Anwar et al v. Fairfield Greenwich Limited et al

Filing 1289

ENDORSED LETTER addressed to Judge Victor Marrero from David A. Barrett dated 7/18/2014 re: The parties have met and discussed the impact on the remaining schedule for this action of the Second Circuit's June 19, 2014 Summary Order ("Order") (copy attached) vacating the Court's class certification order and remanding the case for further proceedings. ENDORSEMENT: The Clerk of Court is directed to enter into the public record of this action the letter above submitted to the Court by the parties. (Signed by Judge Victor Marrero on 7/22/2014) (tn)

tr:

'.)")

•

B 0 I E S ,

S C H I L L E R

&

F L E X N E R

575 LFXINCiTON AVENUE• 7th FLOOR• NE\I. YORK. NY 10022 •PH

-~

L L P

212--1-16-2300 •FAX [phone]

BY HAND

)CSDNY ,
The Honorable Victor Marrero
United States District Court
Southern District of New York
500 Pearl Street
New York, New York 10007

Re:

CL'l\lL'i"I'
1.

_y,ECTRO:'\!C . \LLY FILED

I DOC#:

. lJl
!&\TE F! LF D 7-~-/'(

I
I

':·····~

Anwar, et al. v. Fairfield Greenwich Limited, et al.
Master File No. 09-CV-00118 (VM) (FM)

Dear Judge Marrero:
We write on behalf of all parties. The parties have met and discussed the impact on the
remaining schedule for this action of the Second Circuit's June 19, 2014 Summary Order
("Order") (copy attached) vacating the Court's class certification order and remanding the case
for further proceedings. In light of the Second Circuit's Order, the parties have agreed on the
following:
•

Plaintiffs will file a new motion for class certification by August 4, 2014.
Defendants shall have up to 60 days to file their opposition briefs, and Plaintiffs
thereafter will have up to 30 days to file a reply brief.

•

Plaintiffs' moving brief may be up to 50 pages, the PwC Defendants and Citco
Defendants each will have up to 40 pages for their oppositions, and the Plaintiffs
will have up to 40 pages for their reply.

There are, however, two issues on which the parties disagree and seek the Court's guidance to
resolve: first, whether additional expert reports and potentially related discovery regarding class
certification issues should be permitted; and second, the timing for the filing of summary
judgment motions.

1. Whether Additional Expert Reports and Discovery Relating to Class Certification
Issues Should Be Permitted
Plaintiffs' position: In vacating this Court's original certification order, the Second
Circuit rejected Defendants' calls for reversal. The panel did not endorse Defendants' arguments
that no class could be certified under the circumstances of this case nor take up their invitation to
"engage in free-ranging merits inquiries at the certification stage" which are foreclosed by Rule
23. Amgen, Inc. v. Connecticut Ret. Plans & Trust Funds, 133 S. Ct. 1184, 1194-95 (2013).

The Honorable Victor Marrero
July 18, 2014
Page 2

Instead, the concern expressed by the Second Circuit did not go to this Court's underlying
reasoning, but was rather that the original certification order "focused primarily on the claims
asserted against FGG" and did not provide "sufficient factual findings as to how Rule 23(b)'s
requirements are satisfied" with respect to the existing claims against PwC and Citco. See Order
at 5. The Order then specifically addresses application of those requirements to this case:
Here, the [class certification] order does not indicate how
common evidence can show (1) the existence of a duty of care
applicable to the class either under the standard identified in Credit
Alliance Corp. v. Arthur Andersen & Co., 65 N.Y.2d 536, 493
N.Y.S.2d 435 (1985), or otherwise; or (2) reliance by the class on
alleged misrepresentations by (a) the Citco Defendants and (b) the
PwC Defendants, either under the presumption identified in
Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 15354 (1972), or otherwise.
(Order at 6) (footnotes quoting Credit Alliance and Stoneridge Inc. Partners v. Scientific Atlanta,
552 U.S. 148 (2008), omitted). The Second Circuit remanded "for further proceedings in the
district court consistent with this order and with the developed record, including any facts
revealed by discovery that has taken place since the original certification order." (Id. at 7)
(emphases added).
The Second Circuit thus gave clear instructions for the remand: This Court should
explain the facts underlying its decision to certify the class against PwC and Citco; it is not
necessary to reconsider that decision. Accordingly, Plaintiffs maintain that any expert witness
opinions submitted in connection with class certification should be from experts already
identified and within the scope of their reports and depositions. The Citco Defendants have
indicated that they intend to submit expert witness opinion(s) beyond the scope of the 29 expert
reports previously served by the parties, including potentially from entirely new expert(s). We
do not see anything in the Second Circuit opinion that justifies reopening the expert process. 1
Any relevant issue for expert testimony on class certification is necessarily also an issue
on the merits as to which the parties were obligated to have identified, disclosed and completed
expert discovery. For example, an admissible expert opinion on class certification is not whether
reliance can be established through common evidence, which is a legal issue for the Court, but
whether investors customarily or reasonably rely on certain information, which is no different
from the merits of the case. Thus, there is no justification for a separate set of expert opinions,
1

Plaintiffs do not object to expert declarations regarding foreign law. Plaintiffs' understanding
is that either party may bring to the Court's attention material developments in another country's
law that could alter the Court's analysis of whether a class action judgment would be given
preclusive effect in that country. Plaintiffs also have agreed to notify Defendants promptly if
they decide to make any further submissions on foreign law.

The Honorable Victor Marrero
July 18, 2014
Page 3

let alone a new set of experts, on class certification. This is especially so when the Defendants
could have used experts on class certification previously but did not do so.
Defendants' expert reports were due on October 2, 2013, over three months after the
Second Circuit had granted Defendants' Rule 23(f) petitions. Moreover, this Court's original
class certification order specifically informed Defendants that "[t]his Class is subject to further
adjustment or decertification as warranted as facts develop." (Dkt. No. 1052 at 4.) Nor did
Defendants seek to carve out from the expert discovery schedule issues that could arise from the
class certification appeal (as the parties did agree to do with respect to foreign law issues).
Accordingly, there is no merit to Defendants' claim that they believed issues relevant to class
certification did not have to be addressed at the time expert discovery occurred.
Nevertheless, the Citco Defendants now contend that "expert evidence on the issue of
reliance" is appropriate in light of the Court's May 13, 2014 Order allowing Plaintiffs to reassert
negligence-based claims on their initial investments. In that Order, however, this Court
specifically addressed the question of additional expert discovery, and gave Defendants
permission (at 4) "to request an extension of the [May 30, 2014] expert discovery deadline
upon a sufficient showing of the nature of such expert discovery necessary by reason of
Plaintiffs' amendment of the SCCAC at this time." (emphasis added). But Citco did not attempt
to make such a showing or seek an extension.
Moreover, proof of reliance on a class-wide basis in connection with Plaintiffs' initial
investments has been at issue continuously in this case, because other claims involving initial
investments were sustained, e.g., federal securities claims. See Anwar 11, 728 F. Supp. 2d 372,
423-428 (S.D.N.Y. 2010). Indeed, Citco addressed this very issue in its briefing on the class
certification appeal, see e.g., Second Circuit Case No. 13-2340, Dkt. No. 131 at 35-37, which
was submitted after this Court's August 6, 2012 order dismissing common law negligence initial
investment claims and before the Court's May 13, 2014 order granting Plaintiffs' motion to
amend. Nor does Citco explain how expert testimony would address the legal questions of
whether common evidence can show the existence of a duty or reliance for purposes of class
certification - as opposed to the merits of these issues, which have always been part of the case.
Contrary to Citco's claims, Plaintiffs would be substantially prejudiced by reopening
expert discovery. Citco submitted reports of nine experts who were deposed at length. New
reports would entitle Plaintiffs to new depositions and rebuttal reports - adding further expense
and delay to the class certification process.
Defendants' position: Defendants' position is that there is no good reason, and plaintiffs
offer none, why the Court should be deprived of a limited number of expert reports (perhaps only
one or two) that may be helpful to the Court in resolving plaintiffs' new motion for class
certification.

The Honorable Victor Marrero
July 18, 2014
Page 4

In the Order, the Second Circuit vacated this Court's order granting class certification and
remanded for further proceedings "consistent with this order and with the developed record,
including any facts revealed by discovery that has taken place since the original certification
order.'' (Order at 7.) Significantly, the Second Circuit did not rule this Court should "simply
explain the facts underlying its decision to certify the class against PwC and Citco," as plaintiffs
say. Instead, the Court of Appeals made clear that this Court must examine "how common
evidence can show (1) the existence of a duty of care applicable to the class either under the
standard identified in Credit Alliance Corp. v. Arthur Andersen & Co., 65 N.Y.2d 536, 493
N.Y.S.2d 435 (1985), or otherwise; or (2) reliance by the class on alleged misrepresentations by
(a) the Citco Defendants and (b) the PwC Defendants, either under the presumption identified in
Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 153-54 (1972), or otherwise." (Id.
at 6.)
The submission of a limited number of expert reports in connection with plaintiffs'
renewed motion for class certification will not only be helpful to the Court in examining the core
issues identified by the Order in light of the "developed record," but will also undoubtedly assist
the Court in conducting the "rigorous analysis" necessary to determine whether the requirements
of Rule 23 have been satisfied. Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541, 2551 (2011).
Contrary to plaintiffs' position, nothing in the Second Circuit's Order in any way removed the
necessity for the Court to make those determinations.
Also contrary to plaintiffs' position, nothing in the Order precludes (or, for that matter,
even addresses) the introduction of additional expert evidence in connection with plaintiffs'
renewed motion for class certification. In fact, we submit that the Order suggests the opposite:
namely, so long as the proffered expert evidence - whether the expert has been previously
identified or not - helps and assists this Court in understanding the "developed" factual record in
connection with the issues related to class certification, it should be permitted. We see no
evidence the Second Circuit intended for this Court somehow to limit itself in its consideration
of relevant information relating to the issues in dispute in connection with plaintiffs' motion for
class certification.
Although it is premature to identify with certainty all of the issues a potential expert may
address given that we have not yet seen plaintiffs' new motion for class certification2 , the Citco
Defendants are currently contemplating filing, in addition to any potential foreign law expert
declarations they may submit3 , a single expert declaration in opposition to plaintiffs' motion for
2

For example, should plaintiffs argue on class certification that reliance can be shown on a classwide basis through the "fraud on the market" presumption (which, we note, plaintiffs did not
assert in their previous motion), the Citco Defendants would submit an expert declaration
demonstrating why the "fraud on the market" presumption does not apply here.
3

The Citco Defendants agree with plaintiffs that the parties should be allowed to submit expert
declarations concerning issues of foreign law.

The Honorable Victor Marrero
July 18, 2014
Page 5

class certification. Consistent with the Order, the Citco Defendants intend to submit this expert
testimony to address whether, in light of the facts adduced in discovery, plaintiffs will be able to
prove reliance by common evidence and whether common evidence will be able to demonstrate
the existence of a duty of care applicable to the class under the standard identified in Credit
Alliance. Notably, plaintiffs do not seriously dispute that such an expert declaration may well be
helpful to this Court's assessment of whether class certification is appropriate here. Nor can
they.
On the contrary, plaintiffs simply argue - incorrectly -- that any such expert should have
been "already identified" and that any expert opinion must remain "within the scope of their
reports and depositions." Again, nothing in the Order requires this. Nor did defendants have a
crystal ball enabling them to predict how the Second Circuit would rule, and what additional
expert reports might be useful on any class certification issues the Circuit identified. Nor are
those issues the same as those "on the merits" of the case. And, we see no "substantial"
prejudice to plaintiffs in allowing the submission of this expert evidence, since, at most, it will
cause plaintiffs to ask for the deposition of any such expert (or perhaps two), which can easily be
accomplished within the schedule for the class certification motion contemplated by the parties.
Significantly, additional expert evidence on the issue of reliance is especially appropriate
given the Court's recent ruling (after the close of expert discovery) allowing plaintiffs leave to
amend their complaint to reassert their previously dismissed negligence-based initial investment
allegations against the Citco Defendants. Because those negligence-based initial investment
claims were dismissed at the time of expert discovery, and thus were not addressed at all by any
of the Citco Defendants' expert witnesses, it would be unfair to limit expert witness submissions,
as plaintiffs propose, to existing experts and expert reports. The Court appears to have
recognized this point in its May 13, 2014 order allowing plaintiffs' amendment, when it stated
that it would permit additional expert discovery on the reinstated claims. Indeed, the only
manner in which the Citco Defendants could introduce expert evidence regarding why these
negligence-based initial investment claims are not suitable to class treatment is if the Court
permits additional - yet limited - expert discovery. Thus, the Citco Defendants' position is fully
consistent with what was contemplated by this Court's order when it permitted plaintiffs to
amend the complaint to reinstate a previously-dismissed cause of action after the close of
.
4
d iscovery.

4

Plaintiffs argue that the Citco Defendants fail to "explain how expert testimony would address
the legal questions of whether common evidence can show the existence of a duty or reliance for
purposes of class certification." While we believe this is best answered in the context of full
briefing on plaintiffs' motion, to take but one example, an expert will explain that NA V
statements are provided to investors by an administrator after the investors' subscriptions are
accepted by the fund, and thus are not typically relied upon by potential investors in making their
initial investment decisions, thereby demonstrating that, at least with respect to plaintiffs' initial
investment negligence-based claims, "common evidence" - i.e., Citco's NAV statements -

The Honorable Victor Marrero
July 18, 2014
Page 6

Finally, plaintiffs wrongly suggest that because their federal securities "claims involving
initial investments were sustained," any proposed expert declaration involving initial investments
should have been offered earlier. We disagree. Plaintiffs' negligence-based initial investment
claims were dismissed nearly two years ago and were only reasserted well after the close of
expert discovery. As such, the Citco Defendants had no reason to, and did not, submit an expert
report addressing whether plaintiffs could show, on a class-wide basis, that the Citco Defendants
owed them a duty of care pursuant to the test set forth in Credit Alliance. Indeed, as the New
York courts have consistently and repeatedly held, plaintiffs' federal securities claims are of a
fundamentally different character from their negligence-based initial investment claims and
require proof of unrelated elements. See, e.g., Westpac Banking Corp. v. Deschamps, 484
N.E.2d 1351, 1353 (N.Y. 1985) (rejecting argument that Credit Alliance was satisfied because
the defendant would have been subject to a federal securities law claim because that fact "should
not affect the scope of [a] duty at common law"). Accordingly, that plaintiffs' federal securities
claims survived a motion to dismiss does not change the analysis at all.
In short, we respectfully submit the non-foreign law expert declaration that the Citco
Defendants currently envision submitting in opposition to plaintiffs' new motion for class
certification (and perhaps an additional one depending on the arguments plaintiffs' raise on their
motion for class certification) will undoubtedly help and assist this Court's assessment of
whether plaintiffs meet the requirements of Rule 23 in light of the "developed" factual record in
this case, and thus should be permitted.
2. Impact on the Current Summary Judgment Schedule
Plaintiffs' position: Delaying summary judgment is not warranted because the Second
Circuit did not say that this Court was wrong to certify a class against the Citco and PwC
defendants. The Second Circuit's Order requires only further consideration of the issues of duty
and reliance in light of the full record now developed in discovery and for the Court to make
specific findings explaining the basis for certifying claims against PwC and Citco. Plaintiffs
oppose any effort to delay the schedule for summary judgment briefing that the Court already
has ordered - with Defendants' unqualified consent notwithstanding pendency of their class
certification appeal. See Dkt. No. 1275 (Order of June 9, 2014). Indeed, when the Court asked
the parties during our telephone conference what issues they intended to raise on summary
judgment, Defendants identified SLUSA, Morrison, standing and Credit Alliance. Similarly,
Plaintiffs identified breach of fiduciary duty and third-party breach of contract-based on duties
owed by Citco to all investors collectively to provide accurate NA V values and to oversee the
safekeeping of assets supposedly comprising the NA V value. All of these issues will need to be
cannot be used, among other things, to show the existence of a duty under the second prong of
the Credit Alliance inquiry for all putative class members. See Credit Alliance, 65 N. Y.2d at 551
(holding plaintiff must show financial report was to be used for a particular purpose "in
furtherance of which a known party or parties was intended to rely").

The Honorable Victor Marrero
July 18, 2014
Page 7

addressed whether or not the case ultimately proceeds as a class action, or proceeds as what
would effectively be several hundred consolidated individual actions brought by named
plaintiffs. "There is nothing in Rule 23 which precludes the court from examining the merits of
plaintiffs claims on a proper ... Rule 56 motion for summary judgment simply because such a
motion precedes resolution of the issue of class certification." Schweizier v. Trans. Union Corp.,
136 F.3d 233, 239 (2d Cir. 1998); Nicholson v. Forster & Garbus LLP, 2013 WL 2237554, at *1
n. l (E.D.N.Y. May 17, 2013) (same).
Defendants' request to delay summary judgment briefing until the completion of the class
certification process (potentially including another Rule 23(f) petition), would impose at least a
year of additional delay in this protracted litigation that is already approaching six years'
duration. The Plaintiffs have sustained billions of dollars in losses and the vast majority of both
individual named plaintiffs and putative class members have not seen any recovery. Defendants
contend that they will have difficulty crafting summary judgment motions without a final class
certification order. However, in repeated motions to dismiss, motions for reconsideration, and
letters to this Court, Defendants have had no problem identifying multiple issues which they
continue to contend are dispositive to the claims of all putative class members, and Plaintiffs
continue to contend that Defendants' arguments lack merit. 5 Resolving these potentially
dispositive issues on summary judgment is essential to moving this case towards trial or
settlement. If class certification were ultimately denied, it will be far more efficient to have had
these fundamental issues decided, so that the parties and the Court can make informed decisions
as to the best way to proceed with a massive consolidated action involving hundreds of
individual cases. For example, the Court may use test cases or other means to avoid the need for
the overwhelming burden of discovery from individual plaintiffs (and apparently hundreds of
separate summary judgment motions thereafter) that Defendants presuppose in their doomsday
scenano.
Finally, Defendants ignore reality in arguing (at p. 8 below) that "ruling on the motion for
summary judgment before class certification here would allow plaintiffs 'secure the benefits of a
class action without first satisfying the requirements for it."' Eisen v. Carlisle and Jacquelin,
417 U.S. 156, 177 (1974). In fact, a ruling against Defendants on any of the proposed summary
judgment legal issues, even on a motion by a single Plaintiff, would enable all other Plaintiffs to
obtain the same result, either through collateral estoppel as a matter of law or because the Court
would likely follow its own prior rulings on the issue.
5

See. e.g., Dkt. No. 317 at 19 ("The State Law Claims Fail As A Matter Of Law"); id. at 19
n.11 ("PwC Netherlands does not raise any choice of law issue . . . because the claims pleaded
here are without merit under New York as well as Dutch law."); Dkt. No. 330 at 1 ("Plaintiffs
assert ten claims against CFSE and CCI, the administrator and sub-administrator, respectively, of
the Fairfield Funds - a claim for violation of section 1O(b) of the Securities and Exchange Act of
1934 and Rule 1Ob-5, and nine common law claims. None of those claims is sustainable as a
matter of law."); Dkt. No. 1278 at 2 ("To be sure, the Anwar Defendants believe that SL USA ..
. precludes the claims asserted against those defendants[.]"). (All emphases added.)

The Honorable Victor Marrero
July 18, 2014
Page 8

Defendants' position: Defendants submit it would be illogical, inefficient, and
inappropriate for the parties to brief summary judgment prior to determining whether this case
will proceed as a class action. "The customary sequence in a class action is certification and
notice before dispositive motion." Brecher v. Republic of Argentina, 2010 WL 3584001, at *2
(S.D.N.Y. Sept. 14, 2010). A summary judgment ruling "should ordinarily not occur before or
simultaneous with a decision on class certification." Cuzco v. Orion Builders, Inc., 262 F.R.D.
325, 335 (S.D.N.Y. 2009) (citing Philip Morris Inc. v. National Asbestos Workers Medical Fund,
214 F.3d 132, 135 (2d Cir. 2000)); see also Mendez v. The Radec Corp., 260 F.R.D. 38, at *4445 (W.D.N.Y. 2009) (collecting cases).
Plaintiffs ignore the fact that, absent a class action, their claims cannot succeed without
individualized proofs on their part, regardless of any "common" evidence that may exist.
Accordingly, if no class is certified, defendants will be entitled to take discovery of, and move
for summary judgment on, each individual plaintiffs claims (as opposed to the discovery to date,
which has only involved a handful of plaintiffs). While there may still be issues that apply to
many or all plaintiffs, there will, by definition, be individual issues to resolve. To take just one
example, defendants will be entitled to show that particular plaintiffs did not in fact rely on
defendants' work. This would require additional discovery that defendants have not been
allowed to take, and require defendants to present summary judgment arguments that they cannot
make on the current record.
Proceeding on the assumption that a class will be certified would not only be contrary to
the fact that no class currently exists, it would also be contrary to the Second Circuit's Order
finding no basis in this Court's decision (or, apparently, in the record as presented by plaintiffs
on appeal) "indicat[ing] how common evidence can show" the defendants owed duties to the
plaintiffs or that plaintiffs relied on the defendants' conduct. (Order, at 6.) To say the least, it
will be extremely difficult for defendants to craft a motion for summary judgment without
understanding how the Court will resolve those issues.
We also again reject plaintiffs stilted reading of the Second Circuit's Order as somehow
holding that the class certification result is correct, and merely asking this Court to rewrite its
opinion so holding. That is not what the Court held. The Court has clearly remanded the matter
for this Court to consider the issues identified in the Order and otherwise determine whether the
requirements for class certification are satisfied here.
Finally, plaintiffs suggest that defendants' proposed schedule is only intended to further
delay resolution of this matter. On the contrary, defendants' proposal is intended to avoid the
serious inefficiencies and likely delays that would otherwise arise from plaintiffs' proposal,
which would require this Court to address both class certification and summary judgment
simultaneously. In any event, we do not believe that addressing class certification first and then
summary judgment will "impose at least a year of additional delay" in this case. The parties
have already agreed on a reasonable schedule for obtaining a ruling on class certification, and,

The Honorable Victor Marrero
July 18, 2014
Page 9

once the matter of class certification is resolved, the parties can proceed expeditiously to resolve
the remaining issues in this matter.
In sum, defendants should not be forced to move for summary judgment on a class-wide
basis in a case where the Second Circuit has vacated class certification. For although Federal
Rule of Civil Procedure 23 "does not explicitly preclude a district court from considering a
motion for summary judgment prior to class certification," Brecher, 2010 WL 3584001, at *2, a
ruling on the motion for summary judgment before class certification here would allow plaintiffs
"secure the benefits of a class action without first satisfying the requirements for it." Eisen v.
Carlisle and Jacquelin, 417 U.S. 156, 177 (1974).

*

*

*

Respectfully, the parties believe that it would be most efficient if the Court would resolve
the foregoing disputes at this time, before additional class certification submissions are made.
The parties are available to discuss these matters at the Court's convenience or otherwise to
provide further information.

P~ii ~ (/11)
0

David A. Barrett
cc:

All counsel in Anwar (by e-mail)