Anwar et al v. Fairfield Greenwich Limited et al

Filing 1339

ENDORSED LETTER addressed to Judge Victor Marrero from Walter Rieman dated 11/17/2014 re: We represent the Citco Defendants in the action referenced above. A recent precedential decision of the Second Circuit, Pennsylvania Public School Employees' Retirement System v. Morgan Stanley & Co., Inc., No. 13-2095-cv(L), 2014 WL 5487 666 (2d Cir. Oct. 31, 2014) (copy enclosed), further demonstrates that plaintiffs' pending motion for class certification should be denied. ENDORSEMENT: Plaintiffs are directed to respond by 11-25-14 by letter no to exceed three (3) pages, to the matter set forth above by Citco Defendants. (Signed by Judge Victor Marrero on 11/20/2014) (lmb)

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PAUC, WEISS, RIFKIND, WHARTON & GARRISON LLP
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RANDOLPH E . PAUL ( 1946- 1956 )
SIMON H . RIFKIND

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LOUIS S . WEISS

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JOHN F. WHARTON

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November 17, 2014

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BRADS . K A RP
PATRIC K N . K ARSNITZ
JOHN C . KENNEDY
BRIAN KIM
ALAN W . KORNBERG
DANIEL J . KRAMER
DAVID K . LAKHDHIR
STEPHEN P. LAMB *
JOHN E . LANGE
DANIEL J . LEFFELL
XIAOYU GREG LIU
JEFFREY D . MARELL
MARCO V. MASOTTI
EDWIN S . MAYNARD
DAVID W MAYO
ELIZABETH R. MCCOLM
MARK F MENDELSOHN
WILLIAM B . MICHAEL
TOBY $ . MYERSON
CATHERINE NYARADY
JANE B . O ' BRIEN
ALEX YOUNG K . OH
BRAD R. OKUN
KELLEY D . PARKER
MARC E PERLMUTTER
VALERIE E . RAOWANER
CARLL. REISNER
LORIN L. REISNER
WALTER G . RICCIARDI
WALTER RIEMAN
RICHARD A . ROSEN
ANDREW N . ROSENBERG
JACQUELINE P. RUBIN
RAPHAEL M . RUSSO
ELIZABETH M . SACKSTEDER
JEFFREY D . SAFERSTEIN
JEFFREY B . SAMUELS
DALE M SARRO
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JAMES H . SCHWAB
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Daniel Patrick Moynihan
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Anwar, et al. v. Fairfield Greenwich Limited, et al.,
No. 09-cv-118 (S.D.N.Y.) (VM)(FM)
Dear Judge Marrero:
We represent the Citco Defendants in the action referenced above. A
recent precedential decision of the Second Circuit, Pennsylvania Public School
Employees' Retirement System v. Morgan Stanley & Co., Inc., No. 13-2095-cv(L), 2014
WL 5487 666 (2d Cir. Oct. 31, 2014) (copy enclosed), further demonstrates that plaintiffs'
pending motion for class certification should be denied.
In particular, Pennsylvania Public School further supports the Citco
Defendants' argument that the issue ofreasonable reliance raises numerous individual

Ph..UL, WEISS, RIFKIND, WHARTON & GARRISON LLP

The Honorable Victor Marrero
United States District Judge

2

issues of fact and thus precludes any finding that common issues predominate. 1 In
2
Pennsylvania Public School, the Second Circuit affirmed the denial of class certification.
Three plaintiffs brought a putative class action alleging claims for common-law fraud
under New York law against ratings agencies and Morgan Stanley. According to
plaintiffs, the defendant ratings agencies knowingly used outdated models and data to
rate certain securities. Plaintiffs argued that the commonality element required for class
certification under Rule 23 was satisfied by the "recently created ' fraud-created-themarket' theory, i.e., but for the defendant's fraud, no market for the notes would have
existed at all." Id. at *6.
Judge Winter, writing for a unanimous panel, rejected plaintiffs'
argument, noted that four other Circuits have rejected or questioned the fraud-createdthe-market theory, and held that New York law would not recognize that theory as a
substitute for proof of actual reliance by each member of the putative class. See id.
(noting that fraud-created-the-market theory has been rejected or questioned by the Third,
Sixth, Seventh, and Ninth Circuits). As Judge Winter explained:
While the [fraud-created-the-market] theory is used to argue that none of
the notes would have been sold but for the fraud, that argument establishes
only "but-for" causation; it does not establish reliance. It is quite possible
that some buyers of the notes might have known the underlying facts,
believed in the models, and held the same rosy view of the residential
housing market as did many government and private financial officers.
Appellants thus seek to use the theory to eliminate the need to prove
reliance, a traditional element of common law fraud. No hint has been
offered by New York courts that such a radical doctrinal shift is in the
offing.
Id.
Because the fraud-created-the-market theory could not overcome
individual issues of reliance, the Second Circuit affirmed the district court' s denial of
class certification. Those individual issues of reliance arose from, among other factors,
"significant differences in the investment decision processes of the various putative class
members," id. at *7, "the sophistication of the parties," and "the variances in each
putative class member' s investment strategy and decision-making process," id. at *7 n.4.
See the Citco Defendants' Memorandum of Law in Opposition to Plaintiffs' Motion
for Class Certification ("Citco' s Opposition Brief' or "Citco Opp. Br."), filed under
seal on Sept. 15, 2014, at 2-7, ECF No. 1323.
2

Citco's Opposition Brief, at pp. 4, 9, and 13, cites the district court' s underlying
class-certification decision, Abu Dhabi Commercial Bank v. Morgan Stanley & Co.
Inc., 269 F.R.D. 252 (S.D.N.Y. 2010).

PAUL, WEISS , RIFKIND, WHARTON & GARRISON LLP

3

The Honorable Victor Marrero
United States District Judge

Plaintiffs here have argued that the shares at issue would have been
unmarketable if Citco' s NAV statements had been accurate. (See Citco Opp. Br. 13.)
Pennsylvania Public School holds that such an argument cannot displace the requirement
that each member of the putative class must prove actual and reasonable reliance in
support of the putative class member's claims under New York law. The reasoning and
language of Pennsylvania Public School indicates that this proposition is also true for
claims by members of the putative class under the federal securities laws. Finally,
Pennsylvania Public School demonstrates that where, as here, significant differences
among the members of the putative class exist concerning, among other factors, the
putative class member's investment decision process, sophistication, investment strategy,
and knowledge concerning the investment at issue, reasonable reliance presents
individual issues, and class certification should accordingly be denied.
Respectfully submitted,

lUOtbt-°' ~ ~

Walter Rieman
Enclosure
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