Firefighters' Retirement System et al v. Citco Group Limited et al
Filing
929
RULING granting 738 MOTION for Summary Judgment on Plaintiffs Negligent Misrepresentation Claim (Count 11) filed by Citco Banking Corporation, N.V.. Signed by Chief Judge Shelly D. Dick on 1/14/2019. (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 Summary Judgment on Plaintiffs’
Negligent Misrepresentation Claims1 filed by Defendant, Citco Banking Corporation N.V.
(“Citco Banking”). Defendants The Citco Group Limited (“Citco Group”), Citco Fund
Services (Cayman Islands) Limited (“CFS Cayman”), and Citco Technology Management
(“CTM”) join the Motion. Plaintiffs have filed an Opposition,2 to which the Citco Defendants
filed a Reply.3 For the following reasons, the Court finds that the Motion by the Citco
Defendants shall be granted.
I.
FACTUAL AND PROCEDURAL BACKGROUND
In Plaintiffs’ Petition for Damages,4 they assert that the Citco Defendants “owed a
duty to Plaintiffs to disclose the certain information [sic] to Plaintiffs”5 and that the Citco
Defendants breached that duty when they “negligently misrepresented or negligently
failed to inform Plaintiffs of material financial information.”6 The Citco Defendants now
1
Rec. Doc. No. 738.
Rec. Doc. No. 785.
3
Rec. Doc. No. 828.
4
Rec. Doc. No. 1-3.
5
Id. at p. 59.
6
Id.
2
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seek summary judgment on Plaintiffs’ negligent misrepresentation claim, arguing that it
fails on the merits and “is time barred”7 because a one-year prescriptive period applies,
and “each of the purported omissions underlying Plaintiffs’ claim took place years before
Plaintiffs initiated this lawsuit.”8 Plaintiffs “agree that the applicable prescriptive period . .
. is one year,”9 but argue that they “did not become aware of the factual elements of their
claim . . . more than one year prior to the filing of the lawsuit.”10 After reviewing the
evidence cited by the Citco Defendants, the Court concludes that Plaintiffs were clearly
on notice of their negligent misrepresentation claim more than a year before the filing of
their Petition for Damages on March 1, 2013.
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.”11 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.12 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.”13 If the moving party satisfies its burden, “the non-moving party must
7
Rec. Doc. No. 738-1, p. 2.
Id.
9
Rec. Doc. No. 785, p. 66.
10
Id.
11
Fed. R. Civ. P. 56(a).
12
Delta & Pine Land Co. v. Nationwide Agribusiness Ins. Co., 530 F.3d 395, 398-99 (5th Cir. 2008).
13
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)).
8
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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.’”14
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.”15
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.’”16 All reasonable factual
inferences are drawn in favor of the nonmoving party.17 However, “[t]he Court has no
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.”18 “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.”’”19
B. Prescriptive Period for Negligent Misrepresentation Claims
The delictual action of negligent misrepresentation was recognized by the
Louisiana Supreme Court in Devore v. Hobart Mfg. Co..20 To prevail on a negligent
14
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)).
15
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).
16
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)).
17
Galindo v. Precision American Corp., 754 F.2d 1212, 1216 (5th Cir. 1985).
18
RSR Corp. v. International Ins. Co., 612 F.3d 851, 857 (5th Cir. 2010).
19
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).
20
367 So.2d 836, 839 (La.1979).
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misrepresentation claim, the plaintiff must prove that the defendant had a duty to supply
correct information, that the defendant breached that duty, and that the defendant's
breach caused damages to the plaintiff.21 The action for negligent misrepresentation
arises ex delicto22 and is subject to the one year prescriptive period of Civil Code article
3492.23
Prescription commences when a plaintiff obtains actual or constructive knowledge
of facts indicating to a reasonable person that he or she is the victim of a tort.24 “A
prescriptive period will begin to run even if the injured party does not have actual
knowledge of facts that would entitle him to bring a suit as long as there is constructive
knowledge of same. Constructive knowledge is whatever notice is enough to excite
attention and put the injured party on guard and call for inquiry.”25 “Investors are not free
to ignore ‘storm warnings’ which would alert a reasonable investor to the possibility of
fraudulent statements or omissions in his securities transaction.”26 “The requirement of
diligent inquiry imposes an affirmative duty upon the potential plaintiff. Plaintiff is not
permitted a ‘leisurely discovery of the full details of the alleged scheme.’”27
21
Beal v. Lomas and Nettleton Co., 410 So.2d 318, 321 (La.App. 4th Cir.1982).
See, e.g., Smith v. Remodeling Service, Inc., 94-589, p. 7 (La.App. 5th Cir. 12/14/94), 648 So.2d 995,
999-1000; Ames v. Ohle, 2011-1540 (La. App. 4 Cir. 5/23/12), 97 So. 3d 386, 396, decision clarified on
reh'g (July 11, 2012), writ denied, 2012-1832 (La. 11/9/12), 100 So. 3d 837.
23
See, e.g., Cagle v. Loyd, 617 So.2d 592, 600 (La.App. 3d Cir.), writ denied, 620 So.2d 877 (La.1993).
24
Percy v. State, E.A. Conway Memorial Hosp., 478 So.2d 570 (La.App. 2 Cir.1985).
25
Campo v. Correa, 2001-2707 (La. 6/21/02), 828 So. 2d 502, 510–11.
26
Jensen v. Snellings, 841 F.2d 600, 607 (5th Cir. 1988) (citing Cook v. Avien, Inc., 573 F.2d 685, 697–98
(1st Cir.1978).
27
Id., citing Klein v. Bower, 421 F.2d 338, 343 (2d Cir.1970).
22
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C. Analysis
The law sets forth, and the parties concur, that a one-year prescriptive period
applies to Plaintiffs’ claim for negligent misrepresentation.28 Thus, Plaintiffs’ negligent
misrepresentation claim is prescribed if they were on notice of their claim before March
1, 2012, a year before their Petition was filed. In support of summary judgment, the Citco
Defendants identify several events that, they contend, put Plaintiffs on notice of this claim.
First, Defendants argue that Plaintiffs were on notice as of June 15, 2011, “when FRS
and MERS sought to partially redeem their investments in Leveraged [and] Leveraged
responded by issuing promissory notes ‘instead of funding’”29 the requests. The Court
does not need to infer that this failed redemption gave rise to concern on the part of
Plaintiffs because Plaintiffs issued a joint public statement to that effect on July 11,
2011.30 That statement read:
The distribution of a promissory note in lieu of immediate cash has raised
concern with each of the systems’ respective boards. To be practical, it
gives rise to questions regarding the liquidity of [Leveraged] and the
accuracy of the financial statements issued by the two renowned
independent auditors.31
Surely, this event and the resulting joint public statement are a “storm warning” of the type
that courts have recognized as providing notice to the would-be Plaintiffs.
In Center for Restorative Breast Surgery, L.L.C. v. Blue Cross Blue Shield of
Louisiana,32 the United States District Court for the Eastern District of Louisiana
28
Rec. Doc. No. 785, p. 66 (“The Louisiana Funds agree that the applicable prescriptive period for the
negligent misrepresentation claim is one year.”); Rec. Doc. No. 738-1, p. 10 (“Claims for negligent
misrepresentation arise ex delicto and therefore subject to Louisiana Civil Code article 3492.”).
29
Rec. Doc. No. 738-1, p. 12.
30
Rec. Doc. No. 738-1, p. 12, n. 6.
31
Rec. Doc. No. 738-3, p. 81, citing Kolatch Decl. Ex. 232, at 001-1–001-2.
32
Ctr. for Restorative Breast Surgery, L.L.C. v. Blue Cross Blue Shield of Louisiana, No. CV 11-806, 2016
WL 7468165 (E.D. La. May 6, 2016).
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considered whether the plaintiffs’ negligent misrepresentation claim was prescribed. The
plaintiffs therein alleged that Blue Cross Blue Shield had supplied incorrect information
about the benefits they were entitled to when they requested preauthorization for
procedures they were planning to perform. When the plaintiffs subsequently made a claim
and were paid less than amount provided during preauthorization, they appealed the
benefit determinations. The Eastern District concluded that, “[b]y the date of [that] appeal,
[p]laintiffs clearly knew that they had received less than the amount [d]efendants allegedly
represented that [p]laintiffs would receive for the services rendered.”33 Thus, the court
went on to find, “prescription commenced, at the latest, when the first appeal was filed
with respect to each claim.”34
The facts of Center for Restorative Breast Surgery are highly analogous to the
case at bar. Here, when the Plaintiffs attempted to redeem their investment and were
instead given a promissory note, they clearly knew that Leveraged lacked liquidity to
satisfy their redemption. In short, like the plaintiffs in Center for Restorative Breast
Surgery, the Louisiana Funds did not receive what they claimed. Although there was no
“appeal” of the failed redemption, the public statement issued by Plaintiffs35 serves the
same function in the context of the prescription analysis, namely, it provides affirmative
evidence of Plaintiffs’ knowledge of possible misrepresentations. Additionally, Plaintiffs
stated in their Petition for Damages that the failed redemption on June 15, 2011 “was the
33
Id. at *16.
Id.
35
See supra, p. 5; the statement read: “The distribution of a promissory note in lieu of immediate cash
has raised concern with each of the systems’ respective boards. To be practical, it gives rise to questions
regarding the liquidity of [Leveraged] and the accuracy of the financial statements issued by the two
renowned independent auditors.”
34
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first point in time that Plaintiffs had any notice or knowledge that . . . the valuations
contained in the account statements issued to it were not accurate.”36 Thus, even by
Plaintiffs’ own account, they were aware of the possibility of misrepresentations as of
June 15, 2011, more than a year before the filing of this lawsuit. The Court concludes
that, presented with the evidence of the failed redemption and subsequent joint public
statement (and with Plaintiffs’ failure to identify disputed fact issues surrounding those
events), a reasonable juror could not conclude that Plaintiffs were unaware of their
negligent misrepresentation claim more than one year before the filing of this lawsuit.
The Citco Defendants further cite the fact that, on January 20, 2011, FRS and
MERS received subpoenas from the Securities and Exchange Commission (SEC)
Enforcement Division, seeking “documents concerning Plaintiffs’ investment in
Leveraged as well as ‘all communications with anyone at [Fletcher Asset
Management]’.”37 The Court finds that an SEC investigation into Leveraged and Fletcher
was another significant red flag that should have put Plaintiffs on notice of a potential
claim for negligent misrepresentation. Likewise, the Citco Defendants identify Plaintiffs’
receipt on January 24, 2011 of “restated 2007 and 2008 audited financial statements for
Leveraged and Arbitrage,”38 indicating that the net worth of Arbitrage had previously been
overstated by $80,000,000,39 as an obvious “trigger” point for Plaintiffs’ claim for negligent
misrepresentation. The Court agrees and finds that the Citco Defendants have met their
36
Rec. Doc. No. 1-3, p. 17 at ¶ 42.
Rec. Doc. No. 738-3, p. 74.
38
Rec. Doc. No. 738-1, p. 14.
39
Rec. Doc. No. 738-8, p. 72.
37
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summary judgment burden. As such, their additional evidence in support of summary
judgment will not be recited here.
Plaintiffs fail to show that summary judgment is inappropriate by identifying any
genuine issues of material fact surrounding the issue of prescription. In fact, the extent of
Plaintiffs’ opposition to summary judgment on this claim is a three-sentence paragraph
including the unsupported statement that “the Louisiana Funds did not become aware of
the factual elements of their claim against the Citco Defendants based upon the failure to
disclose the Financial Benefits and the Conflicts of Interest more than one year prior to
the filing of the lawsuit.”40 Such a conclusory statement is not sufficient to prevent
summary judgment, and is belied by the evidence discussed above. Moreover, even if
Plaintiffs provided evidence in support of that claim, it would likely fail. Prescription does
not begin to run only when “an inquiry reveals the facts or evidence that specifically outline
the claim”41 – it begins when “there is enough notice to call for an inquiry about a claim.”42
So, the clock had begun to run on Plaintiffs as of the above-discussed events that
triggered notice, regardless of whether they had specific knowledge about what they
identify as “the financial benefits and conflicts of interest”43 of the Citco Defendants.
Throughout this action, Plaintiffs have argued that the Citco Defendants were inextricably
intertwined with Leveraged; it follows, then, that having notice of a claim against
Leveraged would also have given rise to notice of a claim against the Citco Defendants.
Because the Court finds that Plaintiffs had notice of any negligent misrepresentation claim
40
Rec. Doc. No. 785, p. 66.
Luckett v. Delta Airlines, Inc., 171 F.3d 295, 300 (5th Cir. 1999).
42
Id.
43
Rec. Doc. No. 785, p. 66.
41
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more than a year before the filing of their Petition, Plaintiffs’ negligent misrepresentation
claim is prescribed and will be dismissed with prejudice.
III.
CONCLUSION
For the reasons set forth above, the Motion for Summary Judgment on Plaintiffs’
Negligent Misrepresentation Claims44 is granted in favor of the Citco Defendants.
IT IS SO ORDERED.
Signed in Baton Rouge, Louisiana on January 14, 2019.
S
CHIEF JUDGE SHELLY D. DICK
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF LOUISIANA
44
Rec. Doc. No. 738.
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