Anwar et al v. Fairfield Greenwich Limited et al

Filing 1403

DECISION AND ORDER denying #1399 Motion for Reconsideration. It is hereby ORDERED that the Motion (Dkt. No. 1399) of defendants Standard Chartered Bank International (Americas) Ltd. I Standard Chartered International (USA) Ltd. I Standard Chartered Bank, and Standard Chartered PLC (collectively, "Standard Chartered Defendants") for reconsideration of the Court's July 29, 2015 Decision and Order is DENIED with respect to the Standard Chartered Defendants' arguments that the Court misapplied Kingate by considering only the Madoff Fraud in assessing conduct, and that the Court overlooked controlling precedent establishing that the "Due Diligence Claims" rest on the bank providing false and misleading investment recommendations; and it is further ORDERED that the Standard Chartered Plaintiffs show cause within seven days from the date of this Decision and Order as to why the Court should not dismiss allegations that are predicated on a duty to disclose investment risk and support breach of fiduciary duty claims, as argued in Saca v. Standard Chartered Bank Int'l (Americas) Ltd., No. 11-CV-3480; and it is further ORDERED that the motion (Dkt. No. 1399) of the Standard Charted Defendants for certification of an interlocutory appeal is DENIED. SO ORDERED. (As further set forth in this Order.) (Signed by Judge Victor Marrero on 8/13/2015) (kgo)

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

------------------------------x
PASHAS. ANWAR, et al.,
09-cv-118 (VM)
Plaintiffs,
DECISION AND ORDER

-againstFAIRFIELD GREENWICH LIMITED,
et al.,

Defendants.

----------------------------- x
VICTOR MARRERO, United States District Judge.

Defendants

Standard

Chartered

Bank

International

(Americas) Ltd., Standard Chartered International (USA) Ltd.,
Standard

Chartered

(collectively,

Bank,

"Standard

and

Standard

Chartered

Chartered

Defendants")

move

PLC
for

reconsideration of this Court's Decision and Order dated July
29, 2015 (Dkt. No. 1396, the "Decision"), insofar as it denied

the Standard Chartered Defendants' motion to dismiss the "Due
Diligence
Plaintiffs. 1
familiarity

Claims"
(Dkt.
with

brought
Nos.
the

by

1399,

relevant

the

Standard
The

1400.)

facts

as

Chartered

Court

described

assumes
in

the

Decision.

As discussed more fully in the Decision, the term "Standard Chartered
Plaintiffs" denotes the 74 plaintiffs in the 56 cases asserting claims
against the Standard Chartered Defendants, and which were consolidated in
this Court for pretrial purposes. (See Decision at 58.)
1

I .

LEGAL STANDARD

Reconsideration of a previous order by the court is an
"extraordinary
interests of

to

2d 613,

designed

614

to

already briefed,
Serchuk,

employed

sparingly

in

the

judicial

In re Health Mgmt. Sys. Inc. Sec. Litig., 113 F.
(S.D.N.Y.

quotation marks omitted) .
not

be

finality and conservation of scarce

resources."
Supp.

remedy

allow

2000)

(internal citations and

"The provision for reargument is
wasteful

repetition

considered and decided."

742 F. Supp.

108,

119

(S. D. N. Y.

of

arguments

Schonberger v.
1990) .

"The major

grounds justifying reconsideration are 'an intervening change
of controlling law, the availability of new evidence, or the
need to correct a clear error or

p~event

manifest injustice.'"

Virgin Atl. Airways,

Ltd. v. Nat'l Mediation Bd.,

1245,

1992)

1255

(2d Cir.

(quoting 18 C.

956 F.2d

Wright,

et al.,

Federal Practice & Procedure§ 4478 at 790 (2d ed.)).
To these ends, a request for reconsideration under Local
Rule 6. 3
must

("Rule 6. 3")

demonstrate

of the Southern District of New York

controlling

law

or

factual

matters

put

before the court in its decision on the underlying matter
that the movant believes the court overlooked and that might
reasonably be expected to alter the conclusion reached by the
court. See Shrader v. CSX Transp., Inc., 70 F.3d 255, 257 (2d
Cir. 1995). Rule 6.3 is intended to "'ensure the finality of

2

decisions and to prevent the practice of a losing party .
plugging

the

gaps

of

a

loE3t

motion

with

additional

matters.'" SEC v. Ashbury Capital Partners, L. P., No. 00 Civ.
7898, 2001 WL 604044, at *1 (S.D.N.Y. May 31, 2001)
Carolee

Pictures,

Inc.

v.

Sirota,

700

F.

Supp.

(quoting
169,

170

(S.D.N.Y. 1988)). A court must narrowly construe and strictly
apply

Rule

6.3

so

as

to

avoid

duplicative

rulings

on

previously considered issues and to prevent Rule 6. 3 from
being

used

argued,

to

advance

different

theories

not

previously

or as a substitute for appealing a final judgment.

See Montanile v. Nat'l Broad.
(S.D.N. Y.

2002);

Shamis

v.

Co~,

216 F. Supp. 2d 341, 342

Ambassador

Factors

Corp.,

187

F.R.D. 148, 151 (S.D.N.Y. 1999).
II. DISCUSSION
The

Standard

reconsideration
primary reasons:

of

Chartered
the

(1)

Decision

Defendants
is

argue

warranted

for

that
three

that the Court "misapplied Kingate by

considering only the Madoff fraud in assessing conduct";
that

the

Court

"overlooked

controlling

precedent

(2)

[i.e.,

Romano v. Kazacos, 609 F.3d 512 (2d Cir. 2010); Hanly v. SEC,
415 F.2d 589

(2d Cir.

1969)]

establishing that Plaintiffs'

'Due Diligence Claims' rest on the Bank providing false and
misleading

investment

recommendations";

and

( 3)

that

the

Court "overlooked that the unique due diligence claim in the

3

Saca action is expressly and exclusively based on an alleged
omission by the Bank."

(Dkt. No. 1400.)

Upon review of the Motion for Reconsideration, the Court
finds

that,

as to their first two arguments,

the Standard

Chartered Defendants urge recomdderation on the basis of
essentially the same arguments that were raised in briefing
on

the

original

motion

to

dismiss.

"intervening change of controlling law,

There

has

been

no

the availability of

new evidence, or the need to correct a clear error or prevent
manifest injustice.'" Virgin Atl. Airways, 956 F.2d at 1255.
First,

the Standard Chartered Defendants are incorrect

that the Court considered only the Madof f fraud, rather than
conduct of the Standard Chartered Defendants more generally,
in assessing false conduct under the Kingate standard.

The

Court

the

directly

Securities

quoted

Litigation

Kingate_' s
Uniform

("SLUSA"), Pub. L. No. 105-353,
15 U.S.C.
the

§§

requirement

Standards

§

Act

that
of

1998

101, 112 Stat. 3227 (1998),

77p(b), 78bb(f) (1), only precludes conduct "by

defendant"

(Decision

at

1 7) ,

and

indicated

that

in

performing its analysis of the Standard Chartered claims, it
considered allegations involving the Madoff fraud or "some
other

false

Defendants."

conduct

by

(Decision at 53.)

4

the

Standard

Chartered

Second, the Court did not overlook controlling precedent
in its Decision. The Court made explicit reference to Romano

in its Decision (see Decision at 8, 11)
proposition

that

the

Standard

just not for the

Chartered

Defendants

argue

follows from Romano. Indeed, the Court did not then and still
does not read Romano to hold that claims predicated on the
failure to conduct due diligence, including those related to
investment recommendations, necessarily turn on false conduct
for purposes of SLUSA.
The

argument

put

forth

by

the

Standard

Chartered

Defendants that Romano suggests otherwise is a red herring.
In Romano,

the

Second Circuit

:Eound that

the plaintiffs'

claims involving investment advice were all "in connection
with covered securities." 609 F.3d at 521-24. As in Romano,
the Decision found that the Standard Chartered Plaintiffs'
claims

were

"in

(Decision at

1 7.)

diligence

claims

connection
However,
based

with

covered

securities."

Romano does not hold that due
on

investment

recommendations

necessarily involve misstatements or omissions for purposes
of SLUSA. Romano, unlike Kingate, does not discuss how courts
should distill allegations within each claim to determine
whether

those

claims

are

neces~Jarily

conduct contemplated by the
Dkt. No.

1391

federal

predicated on

securities

("Standard Chartered Pls.'

5

laws.

false
(See

June 8 Letter") . )

Instead,

Romano found that allegations of misstatements or

omissions were included in thosEe plaintiffs'
including

allegations

misrepresentations
afford

to

retire

to plaintiffs
early,

and

incomplete,

"inaccurate,

the~

that

defendants
about

that

or

complaints
made

whether

defendants

uniform

they could
communicated

information"

E~rroneous

to

plaintiffs. 609 F.3d at 521.
Similarly,

in

their

submissions

accompanying

their

motion to dismiss, the Standard Chartered Defendants pointed
to Hanly for the proposition that broker/dealer investment
recommendations necessarily include implied representations
that the broker/dealer has conducted due diligence, and that
its failure to have done so properly is actionable under the
federal securities laws. (Dkt. Nos. 1384 at 3-4 (the "Standard
Chartered Defs.' May 29 Letter") , 1390 at 3

(the "Standard

Chartered Defs.' June 8 Letter").)
The Court did not discuss Hanl:._y in its Decision; however,
this does not mean that the Court did not consider Hanly in
reaching its determination. See :E'errand v. Credit Lyonnais,
292 F. Supp. 2d 518, 521-22 (S.D.N.Y. 2003)
offers

instead

consider,
these

but

cases

specifically

is

not

new authority

[the party's]

stand

for.

reference

("What [the party]

the

Court

failed

to

differing proposition of what

Moreover,
every

that

factual

6

the

Court

detail

or

did not
incident

. does not necessarily establish that the Court did not
Indeed,

consider that particular matter.")
Standard

Chartered

motion

papers

included

insofar as the
discussion

of

Hanly, the Court did consider that case, and concluded that,
as argued by the Standard Chartered Plaintiffs in their June
8, 2015 Letter (Dkt. No. 1391), Hanly was not applicable to
the case at hand. Hence, the Court determined that Hanly did
not necessitate discussion in the Decision.
First, Hanly itself is inapposite to the instant action.
In Hanly, which was decided almost three decades prior to the
passage of SLUSA,

the Second Circuit affirmed an SEC order

sanctioning and barring five securities salesmen from further
association with any broker or deialer after it was determined
that the salesmen had made investment recommendations without
conducting due diligence. See 415 F.2d at 592. However,

the

Second Circuit indicated that such due diligence claims might
not fall under the federal securities laws in civil actions
or be applicable outside the limited circumstances presented
in Hanly involving SEC sanctions on salesmen. See id. at 59697

("While

this

implied

warranty

enforced in a civil action

when~

may

not

be

as

rigidly

an investor seeks damages

for losses allegedly caused by reliance upon his unfounded
representations, its applicability in the instant proceedings
cannot be questioned."

(footnotes omitted)).

7

Nor was the Standard Chartered Defendants' argument that
"[s]ince Hanley

[sic],

the SEC and private plaintiffs have

routinely asserted claims under the anti-falsity provisions
based on conduct that

is

identical

challenged here" persuasive.
29 Letter at 3-4.)

to the Bank's conduct

(Standard Chartered Defs.' May

All but one of the cases cited by the

Standard Chartered Defendants

orders issued by the SEC

we~e

and are not binding on the Court.

The Standard Chartered

Defendants cited to only one case decided by an Article III
court in support of their

argume~t,

and that single case --

South Cherry St., LLC v. Hennessee Grp. LLC, 573 F.3d 98 (2d
Cir. 2009) -- undermines their argument. In South Cherry, the
Second Circuit considered two types of claims brought by the
plaintiffs:

federal

securities

breach of contract claims,

law

claims

See 573 F. 3d 98.

affirmed the

court's dismissal

claims

state

law

both premised on the failure to

conduct due diligence.
district

and

The Second Circuit
of

both types

but on completely different grounds.

There,

of
the

plaintiffs could not adequately plead federal securities law
claims based on failure to conduct due diligence because such
claims do not demonstrate scien-:er
conduct); however,
failed

because

(i.e. ,

a type of false

the state law breach of contract claims

they

were

based

on

an

unenforceable

oral

contract under New York's Statute of Frauds. Id. at 114-15.

8

In so finding,

the Second Circuit explicitly reaffirmed that

"[a]t bottom, this was a contract case." Id. at 115.
Further, although the Court did not specifically address
the arguments put forth by the Standard Chartered Defendants
with respect to Romano and Hanly,

the Court did explicitly

address (and reject) a substantially similar argument made by
the Standard Chartered Defendants with respect to Omnicare,
Inc.
135

v.

s.

Court

Laborers Dist.
Ct.

1318

still

Council Const.

(2015).

holds

that

Indus.

Pension Fund,

(See Decision at 44-46.)
the

Due

Diligence

Thus,

Claims

the

are

not

predicated on allegations of either complicity in the Madoff
fraud

or

any

other

conduct

by

the

Standard

Chartered

Defendants involving falsity as an element.
Third, the Standard Chartered Defendants argue that the
allegations predicated on a
risk,

failure to disclose investment

as pleaded in Saca v.

(Americas)

Ltd.

I

No.

Standard Chartered Bank Int'l

11-CV-3480

( "Saca") ,

should

be

dismissed. The Court is persuaded that this particular issue
warrants further consideration.
noted

that

the

In its Decision,

Standard Charte:i.-ed Plaintiffs

the Court

acknowledged

that some broker-dealer fiduciary duties, such as the duty of
full

disclosure,

might

involve

Decision at 45.) Additionally,

misrepresentations.

(See

in its analysis finding that

the Standard Chartered Plaintiffs' breach of fiduciary duty

9

claims survive, the Court focused its analysis on allegations
regarding the failure to conduct due diligence and the failure
(See - - at 45id.
--

to continue monitoring certain investments.

46.) The Court recognizes that a duty to disclose investment
risk may be predicated on allegations of false conduct if
those allegations necessarily concern the valuation of the
Madoff feeder funds and the risk therein of investing in those
funds.

Therefore,

the

Standard

Chartered

Plaintiffs

are

ordered to show cause, in response to the Standard Chartered
Defendants' instant motion, as to why allegations predicated
on the

failure

to disclose

investment

risk should not be

precluded by SLUSA. The Court notes, however, that even if it
were to dismiss such allegations as regards Saca, all of the
Standard

Chartered

Plaintiffs

would

have

surviving

Due

Diligence Claims based on duties independent of any duty to
disclose investment risk.
For the foregoing reasons,

the Court also declines to

certify the Decision for interlocutory appeal pursuant to 28
U.S.C. Section 1292(b). The Court is not persuaded that there
is

controlling

substantial
immediate

question

ground for
appeal

may

of

law

as

difference

of

materially

termination of this litigation.

10

to

which

opinion,

advance

there
or that

the

is
an

ultimate

III. ORDER

Accordingly, for the reasons stated above, it is hereby
ORDERED that the Motion

(Dkt.

Standard

Chartered

Bank

Standard

Chartered

No.

International

Chartered Bank,

International

July 29,

2015

of defendants

(Americas)

(USA)

Ltd.

and Standard Chartered PLC

"Standard Chartered Defendants")
Court's

1399)

I

Ltd.

I

Standard

(collectively,

for reconsideration of the

Decision and Order

is

DENIED

with

respect to the Standard Chartered Defendants' arguments that
the Court misapplied Kingate by considering only the Madof f
Fraud in assessing conduct,

and that the Court overlooked

controlling precedent establishing that the "Due Diligence
Claims"

rest

on

the

bank

prov:c.ding

false

and

misleading

investment recommendations; and it is further
ORDERED

that

the

Standard

Chartered

Plaintiffs

show

cause within seven days from the date of this Decision and
Order as to why the Court should
are predicated on a

:~ot

dismiss allegations that

duty to disclose

investment risk and

support breach of fiduciary duty claims, as argued in Saca v.
Standard Chartered Bank Int'l
3480; and it is further

11

(Americas)

Ltd.,

No.

11-CV-

ORDERED that the motion (Dkt. No. 1399) of the Standard

Charted

Defendants

for

certification

of

an

interlocutory

appeal is DENIED.
SO ORDERED.

Dated: New York, New York
13 August 2015

VICTOR MARRERO
U.S.D.J.

12