Anwar et al v. Fairfield Greenwich Limited et al

Filing 1223

LETTER addressed to Judge Victor Marrero from Richard E. Hrodsky dated 11/19/2013 re: Thus, as an alternative to considering the Defendants' request to file a SLUSA motion, this Court may wish to choose to defer ruling on the Standard Chartered Defendants' request until Chadboume is decided. Document filed by Standard Chartered Bank.(cd)

Download PDF
From: Richard E. Brodsky Page 2 of 14111191201311:59 Fax: +1 (2121805.6382 To: Fax: 18S8) 391-5819 THE BRODSKY LAW FIRM, PL RICHARD E. November 19,2013 By fax to (212) 805-6382 Honorable Victor Marrero United States District Judge Daniel Patrick Moynihan U.S. Courthouse 500 Pearl Street New York, New York 10007-1312 Re: BRODSKY. ATTORNEY AT LAW Ii l:S1jC ;~~ ~ OOCUI\IENT IfELECTRO:\IC,\LLY rIUiD , DOC #: -:--~-IdI,...J.-,-~4-....1,-...-.,., I~TR FlU'~: Anwar, et aL v. Fairfield Greenwich Limiled, et aL, 09-cv-118 (VM) (THK) Standard Chartered Cases Dear Judge Marrero: I write as the Liaison Counsel for, and on behalf of, the Standard Chartered Plaintiffs, in the Standard Chartered Cases (the "SC Cases"). This letter responds to the November 12, 20131etter to Your Honor from counsel for the Standard Chartered Defendants ("Standard Chartered" or "SC Defendants"). They seek a pre-motion conference regarding a possible defense motion to dismiss the SC Cases under the Securities Litigation Uniform Standards Act ("SLUSA"). Such a motion would be futile and would squander judicial resources ifthe Court were to allow it to be filed. 1. The Standard Chartered Cases Standard Chartered Bank International (Americas) Limited ("SCar'), a self­ styled "private bank," recommended and sold investments in the Fairfield Sentry and Sigma funds to many of its clients. At one point, SCBI clients had over $600,000,000 invested in these funds. It was revealed in December 2008 that investments in those funds were worthless. At various times in 2009, four "separately-filed actions," Anwar v. Fairfield Greenwich Ltd, 745 F. Supp. 2d 360, 363 (S.D.N.Y. 2010), were brought against SCBI. The cases were filed by four different law firms in three different courts in Florida and California. l 1 Headway filed its claim in state court in Florida. The Standard Chartered Defendants removed the case to the District Cowt for the Southern District of Florida under 12 U.S.C. § 632, which pennits removal by Edge Act banks, such as SCSI, in cases involving international banking transactions. Valladolidwas filed in state court in California and was later removed to the Central District of California under 12 U.RC. § 632. Afaridom and Lopez were separately filed by different counsel in federal court in Florida. Jurisdiction in these cases was based on 12 U.S.C. § 632. ST[. (930 • ,~\IAMI. fLORIDA H131 WWW.THEHHOnSI\YL.AWHRM.COM 786-220'3328 • IUlHODS""@ Iln,HI{()DS""LAW~IIlM.CO~1 200 S. I\[SCAYNl BOULEVARD, -:--'-"1 .. From: Richard E, Brodsky Fax: (88S) 391·5819 To: Fay: +1 (212) 805·6382 Page j of 14 1111912013 11 :59 Honorable Victor Marrero November 19,2013 Page 2 There was no coordination in filing these separate individual lawsuits. None of the cases was brought as a class action. The four Complaints "[w]ere not entirely consistent with each other, and certain of Plaintiffs' allegations [were] specific to individual Plaintiffs." Id • In Alaridom and Lopez, SCBI alone was sued. Valladolidnamed SCBI, a SCBI employee and two parent companies. Headway sued not only SCBI and some of its officers but also Fairfield Greenwich and several entities providing services to Fairfield (accountants, service companies, etc.). • Lopez involved both state-law claims and federal securities law claims that this Court dismissed, while the plaintiffs in the other three cases sued only under state common law. 2 • All four of the plaintiffs sued Standard Chartered for breach of fiduciary duty and negligence or gross negligence; two (lvfaridom Plaintiffs and Lopez) added claims of fraud or negligent misrepresentation, while the other two made no such allegations. After the Joint Panel for Multidistrict Litigation ("JPML") transferred these four cases to this Court and consolidated them with Anwar for pre-trial purposes, 55 other cases were filed at various times against Standard Chartered, either directly in this Court or in the Southern District of Florida, and the Florida cases were transferred to this Court. 44 were filed by one lawyer, who had filed one ofthe four original cases (Lopez). Six were filed by a second lawyer. One was filed by a third lawyer. One was filed by a fourth lawyer. Two were filed by a fifth lawyer. One was filed by a sixth lawyer. The 59 cases were thus filed by nine different lawyers from April 2009 (Headway) to at lea')t December 2012 (Optic Blue). For the most part, but not entirely, the later-filed claims arise from SCBI's having recommended and sold the Fairfield investments without a proper basis. In at least one case, Barbachano, the complaint sues over other investments as well. Two other previously consolidated cases, Coso and Pujals, were filed as class action, but both have long been since dismissed. No other cases were pled as a class action. The letter (at 3) mischaracterizes the facts by stating that the SC Cases' "procedural history, 'lends credence to the notion that plaintiffs' allegations are the very types of claims Congress intended to preclude in enacting SLUSA,' because plaintifft 'originally pleadedfoderal securities fraud claims based on the same underlying "realities" ofthe case, ", (citation omitted; empha<;is added). This is simply not true for nearly all ofthe Standard Chartered Cases, Only one of the cases, Lopez, alleged federal securities law claims, whlch were promptly dismissed', the rest did not. 2 From: Richard E. Brodsky Fax: 188B) ~91-5819 To: Pag& 4 of 14111191201311:59 Honorable Victor Marrero November 19, 2013 Page 3 2. Summary of Argument First, SLUSA does not apply because the SC Cases do not constitute a "covered class action." The "group of lawsuits" prong of the definition of "covered class action" cannot be stretched to cover separately-filed actions brought at different times, without coordination, by separate counsel on behalf of separate plaintiffs in four diflerent courts, just because they were transferred for pre-trial purposes, over the plaintiffs' separate objections, to this Court. The term "group oflawsuits," as used in SLUSA, unquestionably refers to a number of lawsuits purposefully gathered together, not thrust together, as occurred here. This conclusion is mandated by a facial reading ofSLUSA, as enacted, and ifthere is any ambiguity, by its legislative history. Second, even if these individual cases amounted to a "covered class action," and even if the various disparate complaints (including those in which no claims of misrepresentation are advanced) can be viewed as having alleged some specie of fraud, the various individual Plaintiffs have not alleged a fraud "in connection with the purchase and sale of a covered security." The SC Cases are plainly distinguishable from the case on which the Defendants place primary reliance, Trezziova v. Kohn (In re Herald, Primeo, & ThemaSec. Litig.), 730 F.3d 112 (2d Cir. 2013) ("Trezziova,,).3 Trezziovais entirely consistent with this Court's earlier decision in Anwar v. F aiifield Greemvich Ltd ("Anwar IF'), 728 F. Supp. 2d 372,399 (S.D.N.Y. 2010) (in express class action, holding SLUSA "in connection with" requirement not met; construing SLUSA to apply "snaps even the most flexible rubber band."). Trezziova and AmvarII differ not in their underlying rationale but in the significant factual differcnces between thc two-the relationships between the plaintiffs and the defendants, on the one hand, and the defendants and Bemard L. MadoffInvestment Securities, LLC CBLMIS"), on the other. Anwar II should be followed here, because if that case sl1appedthe SLUSA "rubber band," applying Sf,USA here would positively shred it. Standard Chartered's position amounts to saying that even if, as a private bank with admitted fiduciary duties to its clients, it separately counseled many of its clients to invest in Fairfield Sentry or Sigma without a proper basis, it cannot be sued for breach of fiduciary duty by any of those clients because there are just too many disgnmtled clients suing the bank. Theirs is a preposterous, and frankly cheeky, argument. If SLUSA were to be applied to the SC Cases, it would raise the most serious questions about the power This Court is bound by the holding In Trezziova until It is overruled by the Second Circuit or the Supreme Court Nevertheless, a'5 more fully discussed below at 12-13, the viability of Trezziova and its holding that "in connection With" does not require any actual "purchase or sale" are in doubt because of a case pending in the Supreme Court-that IS, Chadbourne & Parke LI~P v. Toice, No 12- 79 The Clerk of the Second CirCUit has informed counsel In the Trezziova appeal that the Court has postponed decision on the pending rehearing pehtion until the Supreme Court decides Chadbourne. The Court heard argument on Chadbourne m October and It IS sub Judice. 3 From: Richard E. Brodsky Fax: 18B8) 391-S819 To: Fax: "1 (212} 805-6382 Page S of 1411119/20011 :59 Honorable Victor Marrero November 19, 2013 Page 4 4 of the Congress to defeat the plaintiffs' rights in this manner. But this Court need not reach that constitutional question, for, without doing so, it can and should rule that the SC Cases are not "covered class actions" that allege fraud "in connection with the purchase or sale of covered securities." 3. Argument A The SC Cases are Not a "Covered Class Action" The Standard Chartered Defendants' argument fails because this is not, as required by SLUSA, a "covered class action." 15 U.S.C. § 78bb(f)(5)(B). TIns is clear from the face ofSLUSA, as enacted, and if there is any ambiguity, from its legislative Instory. As is pertinent to this case, "covered class action" is defined in the statute to include: (ii) any group C!f lawsuits filed in or pending in the same court and involving common questions of law or fact, in which­ (I) damages are sought on behalf of more than 50 persons; and (II) the lawsuits are joined, consolidated, or otherwise proceed as a single action for any purpose. 15 U.S.c. § 78bb(f)(5)(B)(ii) (emphasis added). The key term is "group oflawsuits," and, within that phrase, the key word is "group." The issue is whether this tenn and this word can apply to the SC Cases while adhering to the stated congressional objective, expressly stated in SLUSA itself, of "not clumging the current treatment if individuallcrwsuils." Section 2( 5) of SLUSA, Pub. L. No. 105-353, 112 Stat. 3227 (1998) ("Findings") (emphasis added). Stretching SLlJSA to cover the SC Cases would violate the petition clause of the First Amendment and the due-process clause of the Fifth Amendment by eliminating the plamtiffs' right to sue Standard Chartered under state law. Borough ofDuryea. Pa v. Guarnien, 131 S.Ct 2488,2494, 180 L.Ed.2d 408 (20 II) ("[T]he right of access to courts for redress of iNTongs is an aspect of the First Amendment right to petition the government"); Jones v. Clinton, 72 F.3d 1354, 1360 (8th Cir. 1996), affd, 520 lJ.3. 681 (1997) (".Mrs. Jones is constitutionally entitled to access to the courts and to the equal protection of the laws [to sue the President for conduct before he assumed the Presidency]. 'The very essence of civil liberty certainly consists m the right of every indiVldual to claim the protection of the laws, whenever he receives an injury .. Marburyv. Madison, 5 US. (I Cranch) 137,163,2 LEd. 60 (1803)."); see also Carol Rice Andrews. A Right ofAccess to Court Under the Petition Clause ofthe First Amendment: Defining the Right, 60 OhiO st. L. J 558 (1999) The Standard Chartered Plaintiffs are not argumg that SLUSA is unconstitutional as iNTltten, but rather it~ application to the SC Cases 4 From: Richard E Brodsky Fax: (388) 391·5819 To: Fay'. +1 (2121805.8382 Page 6 of 14111191201311:59 Honorable Victor Marrero November 19,2013 Page 5 The underlying issue, therefore, is when "individual lawsuits" morph into a "group oflawsuits." The answer is not "when there are 50 individual lawsuits," for it is plain from section 2(5) of the statute, that truly "individual" lawsuits are not deemed "class actions." To understand the meaning of this tenn, therefore, requires not only an understanding of the meaning of the words "group of lawsuits" standing by themselves but also an understanding of their meaning in context. As the Court held in AfcNeill v. United States, 131 S. Ct. 2218, 2221 (2011 )(Thomas, 1.), citing Robinson v. Shell Oil Co., 519 U.S. 337, 341,117 S.Ct. 843, 136 L.Ed.2d 808 (1997), "[a]s in all statutory construction cases, we begin with 'the language itself [and] the specific context in which that language is used.' "[T]he plainness or ambiguity of statutory language is detennined by reference to the language itself, the specific context in which that language is used, and the broader context ofthe statute as a whole ....Our inquiry must cease if the statutory language is unambiguous and the statutory scheme is coherent and consistent." Robinson, 519 U.S. at 340-41 (quotation marks and citation omitted). Two additional rules of ~tatutory construction also are pertinent: (i) that "when the statute's language is plain, the sole function of the courts--at least where the disposition required by the text is not absurd-­ is to enforce it according to its tenns," Doddv. UniledStates, 545 U.S. 353, 359 (2005) (citation and quotation marks omitted; emphasis added); and (ii) that "[t]he plain meaning of legislation should be conclusive, except in the 'rare cases [in which] the literal application of a statute will produce a result demonstrably at odds with the intentions of its drafters. '" United States v. Ron Pair Enter., Inc., 489 U.S. 235, 242 (1989) (citation omitted). The word "group" is not defined in the statute, which requires it to be given its ordinary meaning. Sebelius v. Cloer, 133 S. Ct. 1886, 1893 (2013). Resort to a dictionary is, of course, an accepted method of detennining ordinary meaning. The pertinent definitions of "group" in the online edition of the authoritative Webster's ThirdNew International DictiOl1aJY, htlp:!, are as follows: 2.a: relatively small number of individuals assembled or standing together 2.b: an assemblage of objects regarded as a unit because of their comparative segregation from others 3: a number of individuals bound together by a community of interest, purpose, or function: such as a( 1): a social unit comprising individuals in continuous contact through intercommunication and shared participation in activities toward some commonly accepted end (2): class (3): a relatively small number of persons associated fom1ally or 111fonnally for a common end or drawn together through an affinity of views or interests. From: Richard E. Brodsky Fax: (888) 391-5819 Fay' +1 \2121 805·6382 Page 7 of 14111191201311:59 Honorable Victor Marrero November 19, 2013 Page 6 See also The New Intemational Webster's Comprehensive Dictionary a/the English Language (1996), at 559, defining "group" to mean "a number of persons ... existing or brought together; an assemblage; cluster"; defining "assemblage" to mean "an assembling," id, at 87; and defining "a")semble" to mean "to collect or convene; come together; congregate, as a group or meeting." Jd These definitions strongly point to a group's being a purposeful gathering together, rather than, as here, the forced or involuntary association of one plaintiff with another. "Group," in other words, means more than a number of individual persons involuntarily thrust together. The argument could and should end here. If this alone were not enough to end the inquiry, resort would properly be made to the legislative findings in the statute itself to divine legislative intent. Ge11. Dynamics LandSys., Inc. v. Cline, 540 U.S. 581, 589-90 (2004) (reviewing legislative findings to assist in detennining whether, in banning "age" discrimination, Congress intended to protect younger workers against discrimination in favor of older workers). Accord Sutton v. UnitedAir Lines, Inc., 527 U.S. 471, 484 (1999) ("Finally, and critically, findings enacted as part of the ADA require the conclusion that Congress did not intend to bring under the statute's protection all those whose uncorrected conditions amount to disabilities."). See A1cCreary Cnty., Ky. v. Am. Civil Liberties Union a/Ky., 545 U.S. 844, 861 (2005) ("Examination of purpose is a staple of statutory interpretation that makes up the daily fare of every appellate court in the country. "). The findings in section 2 of SLUSA ("Findings"), Pub. L. No.1 05-353, 112 Stat. 3227 (1998), buttress the conclusion that the SC Cases are not swept up into the term "group of lawsuits. " Subsections 2(2) and (3) of SLUSA state that, since the passage of the PSLRA, "a number of securities class action lawsuits have shifted from Federal to State courts," which "has prevented that Act from fully achieving its objectives." (Tllis is far removed from what occurred here, and speaks to a detennined, coordinated attempt in class acti ons filed as such to evade the effects of the PSLRA.) Thus, Congress found: [1]11 order to prevent certain State private securities class action lawsuits alleging fraud from being used to frustrate the objectives of the Private Securities Litigation Refonn Act of 1995, it is appropriate to enact national standards for securities class action lawsuits involving nationally traded securities, while preserving the appropriate enforcement powers of State securities regulators and not changing the current treatment of individual lawsuits. SLUSA, § 2(5) (emphasis added). The last words in this section-"not changing the current treatment of individual lawsuits"-are vital and can mean only one thing: if "individual lawsuits" are not within the scope of SLUSA, then all lawsuits filed on an independent, isolated, non-concurrent basIS must be considered to come within From: Richard E. Brodsky Fax: lSaS) 391-5819 To: Fax: +1 (2121 805-6382 Page 8 of 14111191201311:59 Honorable Victor Marrero November 19, 2013 Page 7 the meaning of that phrase_ Otherwise, how many "individual" lawsuits would Congress pennit before they become a "group," and what would it take to make them a "group"? Coupled with the obvious legislative intent to prevent one la'Wyer, or a coterie of la'W)'ers, from attempting to evade the PSLRA by filing ten different suits, Congress could not have rationally intended to reach the SC cases. Finally, to the extent that the language in question is ambiguous-"capable of being understood in two or more possible senses or ways," Chickasaw Nation v. United States, 534 U.S. 84, 90 (2001 )-resort to legislative history is appropriate. The Conference Report on SLUSA, contained in H.R. Conf. Rep. No. 803, 105th Cong., 2d Sess. 1998, makes the legislative intent behind SLUSA's passage clear: TIle purpose of this title is to prevent plaintiffs from seeking to evade the protections that Federal law provides against abusive litigation by filing suit in State, rather than in Federal, court. The legislation is designed to protect the interests of shareholders and employees of public companies that are the target of meritless 'strike' suits. ld. at 13, TIle language concerning "covered class action" establishes that in expanding the definition of class action beyond those labeled or otherwise pleaded as such, Congress did not intend to cover the SC cases: 'Class actions' that the legislation bars from State court include actions brought on behalf of more than 50 persons, actions brought on behalf of one or more unnamed parties, and so-called 'mass actions,' in which a group of lawsuits filed in the same cow-r are joined or otherwise proceed as a single action. (emphasis added) ld. The Conference Report then specitically zeros in on "plaintitfs' la'Wyers [who] have sought to circumvent the Act's provisions by exploiting differences between Federal and State laws by filing frivolous and speCUlative lawsuits in State court, where essentially none of the Retonn Act's procedural or substantive protections against abusive suits are available." ld. at 15. This is further evidence that Congress intended to cover evasive collusive or collective action, not a situation like this, when, unrelated, different parties represented by different la'W)'ers filed separate actions against Standard Chartered at different times and got involuntarily thrown into a foreign court of the defendant's choosing. The Conference Report's reference to "so-called 'mass actions'" is the final nail in the coffin ofSLUSA's application to the SC Cases. The term "mass action" was used in the Class Action Faimess Act of 2005 ("CAFA"), Pub.L No. 109-2, 119 Stat. 4 Vihile the actual language of SLGSA is "filed in or pending In the same court," the wording in the Conference Report is additional evidence of Congress's true intent, which is inhibiting plaintiffs' class action la\Vyers' ability to scheme to "beat" the PSLRA S ------~ - -..- -.. .. From: Richard E. Brodsky Fa)( (B88) 391-5B19 To: Fa~: +1 \212) 805-6382 Page \) of 141111912013 11 :59 Honorable Vi ctor Marrero November 19,2013 Page 8 (2005), codified at 28 U.s.C. § 1332(d)(11 )(B), to mean, in pertinent part, "any civil action ... in which monetary relief claims of 100 or more persons are proposed to be tried jointly on the ground that the plaintiffs' claims involve common questions of law or fact, except that jurisdiction shall exist only over those plaintiffs whose claims in a mass action satisfy the jurisdictional amount requirements under subsection (a)." Not only are the SC Cases not "mass actions" as defined in CAFA for, among other reasons, the fact that it is not "proposed [that they] be tried jointly," but the legislative history, once again, shows that the SC Cases are not intended to be within the definition ofa "mass action." See Anwarv. FailjieldGreenwichLtd, 676 F. Supp. 2d 285,297 (S.D.N.Y. 2009) (holding CAFA inapplicable to derivative actions against Fairfield Greenwich on behalf of Sentry and its limited partners and remanding cases to state court)6 In sum, the contra'>t between these cases and those covered by SLUSA's definition of "covered class action" could not be starker. 7 B n,e SC Cases Do Not Satisfy SLUSA 's "In Connection WlIh " Standard As set forth above, this Court previously held that the "in connection with" test in SLUSA was not satisfied as to the Anwar II class action, because "[t]he allegations in this case present mUltiple layers of separation between whatever phantom securities Madoff purported to be purchasing and the tinancial interests Plaintiffs actually purchased." Amvar II, 728 F.Supp. at 398. In the SC Cases, there is one additional, and highly 6 This Court found: AFA's legislative histcry makes clear that Congress envisioned 'mass actions' as claims by multiple plaintiffs 'consolidated by State court rules; but not otherwise pled as class actions. See 151 Congo Rec. S1151 (daily ed. Feb. 9, 2005) (statement of Sen. Reid) More specifically, Congress drafted the 'mass action' provision ofCAFA primarily to cover actions brought by multiple plaintifIs in states such as Mississippi that' do not provlde a class action devIce.' See 151 Congo Rec. S 1081 (daily ed. Feb. 8, 2005) (statement of Sen. Lott); see uh'o 151 Cong. Rec. S1235-36 (daily ed. Feb. 10,2005) (statement of Sen. Durbm) (' And I understand ... that these so-called mass actions are currently filed only in lvf1sslssippi and West Virginia ... I agree with the proponents that the scope ofth[e] [mass action proVIsion] is limited. ') As the Senate Report on the statute noted, 'lawsuits that resemble a purported c:ass action should be considered class actIOns., .. ' S.Rep. No. 109-14, at 35, as reprinted in 2005 US,C,C,AN at 34. Recent case law further supports the intent of the Act's drafters. See Bullard v. Burlmgton N. Santa Fe Ry. Co., 535 F.3d 759, 762 (7th Cir2008) ('Think of 15 suits, with (say) 10 plaintiffs each, that are proposed to be tried jointly. The prospect of a single trial with 150 plamtiffs would convert all 15 SUIts mto one 'mass action' under § 1332(d)(l1 XB) .. ,.) While there are contrary decislOns in thlS District on both "covered class actlOn" and "in connection with," they either do not analyze the term "group of lawsuits" in the context ofthe legIslative findings underpinnmg SLUSA or are, respectfully, \-Hong on the Issue of "in connection with," or both. 7 From: Richard E. Brodsky Fax: ISBS) 391-5819 To: Fa~: +1 \212/805-6382 Page 1001 14111191201311 :59 Honorable Victor Marrero November 19,2013 Page 9 significant "layer[] of separation": each of the Standard Chartered Plaintiffs are suing their "private bank," which, individually and separately, and through a broad array of separate Standard Chartered "Relationship Managers," recommended and counseled that each invest in Fairfield Sentry. None of the complaints allege that Standard Chartered is liable to their fomler private banking customers for not having discovered that BLMIS was running a Ponzi scheme. Rather, they allege that Standard Chartered breached its fiduciary duty to them and was negligent by failing to take account of "red flags" that created too great a risk that Fairfield Sentry was not properly managing their money. Indeed, some of the Plaintiffs have sued Standard Chartered for not having disclosed to them that it received a 1% per annum "trailer fee" (kickback/rebate) from Fairfield Greenwich for placing them in Sentry. That allegation has nothing to do with securities transactions, let alone nOI1­ existent transactions in "covered securities."s Yet, seizing on the Trezziova decision~~which involved the very banks where BLMIS did business-and mischaracterizing its holding, the Standard Chartered Defendants urge this Court to reverse itself. Trezziova does conclude that covered securities transactions do not have to occur for the "in connection with" test to be satisfied, but so did this Court in Anwar II. Indeed, the approach taken by this Court in Anwar II was identical to the approach taken by the appellate court in Trezziova: analyze the relationship between the parties and the relationship between the defendant and BLMIS. It is the nature ofthose relationships that require Anwar II to be followed in the SC Cases and the "in connection with" test to be deemed unsatisfied. In Trezziova, investors in hedge funds filed putative class actions against J.P. Morgan Chase and Bank of New York Mellon, two banks that had no connection with the investors or the funds but were themselves bankers to BLMIS. The Second Circuit affimled the dismissal of the complaints under SLUSA, but not on the basis advocated by the Standard Chartered Defendants in their letter. The Defendants argue that Trezziova "applies SLUSA to bar claims brought by investors in Madoff feeder funds where the factual predicate underlying the alleged liability relates in some wtry.' to covered security transactions." Letter at 2 (emphasis added). As we discuss below, "relates in some way" simply is not the standard, was not followed in Trezziova, and would amount to no 9 standard at all. What is more, it directly conflicts with the Supreme Court's opinion in a In addition, the Court denied the lvlandom Plaintiffs' and Headway's requests for leave to amend their complamt to add the "trailer fee" allegation, which came out only in discovery, but the Court stated that "Plaintiffs are free to advance evidence of this contention in support of their existing claims." Anwar '1-: FairfteldGreenwich Ltd, ;\0 09-cv-OI18 (VM) (THK), 2012 \\L 1415621, *4 (SDNY Apr. 13, 2012), recons. den'd, 283 FRO. 193 (SDN. Y 2012) Nor was the purported "relates in some way" standard applied by the other decision Standard Chartered principally relies on, Romano v. Kazacos, 609 F3d 512, 523 (2d CiL 2010) In Romano the court held that allegatIOns m class actIOns tiled in state court, that (a) stockbrokers fraudulently induced retirees to part WIth their money so It could be mvested by the brokers, and (b) the retirees lost money when the covered securities acquired by the brokers lost value, could "satisfy SLUSA's 'in cormection with' requirement 9 From: Richard E Brodsky To: Fax: (888) 391-5819 Fay: +1 (212/ 805·6382 Page 11 of 14 1111912013 11 :59 Honorable Victor Marrero November 19, 2013 Page 10 SE.c. v. ZaJ1c!ford, 535 U.S. 813, 820 (2002), in which the Court defined "in connection with" in the context of section lO(b) of the Securities Exchange Act. There, the Court made clear that "the statute must not be construed so broadly as to convert every common-law fraud that happens to involve securities into a violation of § 10(b)," Id at 820, and held that the defendant's conduct must "coincide" with securities transactions to be in connection with those transactions. Id at 825. In other words, there are limits, which Standard Chartered's suggested test would eliminate. Instead, the Trezziava court focused exclusively on the relationship ofthe defendants to BLMIS and the fraud: [Their] relationship to the Madofffraud is alleged to be far more than incidental. The complaints, fairly read, charge that JPMorgan and BNY knew of the fraud, failed to disclose the fraud, and helped the fraud succeed-in essence, that JPMorgan and BNY were complicity [sic] in MadoIT's fraud. These allegations are more than sufficient to satisfy SLUSA's requirement that the complaint allege a "misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security." 730 F.3d at 119. Additionally, the Trezziova court found that "on the very face of plaintiffs' complaints, the liability of JPMorgan and BNY is predicated not on these banks' relationship with plaintiffs or their investments in the feeder funds but on the banks' relationship with, and alleged assistance to, Madoff Securities' Ponzi scheme, which indisputably engaged in purported investments in covered securities on U.S. exchanges." 730 F.3d at 118-19. The Trezziava banks' direct relationshi p with BLMIS was the very fact on which the plaintiffs premised their claim. See Complaint, In re Herald Primeo, & 171ema Sec. Litig., No. 09-cv-00289-RMB-HBP, D.E. 76, at ~ 585-597 (the banks "knowingly facilitated and provided services to Madoff in furtherance of the Ponzi scheme . . .."). In sharp contra'it with the claims in Trezziova, the claims in the various SC Cases are that Standard Chartered breached its fiduciary duty to each of its aggrieved clients, separately and one-by-one, by recommending that they purchase interests in Fairfield Sentry and Sigma. Unlike the bank defendants in Trezziova, which had no relationship whatsoever with the plaintiffs, but were in privity with BLMIS, Standard Chartered was not BLMIS's bank and had no direct contact with BLMIS. It was not even Fairfield Greenwich Group's bank. Standard Chartered wa'> in direct (and separate, individualized) contact with each of the Standard Chartered Plaintiffs and admitted to having a fiduciary relationship with them to manage their money properly. Standard Chartered was several ----.------ .. .. . - -..- -..- - - - - - - - - - ­ because [the retirees], in essence, assert that defendants fraudulently induced them to invest in securities with the expectation of achieving future returns that were not reahzed." From: Richard E. Brodsky Fax.: (S88) 391·5819 To: Fay: +1 \212) 805·6382 Pag" i20f 14111191201:111:59 Honorable Victor Marrero November 19,2013 Page 11 "layers" removed from whatever banking or investment transactions Madoff engaged in (or claimed to engage in). This vital distinction goes to the central core of the court's rationale in Trezziova and that of this Court in Anwar II. In short, the Second Circuit in Trezziova did not apply a different test than the one this Court applied in Anwar II, and il1neither case did the courts apply the purported "relate in any way" test suggested by the Defendants. Both cases analyzed the relationship between the plaintiffs and the defendants and between the defendants and BLMIS. The difference between the two decisions is the vastly different sets of relationships in the two cases. Trezziova, therefore, does not come close to requiring this Court to abandon the approach it followed in Anwar If Instead, this Court should follow both Trezziova and Anwar II and hold that the "in connection with" test is not met in the Standard Chartered Cases. 10 4. A Proper Alternative Approach \Vould be to Defer Ruling Until the Supreme Court Decides Chadbourne & Parke LLP v. Troice The Standard Chartered Plaintiffs have demonstrated that this Court can and should hold that SLUSA does not govern the SC Cases. This position is not only consistent with the rationale of Trezziova but rests on grounds unrelated to that decision and SLUSA's "in connection with" standard. Nevertheless, a pending Supreme Court case may result in the abrogation of the holding in Trezziova that the "in connection with" test can be met in a case where no purchases or sales of "covered securities" actually occurred. The Supreme Court has granted certiorari and held oral argument in Chadboume & Parke UP v. Troice, No. 12­ 79, 133 S. Ct. 977 (2013). The Court granted certiorari on the question of "[w]hether SLUSA precludes a state-law class action alleging a scheme offraud that involves misrepresentations about transactions in SLUSA-covered securities." See Oral argument was held in October 2013. See­ 79.htm. 1be oral argument focused exclusively on the "in connection with" test, and 10 The "in connection with" requirement is not met for another reason: the SC Cases do not all allege "an untrue statement or omlSSlOn of a material fact m connection with the purchase or sale of a covered security," even U, as TrezzlOva holds, this proVIsion does not require an actual purchase or sale. As noted above, several of the actions do not allege any misrepresentatIOn or omission, and others allege Standard Chartered's faJlure to disclose its receipt of a "trailer fee" from Fairfield Greenwich, which has nothing to do with a "covered security". See Pension Comln. ofUniv. ofAfontrea/ Pension Plan v. Banc ofAm. Sec., UC, 750 F. Supp. 2d 450, 451 (SD.N Y 2010) (holding that mlSIepresentation of performance of feeder fund not made "in connection with the purchase and sale of a covered security"). Thus, even though tnal courts, lI1 interpreting SLUSA's ":n connection with" requirement, are to examine "the pleadings and the realities underlying the claims," Romano, 609 F.3d at 523, SLUSA cannot be mterpreted so as to elIminate the restrictions, however loosely dra\\'n, inherent in its application. .. ~--.--.~----------.- .. From: Richard E. Brodsky Fax: (888) 391·5819 To: - .. -------~---.---- Fay: +1 \2121 805·6382 Page Dot 14111191201311:59 Honorable Victor Marrero November 19,2013 Page 12 several Justices pointedly questioned whether the "in connection with" test can be satisfied where no purchases or sales of covered securities occurred. http://www.­ transcriptsl12-79.-Jc03.pdf. Meanwhile, a petition for rehearing of Trezziova is pending in the Second Circuit. The Clerk of the Second Circuit has infonned counsel in that appeal that the Court has postponed decision on the pending rehearing petition until the Supreme Court decides Chadboume. A copy of the letter is attached. Thus, as an alternative to considering the Defendants' request to file a SLUSA motion, this Court may wish to choose to defer ruling on the Standard Chartered Defendants' request until Chadboume is decided. Thank you for your consideration ofthis letter. Sincerely yours, The BrodskY' Law Firnl, PL Richard E. Brodsky Enclosure cc: Counsel in Standard Chartered Cases From: Richard E Brodsky Fa¥: +1 \212/80::'·6:182 10: Falc 188B) 391"S8H; Document: 474 Case: 12-156 Page: 1 Page 1401 1411119120n 11:59 1067158 10/16/2013 1 UNITED STATES COURT OF APPEALS THURGOOD MARSHALL UNITEO STATES COURTHOUSS; 40 FOLEY saUARE NEW YORK. NY 10007 CATHERINE O'HAGAN WOLFE FAX Cu;RK OF COURT (2121 857-8585 (212.1857·8710 October 16, 2013 Francis A. Bottini, Jr., Esq. Bottini & Bottini, Inc. 781 i Ivanhoe Avenue, Suite 102 La Jolla, CA 92037 Timothy Joseph Burke, Esq. Stull, Stull & Brody 9430 Olympic Boulevard, Suite 400 Beverly Hills, CA 90212 Re: In Re: Herald. Primeo and Them, Docket Nos. 12-156, 12-162 Dear Counsel, This letter i~ to advise you that the panel has determined to postpone the decision on the pending petition for panel rehearing unti! the United States Supreme Court decides Chadbourne & Parke LLP v. Troice, No. 12-179, which was argued on Monday, October 7,2013, If either counsel is of the view that this postponement causes undue harm to his or her client, . please advise me by letter. Also, r am available to answer any questions you may have. Very truly yours, ~O/tt~U-o~ Catherine 0' Hagan Wolfe cc: Susan L. Saitzstein, Esq. Michael Edward Wiles, Esq. Thomas 1. Moloney, Esq. Patricia M. Hynes. Esq. Thomas G. Rafferty, Esq. James C. Dugan, Esq. Price O. Gk-len, E1>q. Franklin B. Velie, Esq. Brett S. Moore, Esq. Joseph Serino, Jr., Esq. Jeff G. Hammell, Esq. Lewis .I. Liman, Esq. Sanford M. Litvack, Esq. Michael S. Flynn, Esq. Fraser L. Hunter, Jr., Esq .. William R. Maguire, Esq. Richard A. Martin, Esq. Claudius O. SOkCIlU, Esq. The Clerk of Court is directed to enter into the public record ab.ove submitt;ed to thl.? ~ou!J, by oft~is actio~)he lett~r S~~~,;~~£ ..7jre{ ~~ ~? . e?t.·<:--?-~ ":sO ORDERED S . {1-/9"/5 bATE r / ,/ .-

Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.

Why Is My Information Online?