
La. R.S. § 51:714.
40

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knowledge of a violation or notice of facts which, in the exercise of due diligence, should
lead to actual knowledge.”44
2. Analysis
The Court has considered Plaintiff’s Motion and concluded that the “failure to
register” claim is prescribed. The substance of the prescription issue will be addressed in
the Court’s forthcoming Ruling on the Citco Defendants’ Motion for Summary Judgment
on Plaintiffs’ Louisiana Securities Act Claims.45 Accordingly, the partial motion for
summary judgment on “failure to register” is denied.
III.

CONCLUSION
For the reasons set forth above, the Motion for Partial Summary Judgment46 by

the Plaintiffs is DENIED.
IT IS SO ORDERED.
Signed in Baton Rouge, Louisiana on December 18, 2018.

S

SHELLY D. DICK
CHIEF DISTRICT JUDGE
MIDDLE DISTRICT OF LOUISIANA

44

Fishman v. Morgan Keegan & Co., No. CIV.A. 10-2, 2011 WL 3705187, at *4 (E.D. La. Aug. 24, 2011)
(citing Beckstrom v. Parnell, 97–1200, p. 7 (La.App. 1 Cir. 11/6/98); 730 So.2d 942, 947).
45
Rec. Doc. No. 775.
46
Rec. Doc. No. 732.

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