Anwar et al v. Fairfield Greenwich Limited et al

Filing 1013

ENDORSED LETTER addressed to Magistrate Judge Frank Maas from Richard E. Brodsky dated 12/21/2012 re: This letter requests a conference for the purpose of seeking an order striking certain portions of the expert reports submitted by the Standard Chartered Defendants and barring their experts from offering expert witness testimony on an issue on which they plainly have the burden of proof (reliance on third parties in performing due diligence regarding Fairfield Sentry). ENDORSEMENT: The Court will hold a telephone conference to discuss this issue on 1/7/13 at 2pm. Mr. Brodsky should initiate the call., ( Telephone Conference set for 1/7/2013 at 02:00 PM before Magistrate Judge Frank Maas.) (Signed by Magistrate Judge Frank Maas on 12/26/2012) (lmb)

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From: Richard E. Brodsky Fax: +1 (212) 805-6724 To: Fran k Maas Fax: (888) 391-5819 Page 2 of 7 1212112012 1:30 I T E BRODSKY LAW FIRM, RICHARD PL E. BRODSKY, ATrORNEY AT LAW I Via Telefax I The "fIon. Frank Maas Unitkd States Magistrate Judge Daniel Patrick Moynihan United States Courthouse 500 Pearl Street New York, New York 10007·1312 1 Anwar v. Fairfield Greenwich No. 09·cv-118 (S.D.N.Y.) Standard Chartered Cases Re: De, Judge Maas: USDCSDNY DOCUMENT ELECTRONICALLY FILED D~S:~iiED: DIu.., ­ 11-/'2,1'/1'2- -=- j i I am counsel for the Maridom Plaintiffs and am writing as Liaison Courlsel for the Standard Chartered Plaintiffs' Steering Committee. I : This letter requests a conference for the purpose of seeking an order striking certain portions of the expert reports submitted by the Stan~ard Chartered Defendants and baning their experts from offering expert witness testimony on an issue on which they plainly have the burd~n of proof (reliance on third parties in performing due diligence regarding Fairfield Sentry). This matter was previously deferred by Your Honor. See letter elldOl'sement, Sept. 12, 2012 (DE 938). It is now ripe for decision, since the IDefendants did submit expert reports that expressly dealt with this issuJ, and, as we pl'edicted "with absolute certainty[,] ... the Defendants [did]1 ~ttempt to avoid th.e restriction they ... assured the Court they iintefd' to obey." Letter, Aug. 24,2012, at 3 . . Standard Chartered should not be permitted to get away with what it has done -- avoid putting in expert repOl'ts on an issue on which it bore the burden of proof until it had seen the Plaintiffs' reports. This games the system and has put the Plaintiffs at an unfair, and wholly • I Improper, d- d vantage. lsa 200 S. BlSCA¥l'iE BOULEVARD, STE. 1930 • MIAMI, FLORIDA 33131 WWVV. THF.RRODSKYLAWFIRM.COM 786-220-3328' RBRODSKY@THEBRODSKYLAWflRM.COM From: Richard E, Brodsky To: Frank Maas Fax: (888) 391-5819 Fax: +1 (212) 805-6724 Page 3 of 7 1212112012 1:30 I Hon. Frank l'vIaas Dece ber 21,2012 Page 20fB BackgrQund The Standard Chartered Cases involve actions brought by various form~r private banking clients of Standard Char1er~d ~~p~lnte_~~~~ional (Americas), Ltd., formerly known as American Express Bank International, which I will refer to as "Standard Chartered," arising from recommendations by S~andard Chartered to invest in Fairfield Sentry or Fairfield Sigma, both Madmff "feeder funds." The Standar~Charter~!LCMeS have 12rQ.9~~_ded_.Qn_f!n inde~endent track from the mafrlAnwar cases, with th~i;-~w"~_~Q1'![~~ll-ti!'!lity I ' ordeifand other pretrIal oiders.------------­ ----~-~-------------.--.--,.-~ I ,~-------- -~ -- ~-~-~~--- -­ Provisions of the Scheduling Order Regarding Expert Disclosure The Second Amended Scheduling Order Regarding Standard Chautered Cases ("Scheduling Order") was entered on February 4, 2011 (DE 602)J1 The Scheduling Order covers, among other matters, expert witness reports and discovery. The pertinent paragraph of the Scheduling Order is paragraph 12: Expert \Vitness Disclosures & Discovery 12. The required disclosures under Fed, R. Civ. P. 26(a)(2) regarding expert testimony on each issue to which a party bears the burden ofproof at trial shall be made not later than 30 days after completion of the period for fact discovery. Rebuttal reports pursuant to Fed. R. Civ. P 26(a)(2) shall be served within 45 days after the other parties' disclosures. The period for expert witness deposition shall commence upon the filing or rebuttal experts reports and shall conclude 90 days thereafter. , Thus, the Scheduling Order established a deadline for reports "regarding expert testimony on each issue to which a party bears the burden of pr~of at trial." Discovery was concluded on May 4, 2012 and by agreement of the parties, initial expert reports were due on August 2, 2012. The Plaidtiffs submitted two expert l'eports_ The Defendants submitted none. ..·--------­ I--------~-~----·-------·-------·-·-··-·-·-'---·-----· i By clerical error, the Order was combined with an agreed Confidentiality Stipulation Order in DE 602. The Order was separately enteted on February 22, 2011 (DE 609). From Richard E, Brodsky Fax: (8SS) 391-5819 To: Frank Maas Fax: +1 (212) 805·6724 Page 4 of 7 1212112012 1:30 Hon~ Frank Maas Dec mber 21, 2012 Pag. 30fB Burden of Proof and Nature of Defenses Are Florida Law Issues I Flol'ida law governs all state law claims in these cases. Anwar v. Fairfield Greenwich Ltd., 745 F. Supp. 2d 360, 369, on reconsideration, 745 F. SupJ. 2d 379 (S.D.N.Y. 2010), and on reconsideration} 745 F. Supp. 2d 384 (S.DjN.Y. 2010). In a case in which st~te l~w go~erns, the issue of~hich party bears the burden of proof on a gIven Issue IS a state law questIon, N.A.~.C.p' v. AcuSport, Inc.} 271 F. Supp. 2d 435,477 (E.D.N.Y. 2003) (\Veipstein, J.) ("It is generally accepted that burden of proof is a substantive question requiring the application of state law.") (citing cases). Therefore, the queshon of who bears the burden of proof on a particular issue is governed by Florra law. i Under Florida law, "[t]he burden of proof, in its strict sense, is the duty of establishing the truth of a given proposition. In civil litigation, this burden is di$charged by the production of a preponderance of the evidence and does not s~ift during the course of a trial.:' In re Ziy'~ Es~ate, 223 So.~d 42, 43 (Fla. 1969).2 "[T]he burden of proof, meamng the obhgatlOn to establish the truth of tM~ claim by a preponderance of evidence, rests throughout upon the party assetting the affirmative of the issue, and unless he meets this obligation upon the whole case he fails." Id. at 43 (citation and internal quotation marks omitted). ! The Defendants Have the Burden on their "Fourteenth but Failed to Submit a Timely Expert Report, Instead Inclt.ding it in what was Supposed to be a Rebuttal Report Def~nse" Standard Chartered did exactly what they told this Court they did not "intefrld" to do: include in their experts' rebuttall'eports opinions on an issue on which they have the burden of' proof: l'eliance on third parties. i The Defendants' "Fourteenth Defense" in every answer is as follows: z I Ziy's Estate recognizes another meaning of "burden of proof," "a usage synonymous with 'burden of going forward with the evidence.' Used in this seco~dary sense, the burden can shift from party to party during the course of a trial." 223 So.2d at 32. That secondary meaning might more properly be undJrstood as the burden of production, not proof. In any event, it is obvious froml the language in the scheduling order ("expert testimony on each issue to which a party bears the burden of proof at trial) that the term "burden of I proof' therein refers to the bill'den of persuasion on a particular issue. From: Richard E. Brodsky Fax: (B88) 391-5819 To: Frank Maas Fax: +1 (212) 805-6724 Page 5 of 7 1212112012 1:30 I Han_I Frank Maas December 21, 2012 Pag~ 40f6 "scrlr was entitled to and did, reasonably and in good faith, rely on the acts and tepresentations of other third parties with respect to the transactions and ~vents that are subject of plaintiffs' claims_" I 1 Both expert witness reports submitted by Standru'd Chartered expr ssed extensive opinions supporting this defense_ 3 Thus, since this is an issu~ on which Standard Chartered will have the burden of proof at trial, the Defendants violated the requirement that opinions on this defense be 8ub~itted by August 2,2012, and not as part of a rebuttal report. I The burden of proof on this issue rests with the Defendant, not the I Proffered expert Ezra Zask, "throughout [his] report," opined that "the Ban* reasonably relied on FSF to verify the existence of its shareholders' assets; on PwC to audit those assets; Citco to perform its duties as custodian and tdministt'ator of those assets; and the SEC to ensure that BLMIS was fol1o~ing the appl'opriate laws and regulations." Report at 48, 6. For his part, the 4ther proffered expert, Charles Porten, likewise made much of the Bank's purpr.rted justified reliance on third parties: 3 In my opinion, the results of the Bank's due diligence were sufficient for the Bank to conclude that FSF was a legitimate investment that delivered the retm'ns and possessed the assets that it reported to its shareholders on a monthly basis. In this connection, the Bank properly relied upon a number of characteristics of the other institutions involved with FSF. The Bank was aware of the reputations ofPwC, Citco, Bernard L. Madoff Investment Securities ("BLMIS"), and FGG, which gave no causes for concern, and in fact wel'e important validating factors for the fl.md. I In coming to the decision to promote FSF to its clients, the Bank· relied upon the fact that the fund's financial statements had been audited by PwC for more than a decade. Similarly, the Bank relied upon Citco to verify that the trades and corresponding assets being reported by BLMIS were actually being properly executed and reported.Finally, because BLMIS was a broker-dealer, the Bank propedy relied upon the work of flnancial regulators (NASD, NYSE) as additional factors further mitigating operational risks. ••• ReP9rt at 14-15. Identical opinions were stated throughout 1\11'. Porten's report. From: Richard E. Brodsky Fax: (B88) 391·5819 To: Frank Maas Fax: +1 (212) 805·6724 Page 6 of 7 12121120121:30 i Hon.1 Frank Maas Dec~mber 21, 2012 Page 50f6 PlaJtiffS. "The general rule is that the party that asserts the affirmative of an i~sue has the burden of proving the facts essential to its claim." ly'at'l Communications . .4 ss'n Inc. v. AT & T Corp., 238 F.3d 124, 131 (2d Cu. 2001). Accord Beshore v. Dep't of Fin. Servs., 928 So. 2d 411, 414 (Fla. Dist. Ct. App. 2006) (Florida law). The Defendants assert that they reasonably relied on thil'd parties. This issue was introduced by the Defendants in their answer and therefore it is proper to allocate the burden of persuasion on this issue to thenL The Plaintiffs did not plead that the Defendants had no right to rely on third parties. such as Fairfield Greenwich, its auditors, its custodian, or anydne else, and it is not an element of their claims of breach of fiduciary dutyl4 i . I M~reover, the ,Fourte~nt~ Defe.nse can properly be deemed to .be an "affirmatlve defense, ' on whICh It plamly has the burden under Flonda law. Cust~r Med. Center v. United Auto. Ins. Co., 62 So.3d 1086, 1096 (Fla. 2010) (defJndant has burden of proving an affirmative defense). \Ve were unable to find ~ny Florida cases directly on point, but refer the Court to a decision of the I!lelaware Court of Chancery, Manzo v. Rite Aid Corp., No. CIV. A. 18451­ I NC~002 WL 31926606 (DeL Ch. Dec. 19,2002), afl'd, 825 A.2d 239 (Del. 200 ), in which purchasers of stock of a public company alleged a pattern of false and misleading financial information by the company. On a motion to dis iss, the members of the audit committee asserted a defense of good faith reliallce on the reports of corporate advisors and officers. The court stated that Ithis was "an affirmative defense for which evidence may be brought at trial]" Id. at *3 n.7. Further support is found in Thomas A. Uebler, Reinterpreting Section 141(e) of Delaware's General Corporation Law: "Why Inte~ested Directors Should Be "Fully Protected" in Relying on Expert Advice Reinterpreting Section 141(e) of Delaware's General Corporation Law, 65 Bus. Law! 1023, 1031 (2010). The author recommends "treating section 141(e)," a stat4tory reliance-on-experts provision available to corporate directors, as being "in the nature of an affirmative defense." I 4 I While the Plaintiffs' expert reports did speak to the issue of the Bank's reliaEce on PricewaterhouseCoopers' audits of Fairfield Sentry and Fairfield Gre~nwich's own due diligence, this was in the nature of analyzing the anticipated defensive claim, expressed in the Bank's fourteenth defense and in thle deposition testimony of Robert Friedman, the Standard Chartered officer in charge of the business of recommending investments to the Bank's I priv,te banking clients, of reliance on third parties. That the Plaintiffs took discqvery on this issue or that its experts spoke to this issue in their initial reports does not convert the issue to the Plaintiffs'. >'rom: Richard E. Brodsky " Fax: (888) 391-5819 To: Frank Maas Fax: +1 (212) 805-6724 Page 7 of 7 1212112012 1 :30 I Hon~ Frank Maas Dec]mber 21, 2012 pagl60fB : Accordingly, the COUl't must decide what remedy to enter in light of the Defendants' attempt to game the system and submit late expert reports on af issue on which they have the burden of proof, with full knowledge of the Plaintiffs' experts' initial reports. The Defendants cannot and should not be pJrmitted to get away with this ploy, particularly when they had an easy, sim~le alternative: provide the expert reports on this issue on August 2, 2012, as the Scheduling Order required. Sincerely yours, ~ ichard E. Brodsky Attorneys for Maridom Plaintiffs Liaison Counsel, Plaintiffs' Steel'jng Committee cc: Counsel for Standard Chartered Defendants Members of Standard Chartered Plaintiffs' Steering Committee

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