Anwar et al v. Fairfield Greenwich Limited et al

Filing 1385

ENDORSED LETTER addressed to Judge Victor Marrero from Richard E. Brodsky dated 5/29/2015 re: Requesting the Court's prompt determination of the SC Defendants' request for leave to move for summary judgment, which has been fully briefed and has been awaiting the Kingate decision. 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 Standard Chartered Plaintiffs. (Signed by Judge Victor Marrero on 6/4/2015) (spo)

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THE BRODSKY LAW FIRM,
RICHARD

[phone] From: Rivero Staff Mestre

PL

E. BRODSKY, ATTORNEY AT LAW

May 29, 2015

_CSrl)C S D~-n
BY FACSIMILE TRANSMISSION

·

DOCL\lL~T

Honorable Victor Marrero
United States District Judge
Daniel Patrick Moynihan U.S. Courthouse
500 Pearl Street
New York, New York 10007-1312
Re:

Anwar, et al. v. Fairfield Greenwich Limited, et al.,
09-cv-118 (VM) (THK)
Standard Chartered Cases

Dear Judge Marrero:

I am writing as the Liaison Counsel for, and on behalf of, the Standard
Chartered Plaintiffs ("SC Plaintiffs"), in the Standard Chartered Cases (the
"SC Cases").
By Order dated May 6, 2015, DE 1375, this Court di1·ected the parties
in the SC Cases to submit letter briefs regarding the "applicability" of In re
Kingate Mgmt. Ltd. Litig. ("Kingate"), No. 11-1397-CV, 2015 WL 1839874 (2d
Cir. Apr. 23, 2015), to the SC Cases. As directed in the May 6 Order, the SC
Parties, by letter dated May 27, 2015, notified the Court concerning the
issues to which their respective letter briefs would be addressed, as well as
their respective positions concerning which allegations would be precluded by
SLUSA if the Court were to conclude, contrary to our position, that the SC
Cases are a covered class action.

A.

Kingate Buttresses the SC Plaintiffs' Argument
that the SC Cases Are Not a "Covered Class Action"

The claims in Kingate were brought as a class action, so Kingate does
not deal with whether the case was a covered class action. Nevertheless,
Kingate lends substantial support to our position that the SC Cases are not a
covered class action.
The SC Defendants argue the contrary position, citing one of the
definitions of "covered class action," 15 U.S.C. §§ 77p(f)(5)(B)(II),

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[phone] From: Rivero Staff Mestre

Honorable Victor Marrero
May 29, 2015
Page 2
78bb(f)(5)(b)(ii).l We have previously controverted the SC Defendants'
argument in numerous letters to the Court, most recently, and
comprehensively, in our letter brief dated November 17, 2014, DE 1349, 1420 (filed Jan. 7, 2015). Kingate unquestionably buttresses our position.
First, Kingate expressly recognizes that the text of SLUSA is
"ambiguous" in several i·espects, 2015 WL 1839874, passim. While we have
argued that the text of SL USA alone establishes that the SC Cases are not a
covered class action, we have also shown, that, if the Court concludes that the
"covered class action" provision relied on by the SC Defendants is ambiguous,
the legislative history and overall purpose of SL USA strongly favor the
conclusion that the SC Cases are not a covered class action. E.g., DE 1349,
17-19. The Kingate court's recognition of multiple instances of ambiguity in
SL USA supports that conclusion.
Second, Kingate contains the following language:

Although the issue is not presented to us, we question whether a
motion to dismiss pursuant to SLUSA is best considered under
Rule 12(b)(6), as a motion to dismiss for failure to state a claim,
or under Rule 12(b)(l) (and/or 12(h)(3)), as a motion to dismiss
for lack of subject-matter jurisdiction. A dismissal under SL USA
simply means that the lawsuit "may [not] be maintained" as a
covered class action. 15 U.S.C. §§ 77p(b)), 78 bb(f)l). It does not
adjudicate against any plaintiff the right to recover on the claim.
A dismissal under SDUSA would not be with prejudice, barring
a plaintiff from filing a new, non-covered action asserting the
same claims against the same defendants.

Kingate, 2015 WL 1839874, at *3 n.9 (emphasis added). If a claim found to be
precluded by SLUSA may be re-pleaded as a "new, non-covered action
asserting the same claims against the same defendants," the only logical
basis for such a holding would be the limitation of SLUSA to cases that
actually can be repleaded as "non-covered" actions "asserting the same
claims." However, if the Court were to find that the SC Cases are a covered
class action, this would not be an available option for the SC Plaintiffs. Each
of the Plaintiffs already has filed a separate action: the cases were filed by 9
1 Both sections of SL USA, as codified, define "covered class action'' to include "any
group of lawsuits filed in or pending in the same court and involving common
questions oflaw 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."

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[phone] From: Rivero Staff Mestre

Honorable Victor Marrero
May 29, 2015
Page 3
different lawyers over a 11-year period, and many were filed before there were
more than 50 SC Plaintiffs. None of the SC Plaintiffs could do anything
different from what has already been done to "fil[e] a new, non-covered action
asserting the same claims against the same defendants." Kingate's footnote 9,
therefore, helps illustrate why a construction of "covered class action" to
include the SC Casl:"ls would extend that definition far beyond what SLUSA
was designed to reach-plaintiffs' lawyers' coordinated stage- managing of
multiple plaintiffs' claims t-0 evade the pleading requirements of the Private
Securities Litigation Reform Act. It strengthens the conclusion that
stretching the definition of covered class action to reach the facts of this case
is unwarranted by a facial analysis of the statute, a review of his legislative
history and purpose. or resort to any case or other authority.
The next issues arc whether-assuming, arguendo, that the SC Cases
could properly be deemed a covered class action-SLUSA would preclude any
of the allegations in the SC Cases. Our discussion will be in two parts. First,
we will briefly discuss the Kingate opinion. Second, we will discuss the
application of Kingate to the SC Plaintiffs' various complaints.

B.

The Kingate Opinion

We adopt the portion of what we understand will be Part II
("SL USA and How It Has Been Applied") of the Anwar Plaintiffs' letter
brief to the Court. Nevertheless, we wish to add an additional point
necessary to an understanding of how Kingate applies to the SC Cases.
As the Anwar Plaintiffs note, Kingate divided the claims in that case
into five categories (Group 1, etc.). See Kingate, at *3. The court's division of
claims into Groups 1 through 5 explicitly refers only to the claims pleaded in
Kingate and does not purport to be a listing of all conceivable claims against
non-Madoff-affiliated parties arising in a Madoff-feeder case. (For simplicity's
sake, in this letter brief we use "Ma doff' to refer both to Bernard L. Madoff
and to Bernard L. Madoff Investment Securities, LLC.) At the same time, the
precise contours of each enumerated Kingate "Group" claim should not be
read so literally as to suggest that the Kingale taxology should not be applied
to claims not actually brought in Kingate but that, nonetheless, fall within
the description of a Kingate "Group." At the very least, the categorization of

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[phone] From: Rivero Staff Mestre

Honorable Victor Marrero
May 29, 2015
Page 4

Kingate claims by "Group" provides a useful yardstick by which to measure
the application of Kingate (and SL USA) to the allegations here.
C.

Application of Kingate to SC Plaintiffs' Allegations

1.

Introduction

Because the allegations in the SC Cases are different from the pending
allegations in Anwar, we are unable to adopt the Anwar Plaintiffs' discussion
of how Kingate applies to the allegations in Anwar. See joint letter from SC
Parties, May 27, 2015.
A discussion of the allegations presented in the different SC Cases
must necessa1·ily deal, at least in part, with generalities. \Ve start with this
caveat because, if the Court decides that the SC Cases are a covered class
action, it will necessarily have to examine, separately, each allegation2 made
in each complaint to determine whether or not it is precluded by SLUSA.3
The very multiplicity and variability of these separate allegations have made
it impractical to attempt to summarize them in this letter brief. Therefore,
should the Court determine that the SC Cases are a covered class action, we
respectfully suggest that it direct each SC Plaintiffs' counsel to provide the
Court with his or her poi,;ition on which allegations in his or her SC Case(s)

2

Kingate affirmed earlier Circuit decisions holding that SLUSA does not preclude

all claims just because a portion of the complaint is precluded. Rather, Kingate held
that it is up "to the district court to determine, on full briefing, which allegations of
the Complaint fall into which of the categories we have described (recognizing that
the numbered counts of the Complaint in some cases include multiple allegations
and that all the allegations of a single 'count' arc not necessarily of the same type or
group). The court emphasized this point by concluding that "should the district court
determine that some of Plaintiffs' claims (or portions thereof) fall within the terms of
SLUSA's preclusion and others do not, we direct the district court to dismiss the
precluded claims and proceed with respect to the other claims." K1:ngate, at *19-20
(emphases added).
3

The fact that the various SC Complaints are not identical-claim-by-claim or

allegation-by-allegation-is an inevitable result of the fact that the complaints were
drafted at different times by 9 different law firms, each acting on its own and
without coordination, and while each complaint filed by any one firm bears strong
similarities to the other complaints filed by that firm, complaints filed by different
law firms allege facts differently and contain different claims. Even claims that are
analogous to one another contain different allegations and emphases.

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[phone] From: Rivero Staff Mestre

Honorable Victor Marrero
May 29, 2015
Page 5
would be precluded and which would not be precluded, to which
categorization we would expect to allow the SC Defendants to respond.

2.

Description of SC Plaintiffs' Allegations Against SC

The SC Plaintiffs' allegations against SC are fairly and logically
divided into three separate categories:
a. Claims that SC failed to do a proper investigation of Sentry and
Madoff before recommending to its private clients that they invest in Sentry.
This type of claim will be referred to as a "Due Diligence Claim." All of the SC
Plaintiffs have made this type of claim. Some label these claims as negligence
claims, some as breach of fiduciary duty claims, and some as both. As
discussed below, these claims would not be precluded by SLUSA even if,
arguendo, the SC Cases were deemed a covered class action.

Claims that depend on the allegation that SC itself misrepresented
or omitted material facts in connection with Sentry's investments with Madoff
in covered securities. Examples of such claims are SC's failure to disclose that
no one else on Wall Street was able to replicate BMIS' purported results, and
that the trading in covered securities and options, as constructed, could not
support such results. This type of claim will be referred to as a "Madoff
Claim." Not all of the SC Plaintiffs have made such a claim. As discussed
below, these claims would be precluded if, arguendo, the SC Cases were
deemed a covered class action.
b.

Claims that SC either negligently or willft.Llly misrepresented
material facts where the claims do not depend on the allegation that SC itself
misrepresented or omitted material facts in connection with Sentry's
investments with Madoff in covered securities. This type of claim will be
referred to as a "Non-Madoff Claim." An example of such a claim is SC's
failure to disclose that it received, annually, 0.5% (50 hp) from Fairfield for
each dollar that each client put into Sentry (which investments ranged as
high as $600,000,000 at any one time, yielding SC as much as $3,000,000 a
year). See Gordon v. Chase Horne Fin., LLC, No. 8:11-CV-2001-T-33EAJ,
2012 WL 750608, at *1 (M.D. Fla. Mar. 7, 2012) (denying motion to dismiss
breach of fiduciary duty claim arising from lender/mortgage servicer's
requiring mortgagors to purchase excess flood insurance and affiliate's
receiving kickback from insurer). As discussed below, these claims would not
be precluded even if, arguendo, the SC Cases were deemed a covered class
c.

/

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[phone] From: Rivero Staff Mestre

Honorable Victor Marrero
May 29, 2015
Page 6

action.4

3.

Only Some SC Allegations Would Be Precluded
Were the SC Cases Deemed a Covered !lli\ss Action,

The first set of claims (Due Diligence Claims) are plainly analogous to
a Kingate Group 4 claim5 and would not be precluded by SLUSA even if,
arguendo, the SC Cases wel"e a covered class action.

First, such claims arise either from a common law duty SC owed to the
SC Plaintiffs-a duty arising from either SC's fiduciary relationship with its
private banking clients-or from a non-fiduciary standard of due care. See,
e.g., Amended Complaint, Maridom u. Standard Chartered Bank
International (Americas) Limited, No. 10-cv-920-VM, DE 8, at 13 iI 40
("Whether SCBI's duty of care is expressed in terms of a fiduciary duty or
simply a duty of ordinary due care, SCBI failed to meet its duty as it related
to its recommendations to Plaintiffs invest in [Sentry.").
Second, no SC Plaintiff alleges that SC was in complicity with or was
aiding and abetting BMIS.

Third, SC "is not alleged to have committed any of the conduct
specified in SLUSA," Kingate, at *15, and, in any event, false conduct is not
4

At least one Plaintiff, Barbachano, has advanced such a claim. See Amended

Complaint, Joaquina Teresa. Barbachano Herrero v. Standard Chartered Bank
International (Americas) Limited and Standard Chartered PLC, Ko. 1:11-cv-03553VM, passim. Others were denied leave to amend to include such allegations but were
permitted to seek to offer supportive evidence at trial Anwar v. Fairfield Greenwich
Ltd., No. 09-cv-0118-V:M, 2012 WL 1415621, *4 (S.D.N.Y. Apr. 13, 2012). It is
expected that all SC Plaintiffs will seek to offer evidence at trial concerning this
claim.
5 SC did not render services to Sentry, as did the remaining defendants in .4.nwar,
and while none of the SC Plaintiffs alleges that SC is liable for not having discovered
that Madoff was running a Ponzi scheme, but rather, they allege that SC violated its
fiduciary duty to investigate Sentry/BMIS, detect potential risks, and not
recommend an investment in Sentry if those risks could not be "mitigated"
(resolved). These are immaterial differences from Kingate's Group 4, which in all
material respects is analogous to the SC Plaintiffs' claims that SC did inadequate
due diligence in recommending an investment in Sentry.

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[phone] From Rivero Staff Mestre

/

Honorable Victor Marrero
May 29, 2015
Page 7
an essential element of a Due Diligence Claim. While some of the SC Cases
allege that SC breached a fiduciary duty to the plaintiffs by
misrepresentations or omissions of material fact, a Due Diligence Claim (a
separate specie of a breach of fiduciary claim) is not dependent on an
allegation of false conduct. The Court has, from the outset, acknowledged the
components of this claim. Thus, in deciding SC's motion to dismiss the first
four of the SC Cases (Headway, Valladolid, Maridom, and Lopez), the Court
held:
All Plaintiffs allege breach of fiduciary claims. Under Florida
law, '[t]he elements of a claim for breach of fiduciary duty are:
the existence of a fiduciary duty, and the breach of that duty
such that it is the proximate cause of the plaintiffs damages.'
Gracey v. Eaker, 837 So.2d 348, 353 (Fla.2002).

***
Here, Plaintiffs sufficiently state causes of action for breach of
fiduciary duty. All Plaintiffs allege that Standard Chartered's
recornrnendation that they invest in the Fairfield Funds without
conducting proper diligence was a breach of fiduciary duty.

Anwar v. Fairfield Greenwich Ltd., 745 F. Supp. 2d 360, 375, 376 (S.D.N.Y.
2010) (emphasis added). See also Anwar v. Fairfield Greenwich Ltd., 826 F.
Supp. 2d 578, 590-91(8.D.N.Y. 2011) (denying motion t.o dismiss Due
Diligence claims advanced by later SC Plaintiffs Almiron and Carrillo);
Anwar v. Fairfield Greenwich Ltd., 891 F. Supp. 2d 548, 555 (S.D.N.Y. 2012)
(After SC concedes Due Diligence claims filed by later SC Plaintiffs Gerico,
Saca, Barbachano, Mailand, Escobar, Baymall, Blockbend, and Eastfork,
denying motion to dismiss breach of fiduciary duty claim based on duty to
monitor).
The second set of claims (l\!Iadoff claims) would be precluded if,
arguendo, the SC Cases were deemed a covered class action. They are
analogous to Kingate's Group lor 2 claims (depending on whether they are
based on willful or negligent conduct) because they are predicated on SC's
own misrepresentations and omissions in connection with Sentry's
investments with Madoff in covered securities.
The third set of claims (Non-Madoff Claims) would not be precluded,
even if, arguendo, the SC Cases were deemed a covered class action. They do
not seek to impose liability on SC for misrepresentations or omissions in
connection with Sentry's investments with Madoff in covered securities. For

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Honorable Victor Marrero
May 29, 2015
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example, the claim that SC did not disclose that it received remuneration
from Fairfield whenever an SC private banking client invested in Sentry does
not depend on, and is analytically unrelated to, Madoffs fraud. Indeed, they
deal with SC's own conduct independent of any fraud by Madoff. This claim
would lie however Sentry invested its funds-i.e., whether it invested in real
estate or gave it to BMIS supposedly to invest in covered securities. [tis not
analogous to a Group 1, Group 2 or Group 3 (aiding and abetting) claim
under Kingate. It is analogous to a Group 4 claim.
D.

Conclusion

Kingate strengthens our argument that the SC Cases are not a covered
class action. Therefore, we respectfully request that the Court consider Lhis
letter brief and the prior letter briefs on the subject and conclude that the SC
Cases are not a covered class action.

Assuming, arguendo, that the Court concludes that these cases are a
covered class action, we request that the Court rule that only a very limited
subset of the allegations made in the SC cases-what we call "Madoff
Claims"-would be precluded. In that eventuality, we respectfully suggest
that the Court direct each SC Plaintiffs' counsel to provide the Court with his
or her position on which allegations in his or her SC Case(s) would be
precluded and which would not be precluded, to which showing we would
expect to allow the SC Defendants to respond.
Finally, assuming that the Court concludes either that SLUSA does
not apply at all or, if it does, that it does not preclude all claims, we
respectfully request the Court's prompt determination of the SC Defendants'
request for leave. to m~~-e for summary judgment, which has been fully
briefed and has been araiti~g the Kingate decision.
Sincerely yours,

cc:

Attorneys for SC Plaintiffs and SC Defendants
Attorneys for Anwar Plaintiffs and remaining Anwar Defendants