W.R. Huff Asset v. Deloitte & Touche, et al

Filing 122

MEMORANDUM AND ORDER: For the reasons stated above, defendants' joint motion to dismiss is GRANTED in part and DENIED in part, in accordance with the foregoing ruling. (Signed by Judge Lawrence M. McKenna on 12/21/2011) Filed In Associated Cases: 1:03-md-01529-LMM -RLE, 1:03-cv-05752-LMM(lmb)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-----------------------------------x
:
IN RE ADELPHIA COMMUNICATIONS
:
CORPORATION SECURITIES AND
:
DERIVATIVE LITIGATION
:
:
-----------------------------------x
:
THIS DOCUMENT RELATES TO
:
:
W.R. HUFF ASSET MANAGEMENT CO.,
:
L.L.C., et al. v. DELOITTE &
:
TOUCHE LLP, et al. (03 Civ. 5752). :
:
-----------------------------------x

03 MDL 1529 (LMM)
MEMORANDUM AND ORDER

McKENNA, D.J.,

A number of the defendants in this action -- W.R. Huff
Mgmt. Co., L.L.C., et al. v. Deloitte & Touche LLP, et al. (03
Civ. 5752) -- move, pursuant to Federal Rules of Civil Procedure
12(b)(6) and 17(a)(3), for an order dismissing, for lack of
standing, the claims of fifty-eight plaintiffs.1

For the reasons

set forth below, the motion is granted in part and denied in
part.

1

The defendants are identified in Memorandum in Support of Defendants’ Joint
Motion to Dismiss. (“Defs.’ Mem.”, Jan. 11, 2010, at 1 n.1.) Defendants
initially sought dismissal of fifty-nine plaintiffs’ claims, but no longer
seek dismissal as to plaintiff International Monetary Fund Staff Retirement
Plan (“IMFSRP”). (Reply Memorandum in Further Support of Defendants’ Joint
Motion to Dismiss, Apr. 16, 2010, at 6 n.3.) The plaintiffs whose dismissal
is sought are identified in Defs.’ Mem., Jan. 11, 2010, Appendix A, less
IMFSRP.

I. BACKGROUND AND PROCEDURAL HISTORY
Huff Asset Management Company (“Huff”) initially brought
this action on behalf of its investment clients against, inter
alia,

Adelphia

Communications

Corporation,

its

underwriters,

banks, auditors, and law firms. (Third Am. Compl. (“TAC”) ¶ 1.)
Huff filed suit in its own name, pursuant to its authority to
act as investment advisor and attorney-in-fact for its clients.
(See Decl. of Max R. Shulman in Support of Defs.’ Joint Mot. to
Dismiss, Jan. 11, 2010 (“Shulman Decl.”), Ex. 1; Pls.’ Mem. of
Law in Opp’n to Defs.’ Joint Mot. to Dismiss the Claims of
Fifty-Nine Pls. Named in the Third Am. Compl. Pursuant to Rules
12(b)(6) and 17(a)(3) of the Fed. R. of Civ. P. (“Pls.’ Mem.”),
Mar. 5, 2010, at 2.) The original complaint was filed on June 7,
2002,

in

the

United

District of New York.

States

District

Court

for

(Shulman Decl., Ex. 1.)

complaint was filed on June 14, 2002.

the

Western

An amended

(Id., Ex. 2.) On or about

August 1, 2003, the Judicial Panel on Multidistrict Litigation
transferred the action to this district for inclusion in the
above identified multidistrict litigation.

(Docket No. 1.2)

On

or about December 12, 2003, plaintiffs filed a second amended
complaint (“SAC”).

(Shulman Decl., Ex. 8.)

In 2005, this Court

denied defendants’ motion for dismissal, which was sought on the
2

References herein to “Docket No.” are to the docket for case number 03 Civ.
5752 in this district.

2

ground that Huff did not have standing to sue on behalf of its
unnamed beneficial owner clients.
Sec.

&

Deriv.

Litig.,

Nos.

In re Adelphia Comm. Corp.

03-MDL-1529,

03-CV-5752,

2005

WL

2087811 (S.D.N.Y. Aug. 30, 2005), adhered to on recons., 2005 WL
2667201 (S.D.N.Y. Oct 19, 2005).

The Court of Appeals reversed

and remanded, holding that Huff lacked constitutional standing
to bring suit as a plaintiff in this action. W.R. Huff Asset
Mgmt. Co., L.L.C. v. Deloitte & Touche, LLP, 549 F.3d 100 (2d
Cir. 2008).

Subsequently, this Court dismissed the SAC and

granted

leave

Huff

to

move

to

amend

its

complaint.

In

re

Adelphia Comm. Corp. Sec. & Deriv. Litig., Nos. 03-MDL-1529, 03CV-5752, 2009 WL 1490599 (S.D.N.Y. May 21, 2009).
On January 30, 2009, Huff filed the proposed TAC, naming
156 of its investment clients as plaintiffs (see TAC ¶¶ 68-210),
and argued that the naming of such plaintiffs should relate back
to the date of commencement of the original action, June 7,
2002, pursuant to, inter alia, Federal Rule of Civil Procedure
17(a)(3).

(Mem. of Law of Pl. W.R. Huff Asset Mgmt. Co., L.L.C.

in Supp. of its Mot. for Relief from J. and for Leave to File a
Third

Am.

Compl.

Substituting

the

Beneficial

Owners

as

Pls.

Pursuant to Rules 60(b), 17(a), and 15 of the Fed. R. of Civ.
P., Jan. 30, 2009, at 14-15.)

This Court granted Huff’s motion,

allowing the TAC to relate back to the date of the original
complaint,

but

recognized

that
3

there

were

still

“threshold

factual

questions

that

defendants

should

have

the

discovery on.” Adelphia, 2009 WL 1490599, at *7.
Huff’s

motion,

this

Court

thus

imposed

the

right

to

In granting

condition

that

defendants were entitled to expedited and limited discovery to
determine which plaintiffs had executed valid powers of attorney
as of the date of commencement of the action.
Defendants

now

move

for

dismissal

Id.

on

the

ground

that

numerous plaintiffs, who did not provide Huff with valid powers
of attorney prior to commencement of suit, were improperly added
to

this

action

and

dismissed as to them.

that

the

complaint

therefore

must

be

(Mem. in Supp. of Defs.’ Joint Mot. to

Dismiss (“Defs.’ Mem.”), Jan. 11, 2010, at 11-12.)

Defendants

argue

powers

that

seven

plaintiffs

failed

to

have

their

of

attorney acknowledged properly, nine plaintiffs never executed
powers of attorney, and forty-two plaintiffs executed powers of
attorney after Huff filed suit.

(Id. at 14-17.)

II. DISCUSSION
A. Standard of Review
A complaint should be dismissed if it “fail[s] to state a
claim

upon

12(b)(6).

which

relief

can

be

granted”.

Fed.

R.

Civ.

P.

“In deciding a motion to dismiss, the Court ordinarily

accepts as true all well-pleaded factual allegations and draws
all reasonable inferences in the plaintiff’s favor.”
4

In re

Parmalat, 501 F. Supp. 2d 560, 572 (S.D.N.Y. 2007) (citing Levy
v.

Southbrook

2001)).

Int'l

Invs.,

Ltd.,

263

F.3d

10,

14

(2d

Cir.

To survive a 12(b)(6) motion to dismiss, “the plaintiff

must provide the grounds upon which his claim rests through
factual allegations sufficient ‘to raise a right to relief above
the speculative level.’”

ATSI Commc'ns, Inc. v. Shaar Fund,

Ltd., 493 F.3d 87, 98 (2d Cir. 2007) (quoting Bell Atl. Corp. v.
Twombly,

550

U.S.

544,

555

(2007)).

It

is

not

the

court's

function “to weigh the evidence that might be presented at a
trial but merely to determine whether the complaint itself is
legally

sufficient.”

Festa

v.

Local

3

Int’l

Bhd.

of

Elec.

Workers, 905 F.2d 35, 37 (2d Cir. 1990).

B. Plaintiffs Whose Powers of Attorney Were Not Acknowledged, or
Were Acknowledged After Commencement of This Action
Defendants

move

to

dismiss

the

complaint

as

to

seven

plaintiffs due to defects in the acknowledgment of their powers
of attorney.

Defendants allege that plaintiffs (1) Jeffrey L.

Bassock,

Hope

(2)

Yampol,

(3)

Richard

Miller

and

(4)

HOWW,

L.L.C. failed to have their powers of attorney acknowledged.
(Defs.’ Mem., Jan. 11, 2010, at 10 n.16, Appx. A.)
also

contend

that

plaintiffs

(1)

Fred

Galland,

Defendants
(2)

XL

Investments, Ltd., and (3) XL Re Ltd. executed their powers of
attorney prior to June 7, 2002, when the original complaint was
5

filed, but did not have them acknowledged until after that date.
(Id., n.14, Appx. A.)
Under New Jersey law, “[a] power of attorney must be in
writing,

duly

officer.

N.J. Stat. Ann. § 46:2B-8.9 (West 2011); see also N.J.

Stat.

Ann.

signed

§§

and

acknowledged”

46:14-2.1,

by

46:14-6.1

an

appropriate

2011).3

(West

acknowledgment is not an insignificant formality.
formal

declaration

officer,

such

as

made
a

in

notary

the

presence

public,

by

of

It is “[a]

an

someone

An

authorized

who

signs

document and confirms that the signature is authentic.”

a

Black’s

Law Dictionary 23 (7th ed. 1999) (definition 4).
A specifically designated officer4 may acknowledge a power
of

attorney

only

when

the

signer

appears

before

him

and

“acknowledge[s] that it was executed as the maker’s own act.”
N.J. Stat. Ann. § 46:14-2.1 (West 2011).
signer

who

executes

a

power

of

In the case of a

attorney

on

behalf

of

a

corporation or legal entity, “the maker shall appear before a
[specified]

officer

.

.

.

and

state

that

the

maker

was

authorized to execute the instrument on behalf of the entity and
that

the

maker

executed

the

instrument

as

the

act

of

the

3

Defendants argue, and plaintiffs concede, that the law of New Jersey, where
Huff does business, governs the acknowledgment issue. (See Defs.’ Mem., Jan.
11, 2010, at 15-16; Pls.’ Mem., Mar. 5, 2010, at 7-8.)

4

Officers who are authorized to take acknowledgements are, inter alia, “(1)
an attorney-at-law; (2) a notary public; (3) a county clerk or deputy county
clerk; (4) a register of deeds and mortgages or a deputy register; [and] (5)
a surrogate or deputy surrogate.” N.J. Stat. Ann. § 46:14-6.1 (West 2011).

6

entity.”

The acknowledgment process thus serves to give

Id.

greater assurance to anyone affected by the document in question
that it has been executed by the proper individual.
power

of

attorney

form

(apparently

supplied

by

Here, each

Huff

clients), shows on its face an acknowledgment form.

to

its

(See, e.g.,

Decl. of Sheila Sadighi, Mar. 5, 2010 (“Sadighi Decl.”), Exs. AI.)
Defendants contend that because New Jersey law requires a
power

of

attorney

attorney
that

to

were

be

acknowledged,

unacknowledged

are

the

five

powers

fundamentally

of

flawed.

(Defs.’ Mem., Jan. 11, 2010, at 16.) Defendants further cite the
sections designated for acknowledgment on each power of attorney
that

remain

invalidity.

unacknowledged

in

each

case

as

evidence

of

(Id.)

Plaintiffs argue that New Jersey law makes no provision for
“when a power of attorney is signed, but not notarized, and both
the

grantor

and

the

attorney-in-fact

valid,” as is the case here.
Plaintiffs

further

assert

choose

to

treat

it

as

(Pls.’ Mem., Mar. 5, 2010, at 7.)

that

the

purpose

of

acknowledgment

formalities is to protect the parties to the power of attorney
from forgery.

(Id. at 8.)

of

are

attorney

defendants

are

valid

Thus, plaintiffs claim, their powers
despite

“interlopers”

who

challenge their validity. (Id. at 9.)
7

being
lack

unacknowledged,
the

legal

right

and
to

The plain language of the New Jersey statute contradicts
the plaintiffs’ arguments and clearly requires acknowledgement
by a designated officer for a power of attorney to be valid.
N.J. Stat. Ann. §§ 46:2B-8.9, 46:14-2.1, 46:14-6.1 (West 2011).
Plaintiffs have not come forward with any persuasive reason why
the failure of some plaintiffs to comply with New Jersey law and
have their powers of attorney acknowledged should be excused.
Accordingly, this Court dismisses the complaint as to all four
above-named

plaintiffs

whose

powers

of

attorney

are

unacknowledged: (1) Jeffrey L. Bassock, (2) Hope Yampol, (3)
Richard Miller and (4) HOWW, L.L.C.
The

Court

also

concludes,

however,

that

no

persuasive

reason has been shown, nor does the Court perceive one, why a
power of attorney executed on or before June 7, 2002, should be
invalidated

if

acknowledgment

occurred

subsequently.

As

plaintiffs note, the powers of attorney submitted by (1) Fred
Galland,

(2)

XL

executed

on

June

Investments,
7,

2002,

Ltd.,
and

(Shulman Decl. ¶ 24, Ex. 22.)
after

execution

(which

and

were

(3)

XL

notarized

Re

Ltd.

were

thereafter.5

Since acknowledgment occurred

occurred

before

the

filing

of

the

complaint), the powers of attorney of these three plaintiffs are

5

Plaintiff Fred Galland’s power of attorney was acknowledged by a notary on
September 13, 2006. (Defs.’ Mem., Jan. 11, 2010, at Appx. A.) Plaintiffs XL
Investments, Ltd. and XL Re Ltd.’s powers of attorney were acknowledged by a
notary on June 14, 2002. (Id.)

8

valid.

Thus, the Court denies defendants’ motion to dismiss as

to (1) Fred Galland, (2) XL Investments, Ltd. and (3) XL Re Ltd.

C. Plaintiffs Who Lack Powers of Attorney
Defendants

move

to

dismiss

this

action

as

to

nine

plaintiffs, arguing that these plaintiffs never executed powers
of attorney and therefore do not qualify as proper parties in
this action.6
Huff

had

no

Without powers of attorney, defendants contend,
legal

authority

to

proceed

on

behalf

of

the

plaintiffs at issue.
Federal Rule of Civil Procedure 17(a)(1) states that “[a]n
action must be prosecuted in the name of the real party in
interest.”

Further, “[t]he court may not dismiss an action for

failure to prosecute in the name of the real party in interest
until, after an objection, a reasonable time has been allowed
for

the

real

party

in

interest

substituted into the action.”

to

ratify,

join,

Fed. R. Civ. P. 17(a)(3).

or

be

After

proper substitution of a party, “the action proceeds as if it
had been originally commenced by the real party in interest.”
Id.

6

These nine plaintiffs are (1) Allegiance Life Insurance Company, (2) Horace
Mann Insurance Company, (3) Horace Mann Life Insurance Company, (4) Horace
Mann Teachers Insurance Company, (5) The Huff Alternative Fund, L.P., (6)
Qwest Combined DB/DC Master Trust, (7) WRH Offshore High Yield Partners,
L.P., (8) XL Investments, and (9) XL Investment XL House. (Defs.’ Mem., Jan.
11, 2010, at 10 n.15, Appx. A.)

9

This rule is intended in “the interests of justice.”

Fed.

R. Civ. P. 17 Advisory Comm. Note (1996). “Modern decisions are
inclined to be lenient when an honest mistake has been made in
choosing the party in whose name the action is to be filed”. Id.
(emphasis added).

“It is intended to prevent forfeiture when

determination of the proper party to sue is difficult or when an
understandable mistake has been made.”
Defendants

argue

that

it

was

Id. (emphasis added).
not

an

“understandable

mistake” for Huff to substitute as plaintiffs any client who did
not execute a power of attorney in the instant matter.

(Defs.’

Mem., Jan. 11, 2010, at 11-12.) Defendants’ contention is that
Huff could not possibly have been mistaken about its ability to
sue on behalf of clients who never executed powers of attorney
authorizing Huff to do so.

(Id.)

Plaintiffs, on the other hand, assert that four of the
above named plaintiffs did, in fact, execute powers of attorney.
(Pls.’ Mem., Mar. 5, 2010, at 9.) Plaintiffs submit that Horace
Mann Educators Corp., another named plaintiff in this matter,
executed a power of attorney on May 28, 2002, not only on its
own behalf, but also on behalf of (1) Allegiance Life Insurance
Company, (2) Horace Mann Insurance Company, (3) Horace Mann Life
Insurance

Company,

and

(4)

Horace

Mann

Teachers

Company (collectively, the “Horace Mann Companies”).
10.)

Insurance
(Id. at

Huff managed these five clients’ accounts pursuant to a
10

single investment management agreement executed by Horace Mann
Educators

Corp.

(Id.)

In

accordance

with

this

management

arrangement, plaintiffs claim that these entities are affiliates
“on whose behalf Huff was authorized to act in connection with
this litigation.” (Id.; see also Decl. of Edward T. Dartley,
Mar. 4, 2010 (“Dartley Decl.”) ¶ 7; Sadighi Decl. ¶ 10.)
Plaintiffs point to no legal authority, however, that a
power of attorney binds any person or entity other than the
signer in his individual or representative capacity.

The Court

finds no reason why Horace Mann Educators Corp.’s investment
management agreement with Huff should confer attorney-in-fact
authority

upon

Accordingly,

Huff

this

vis-à-vis

Court

the

determines

Horace
that

Mann
it

Companies.

was

not

an

“understandable mistake” for Huff to fail to name these clients
as plaintiffs in its initial complaint.

Without binding powers

of attorney, Huff had no authority to proceed on behalf of the
Horace Mann Companies in the first instance.

This action is

thus dismissed as to (1) Allegiance Life Insurance Company, (2)
Horace Mann Insurance Company, (3) Horace Mann Life Insurance
Company, and (4) Horace Mann Teachers Insurance Company.
Defendants

also

argue

that

plaintiff

WRH

Offshore

High

Yield Partners, L.P. (“WRH Offshore”) did not execute a power of
attorney.

(Defs.’ Mem., Jan. 11, 2010, at 10 n.15, Appx. A.)

Plaintiffs

assert,

however,

that
11

WRH

Offshore

did,

in

fact,

execute a power of attorney on May 24, 2002, but inadvertently
failed to produce a copy to defendants in response to their
discovery request. (Pls.’ Mem., Mar. 5, 2010, at 10; Dartley
Decl.,

¶

5,

Ex.

A;

Sadighi

Decl.,

¶

9,

Ex.

C.)

Though

Plaintiffs’ factual allegation is substantiated, WRH Offshore’s
power of attorney is invalid because it is not acknowledged.
(See supra Part II.B.; see also Dartley Decl., Ex. A; see also
Sadighi Ex. C.)

Therefore, the complaint is dismissed as to WRH

Offshore.
Plaintiffs

concede

that

(1)

XL

Investments,

(2)

XL

Investment XL House, (3) Huff Alternative Income Fund, L.P., and
(4) Qwest Combined DB/DC Master Trust were inadvertently named
as

plaintiffs.

(Pls.’

Mem.,

Mar.

5,

2010,

at

14.)

The

complaint is accordingly dismissed as to these four plaintiffs.

D. Plaintiffs Whose Powers of Attorney Were Executed After the
Date This Action Was Commenced
Defendants

finally

move

to

dismiss

forty-two

plaintiffs

from this action on the ground that they executed powers of
attorney after June 7, 2002, the date the action was commenced.
(Defs.’ Mem., Jan. 11, 2010, at 9 n.14.)

Defendants argue that

Huff had no standing to proceed on behalf of any client if it
did not receive a power of attorney to do so until after the
date of commencement of this action.
12

“It is a cardinal rule in all courts and tribunals that the
filing of an action fixes the controversy.
pleading

can

after

occurring

events

be

In no system of

litigated

except

filing of supplemental pleading by consent of court.”

by

United

States v. S. Pac. Corp., 75 F. Supp. 336, 339 (D. Ore. 1947).
“The relevant date for measuring whether a plaintiff has
standing is the date on which the suit commenced.”
Wing,

922

F.

Supp.

902,

906

(S.D.N.Y.

1996)

Mayer v.

(citing

United

States Parole Comm’n v. Geraghty, 455 U.S. 388, 397 (1980)).
Since the filing of this action on June 7, 2002, no motion to
add

a

party

has

been

filed.7

The

Court

must,

accordingly,

conclude that the only parties to this action are those persons
or entities who were parties on that filing date.
As
June 7,

to

plaintiffs

2002,

who

plaintiffs

executed
argue

powers

that,

as

of

attorney

of

the

after

dates

of

execution,
Huff
represented
these
Plaintiffs
in
the
litigation
as
their
investment
adviser
and
attorney-in-fact, which it believed it could do
in
accordance
with
this
Court’s
decisions
rejecting Defendants’ attempts to dismiss the
lawsuit for lack of standing.
That was an
“understandable mistake” within the meaning of
Rule 17(a).
Consequently, these Beneficial
7

Federal Rule of Civil Procedure 21 allows that “[o]n motion or on its own,
the court may at any time, on just terms, add or drop a party.” “Whether the
motion pursuant to Rule 21 is to add or to drop a party, it must be made in
the usual manner and with notice to the other parties.”
7 Charles Alan
Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure 502,
§ 1688 (3d ed. 2001).

13

Owners were properly substituted for Huff as
named Plaintiffs along with the other Plaintiffs
added in the [TAC].
(Pls.’ Mem., Mar. 5, 2010, at 2.) While it may be fair to allow
Huff

to

remedy

a

situation

in

which

it

relied

on

erroneous

decisions by this Court, it is another matter to allow Huff to
add plaintiffs if and when it chooses to do so, without the
appropriate motion.
nothing

to

stop

If the Court were to do so, there would be

additional

beneficial

owners

from

executing

powers of attorney with Huff tomorrow, or anytime thereafter, in
order to join the action.
Plaintiffs

have

offered

no

reason,

nor

does

the

Court

perceive one, why plaintiffs who executed powers of attorney
after the date of commencement of this action should be able to
proceed.

As

such,

this

Court

grants

defendants’

motion

to

dismiss the complaint as to (1) Anthony Yampol Trust, (2) Barry
Yampol Trust, (3) Brian Yampol Trust, (4) Eric Yampol Trust, (5)
Jessica Yampol Trust, (6) Joanne Yampol, (7) Joseph Yampol, (8)
Joseph Yampol Trust #2, (9) Yampol Family Trust, (10) Melvin
Markey, (11) Lukeswood, L.L.C., (12) Lukeswood Holdings, L.P.,
(13) PSEG Nuclear LLC Master Decommissioning Trust, (14) The
Kroger Co. Master Retirement Trust, (15) Costas Kondylis, (16)
Museum of Science, (17) Exora Investments LLC, (18) The Fischer
Scientific
Trust,

International

(19)

Orchid

Incorporated

Investments
14

Defined

L.L.C.,

Benefit

(20)

The

Master
Penates

Foundation, (21) CCC Investment Trust, (22) Gail Yampol, (23)
Ilene Powers, (24) Research Beneficial Trust, (25) San Diego
County Employees Retirement Association, (26) Goldsmith Family
Foundation,
Goodman,

(27)

(29)

Goldsmith

Sally

Testamentary

Freund,

(30)

Trusts,

Stanley

(28)

Diller,

Bennett

(31)

Joan

Diller, (32) Jane Gerben Trust, by its Trustee Fred Galland,
(33) Stephen Robin, (34) L-3 Communications Corporation, (35)
James T. Morley, (36) Devon Kelly, (37) The American University
in

Cairo,

(38)

William

Kelly,

(39)

American

Friends

of

the

Hebrew University, (40) International Paper Company, (41) Joanne
Yampol Revocable Trust, and (42) Carol M. Judeson. (Defs.’ Mem.,
Jan. 11, 2010, at 9 n.14, Appx. A.)

15

III. CONCLUSION

For
smiss

t

is

reasons
GRANTED

stated
in

part

above
and

I

fendants

DENIED

in

I

part

j oint
I

in

with the foregoing ruling.

SO ORDERED.

Dated: December ~II

2011

Lawrence M. McKenna
U.S.D.J.

16

motion

to

accordance