Anwar et al v. Fairfield Greenwich Limited et al

Filing 636

REPLY MEMORANDUM OF LAW in Opposition re: #621 MOTION to Dismiss Operative Complaints in Almiron, Carrillo and Lou-Martinez.. Document filed by Wong Yuk Hing de Lou, Moises Lou Martinez. (Attachments: #1 Affidavit Declaration of Laurence E. Curran III with Exhibit)(Curran, Laurence)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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PASHA ANWAR, et al.,
)
)
Plaintiffs,
)
)
v.
)
)
) Master File No. 09-CV-118 (VM)
FAIRFIELD GREENWICH LIMITED, et al.,
)
)
Defendants.
)
)
This Document Relates to:
)
Moises Lou-Martinez and Wong Yuk Hing de Lou
)
-----------------------------------------------------------------x
RESPONSE PLAINTIFFS MOISES LOU-MARTINEZ AND WONG YUK HING
DE LOU TO MOTION TO DISMISS
Plaintiffs MOISES LOU-MARTINEZ and WONG YUK HING DE LOU (herein
referenced as either “LOU” or “Plaintiffs”), by and through their attorneys CURRAN &
ASSOCIATES, submit this memorandum in response to the Unified Motion to Dismiss
Plaintiffs' Complaints filed by Standard Chartered Bank International (Americas) Ltd.
("SCBI"), Stanchart Securities International, Inc., and Standard Chartered PLC on March
21, 2011.
INTRODUCTION
For purposes of this memorandum, “Standard Chartered” shall refer to Standard
Chartered

Bank

International

(Americas)

Ltd.

("SCBI"),

Stanchart

Securities

International, Inc., Standard Chartered Bank, Standard Chartered PLC and Standard
Chartered International (USA) Ltd. and its predecessor, related, or affiliated American
Express Bank entities. Where only one entity comprising Standard Chartered is being

referred to, that entity shall be named specifically.
As the "Florida" Plaintiffs advised the Court in their Unified Response to Standard
Chartered's Motion to Dismiss (Document 67), Standard Chartered and specifically
SCBIA was not a mere order-taker dispensing no investment advice and merely passively
executing customer trades. Plaintiffs thought they were receiving advice and assistance
from private bankers and in fact the Standard Chartered defendants frequently used the
service mark Standard Chartered Private Banking in dealing with the Lous and other
Plaintiffs. The Lou's Complaint is replete with allegations that plainly refute Standard
Chartered’s caricature of its role. It is plainly alleged that Standard Chartered held itself
out and purported to act as a professional investment adviser in whom investors like the
Plaintiffs could and should place complete reliance, and, in connection therewith, made
recommendations as to purchases of investments, including the Fairfield Greenwich
investments. As a result, Standard Chartered owed its clients fiduciary duties, including
the duty to make prudent and fitting recommendations on the basis of investigation and
inquiry qualifying as “due diligence.”
Now perhaps the most important issue is that the Lous' case against Standard
Chartered differs from the other investor cases in that the Lous allege that Standard
Chartered unilaterally invested their funds in the Fairfield Sentry Fund without
authorization from them. While the defendants have made reference to the fact that as
one of almost 150 named plaintiffs in the proposed class in the anchor case in this MDL
proceeding, Anwar v. Fairfield Greenwich Ltd. (“Anwar”), plaintiff Moises LouMartinez alleged that the Fairfield defendants misled him. Mr. Lou-Martinez did not in
that case as a member of the proposed class action plaintiffs - or otherwise - ever state

2

anything contradictory to his position asserted in this case that Standard Chartered
reported to his son Cesar Lou at a meeting with SCBI's Diana Pratt in January 2009, as
alleged in Paragraph 23 of the First Amended Complaint, that $500,000 from Plaintiffs'
account at defendant SCBI in Miami was invested by SCBI on their behalf state in the
Fairfield Sentry Fund on or about September 28, 2005. As reported in that Complaint, the
Lous promptly asked for proof that the $500,000 had been invested by Standard
Chartered defendants in the Fairfield Sentry Fund but to date, Standard Chartered has
never provided any written proof of that alleged investment. Standard Chartered has not
provided any evidence that shares in the Sentry Fund were purchased on behalf of the
Lous in September 2005 or at any other time in the amount of $500,000 or for any
amount.
At this time, as alleged in the First Amended Complaint, the Lous have only
received verbal advice from the Standard Chartered defendants, through Ms. Pratt in
January 2009 and thereafter in early 2009, that the investment in the Sentry Fund was in
fact made. However, the situation is quite suspicious given the fact that even if the
investment was made by Standard Chartered without a written authorization from the
Lous (as no written authorization has ever been produced by Standard Chartered), there
still would have had to be a Fairfield Sentry Fund subscription agreement executed by the
Lous in order for them to have received shares in that fund as well as bank documentation
showing transfer of the $500,000 from the Lous account to Fairfield Sentry Ltd. or a
related Fairfield entity. To date though, the Lous have received no such documentation

3

from the Standard Chartered documents.1 They have been asked by those defendants to
simply trust in their advice and in the account statements that were recently produced that
a Sentry Fund investment was made on their behalf in September 2005.
Accordingly, in this case, the Lous either incurred damages on or about December
11, 2008 when the Madoff Ponzi scheme was reported publicly or in January 2009, when
the Lous asked for documentary proof of the investment - as alleged in the First
Amended Complaint at Paragraph 28. Either way, the Lous have lost $500,000 due to
SCBI's negligence and breach of fiduciary duty in investing the Lou's $500,000 in the
Fairfield Sentry Fund in September 2005 (as SCBIA has reported) or through conversion
of those funds of any shares in the Sentry Fund that the Lous' $500,000 allegedly
purchased. If the Lous through SCBI had purchased such shares in the Sentry Fund, SCBI
should have produced those shares or evidence of those shares in January 2009 when the
Lous requested documentary evidence of that alleged transaction. Since no proof of the
alleged purchase of the Sentry Fund shares was offered then or since, the Lous were first
on notice in January 2009 that $500,000 had been converted by SCBI from their account.
Accordingly, the Lous' claim for breach of fiduciary duty arose on or about December 11,
2009 when the Madoff Ponzi scheme was publicly revealed or in January 2009, when

1

In an effort to obtain relevant documents in this regard, the undersigned
counsel for the Plaintiffs, as stated in his Declaration attached hereto, requested
said documentation from counsel for Standard Chartered in an effort to avoid
litigation on the issue of an unauthorized investment, conversion and related
issues. Unfortunately, Sullivan & Cromwell LLP, acting as counsel for SCBI,
provided a letter dated June 1, 2010 wherein it advised that "SCBI has not yet
located a signed subscription agreement for the Mr. Martinez's investment in the
Fairfield Sentry Ltd." Since that time neither Standard Chartered nor its counsel
have provided a copy of the Subscription Agreement or any evidence of a
Fairfield Sentry Fund investment by the Plaintiffs. All Plaintiffs know is that the
bank refuses to provide it with the $500,000 missing from its account. See
Declaration of Laurence E. Curran III and Exhibit 1 attached thereto.

4

SCBI's Diana Pratt advised the Lous that $500,000 from their account had been invested
in the Fairfield Sentry Fund. Either way, the loss did not occurr on or about September
28, 2005 as has been alleged by the Standard Chartered defendants in their motion to
dismiss the Lous' First Amended Complaint.
The reason the damages to the Lou occurred only on December 11, 2008 or in
January 2009 is as has been publicly reported, many investors who invested in the
Fairfield Sentry Fund were able to sell their purchased shares in that fund before the
Madoff Ponzi scheme disclosure date of December 11, 2008 and were made whole by
receipt of all principal and profits from the sale of their Sentry Fund shares. It was only
those investors who did not sell their Sentry Fund shares prior to December 11, 2008, that
were damaged. So the damage did not occur on the date of purchase of said Sentry Fund
shares but rather on December 11, 2008, as until that date - or quite close to it- there had
been liquidity in the Sentry Fund through which redemptions were made for investors
who held Sentry Fund shares.
ARGUMENT
I.

THE COURT SHOULD DISREGARD STANDARD CHARTERED’S
IMPROPER ATTEMPTS TO RELY ON DOCUMENTS AND
INFORMATION OUTSIDE THE FOUR CORNERS OF THE
COMPLAINTS

A.

Standard on Motion to Dismiss.
The legal standard with regard to a Rule 12(b)(6) application to dismiss for failure

to state a claim articulated by the Supreme Court in Twombley2 is by now well-known:

2
 Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). The Court in Ashcroft v.
Iqbal, 129 S. Ct. 1937, 1950 (2009), later clarified Twombley’s plausibility test,
recognizing its roots in the idea that for purposes of a 12(b)(6) motion, factual
allegations are to be taken as true, while legal conclusions are not: “When there

5

Federal Rule of Civil Procedure 8(a)(2) requires only a short and plain statement of
the claim showing that the pleader is entitled to relief, in order to give the
defendant fair notice of what the claim is and the grounds upon which it rests.
While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need
detailed factual allegations, a plaintiff's obligation to provide the grounds of his
entitlement to relief requires more than labels and conclusions, and a formulaic
recitation of the elements of a cause of action will not do. Factual allegations must
be enough to raise a right to relief above the speculative level, on the assumption
that all the allegations in the complaint are true (even if doubtful in fact).
In evaluating claims in the context of a 12(b)(6) motion, the district court is normally
required to look only to the allegations on the face of the complaint. See, e.g., Roth v.
Jennings, 489 F.3d 499, 509 (2d Cir. 2007).

In limited circumstances, the court may

consider documents other than the complaint in ruling on a motion under Rule 12(b)(6).
Id. These limited circumstances definitely do not encompass the situation here.
Here, Standard Chartered has produced some Account Statements for the Plaintiffs'
account at the predecessor to defendant SCBI, American Express Bank International
("AEBI"), to prove that the Plaintiffs' had been notified by defendants of the alleged
investment of $500,000 from the Plaintiffs' account at AEBI in shares of the Fairfield
Sentry Fund. However, Standard Chartered has not shown any evidence that said
statements were delivered to Plaintiffs at anytime or in any timely manner consistent with
advising Plaintiffs in that regard that a Sentry Fund investment had been made. Since that
is a factual issue, it must be resolved outside the scope of this motion to dismiss the
Complaint. This Court has already found that "[d]ocuments outside a complaint may be
considered only if it is 'clear that there exist no material disputed issues of fact regarding
of the document[s].'" This Court's prior Decision and Order (Document 543) in this case

are well-pleaded factual allegations, a court should assume their veracity and then
determine whether they plausibly give rise to an entitlement to relief.”

6

filed on October 4, 2010 (quoting Faulkner v. Beer, 463 F.3d 130,134 (2d Cir. 2006))
applies equally well here.
B.

Under Clear Second Circuit Precedent, Standard Chartered’s Proffered
Documents Do Not Qualify for Consideration at this Stage.
Even if a court grants a motion to dismiss, the plaintiff may request leave to amend

the complaint to correct the deficiencies: “It is the usual practice upon granting a motion
to dismiss to allow leave to replead. Although leave to replead is within the discretion of
the district court, refusal to grant it without any justifying reason is an abuse of
discretion.” Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 48 (2d Cir. 1991)
(citations omitted), cert. denied, 503 U.S. 960 (1992). Documents attached to the
complaint or incorporated in it by reference are part of the pleading and may be
considered. Id. No documents were attached to any of the Complaints.
“In addition, even if not attached or incorporated by reference, a document ‘upon
which the complaint solely relies and which is integral to the complaint’ may be
considered by the court in ruling on such a motion.” Id. (emphases in original) (quoting
Sum Holding L.P., 949 F.2d at 47 (citations omitted) and citing Global Network
Communications, Inc. v. City of New York, 458 F.3d 150, 154-55 (2d Cir. 2006)). For

a

document to be considered “integral” to the complaint requires surmounting a high hurdle
that Standard Chartered completely avoids discussing and certainly does not meet. A case
cited by Standard Chartered, Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d. Cir.
2002), explains that “integral” requires that the plaintiff must have “reli[ed] on the terms
and effect of a document in drafting the complaint.” See Int'l Audiotext Network, Inc. v.
Am. Tel. & Tel. Co., 62 F.3d 69, 72 (2d Cir. 1995) (“relies heavily upon its terms and
effect”), quoted in Chambers, 282 F.3d at 153.

7

Moreover, “even if a document is

‘integral’ to the complaint, it must be clear on the record that no dispute exists regarding
the authenticity or accuracy of the document. It must also be clear that there exist no
material disputed issues of fact regarding the relevance of the document.” Faulkner v.
Beer, 463 F.3d 130, 134 (2d Cir. 2006) (citing Kaempe v. Myers, 367 F.3d 958, 965 (D.C.
Cir. 2004) and Alternative Energy, Inc. v. St. Paul Fire and Marine Ins. Co., 267 F.3d 30,
33 (1st Cir. 2001)).3
The documents on which Standard Chartered place great emphasis are various
account statements that it suggests are its silver bullets, because they contain purported
evidence that the Plaintiffs were aware of the Standard Chartered's investment of
$500,000 from the Plaintiffs' account in the Fairfield Sentry Fund. Plaintiffs deal later
with the question of whether, if the Court does not exclude those documents, it should
conclude that these agreements do spell victory for Standard Chartered at this early stage.
Here, Plaintiffs deal solely with the question of whether the Court should even take these
documents into account.
The first question is whether these documents are “integral” to the Complaint and
were “solely” relied on in bringing the complaint. Roth, 489 F.3d at 509. As to the Lous'
First Amended Complaint, there is not even any reference to any account documents, so
they could not possibly be considered “integral” to that pleading. Even if the proffered
documents were considered “integral,” there are serious questions concerning whether

3

Taking into consideration integral, relevant and authentic documents not
referred to or incorporated in the complaint is an exception to Rule 12(d), which
states: “If, on a motion under Rule 12(b)(6) or 12(c), matters outside the pleadings
are presented to and not excluded by the court, the motion must be treated as one
for summary judgment under Rule 56. All parties must be given a reasonable
opportunity to present all the material that is pertinent to the motion.”

8

the documents are authentic or relevant or were delivered by Standard Chartered to
Plaintiffs at any relevant time. On the first point, there is no evidence submitted by a
person with actual knowledge that the documents are authentic: instead, Standard
Chartered proffers the Declaration of a Sullivan & Cromwell lawyer, Patrick R.
Berarducci, who does not purport to speak with personal knowledge. See Berarducci
Declaration, ¶ 1 (“I am fully familiar with the matters stated herein based on personal
knowledge or review of files in the possession of my firm”) (emphasis added). Plaintiffs
are not attacking Mr. Berarducci’s credibility, just his competence as a witness to
authenticate these documents. The cases emphasize that only when the authenticity of
apparently integral and relevant documents is not disputed or questioned may the trial
court consider them on a motion to dismiss. E.g., Azzolini v. Marriott International, Inc.,
417 F. Supp. 2d 243 (S.D.N.Y. 2005) (trial court declines to take into account document
proffered by defendants on the basis of authenticating affidavit where plaintiff disputed
authenticity); Grogan v. O’Neil, 292 F.Supp.2d 1282, 1292 (D. Kan. 2003) (court
declines to take into account unauthenticated corporate charter). Here, the Plaintiffs do
not accept Mr. Berarducci’s hearsay belief that the documents are authentic, and insist on
proof.
Even aside from authenticity, there is a serious issue of relevance of the proffered
Account Statements as they do not offer any proof that Standard Chartered actually made
the alleged investment in the Fairfield Sentry Fund. Those documents are not supported
by any evidence of a Subscription Agreement for shares in the Sentry Fund or supported
by any bank documentation showing actual transfer of funds from the Lous' account at
AEBI to Fairfield Sentry Ltd. or its agents.

9

Further, the documents do not prove awareness by Plaintiffs of the alleged
investment. See Hayden, Stone Inc., v. Brown, 218 So. 2d 230, footnote 6 (Fla. 4th DCA
1969) (waiving right to object due to receipt of bank statements might also depend on
whether client’s consent was both fully informed and voluntary). The inconsistencies and
incompleteness of the documents proffered by Standard Chartered are precisely the sorts
of issues precluding consideration of extrinsic documents described in the opinion in
Faulkner v. Beer, supra. In Faulkner, investors brought fraud and breach of fiduciary
claims against their investment advisor, one of his investment vehicles, and other
affiliated persons. The defendants moved to dismiss, raising many of the same defenses
raised by Standard Chartered here. Several documents were submitted in connection with
the defendants’ motion to dismiss, including offering memoranda, annual reports and a
prospectus. The appeals court vacated the district court’s dismissal of the complaints. The
court held that there were too many open questions concerning which documents were
seen or relied on by which plaintiffs. 463 F.3d at 134-135. Analogously, there are too
many questions here concerning whether the Account Statements were in existence in
September 2005 or at any relevant time.4 There is simply not enough information before
the Court at such an early stage to make determinations on documents not integral to the
complaints, particularly when those documents appear either inconsistent with the

4

For
  example,
  since
  no
  evidence
  has
  been
  shown
  that
  Plaintiffs
  ever

received
  actual
  notice
  of
  the
  purported
  Sentry
  Fund
  investment,
  that
  fact

would
  support
  Plaintiffs'
  allegation
  of
  conversion.
  Conversion
  was
  found

where
  defendant
  was
  plaintiff’s
  treasurer
  and
  had
  been
  embezzling
  money

over
  a
  three
  year
  period.

  One
  of
  the
  factors
  that
  led
  the
  court
  to
  find
  the

treasure
  liable
  for
  conversion
  was
  the
  fact
  that
  the
  treasurer
  had
  all
  of
  the

bank
 statements
 of
 the
 account
 he
 was
 withdrawing
 the
 funds
 from
 sent
 to

his
  home
  and
  had
  exclusive
  control
  over
  disbursement
  books.

  Greece

Volunteer
  Ambulance
  Service,
  Inc.
  v.
  Smith,
  301
  N.Y.S.
  2d
  865,
  869-­‐70
  (NY

Sup.
 Ct.
 1969).

10

allegations in the complaint.
C.

The Court Should Not Convert this Motion to a Summary Judgment Motion.
As noted, under Rule 12(d), the consideration of facts and documents extrinsic to

the complaints (and not found to be “integral”, and of unquestioned authenticity and
relevancy) requires that the court convert the motion to a Rule 56 motion for summary
judgment:
[i]f ... matters outside the pleading are presented to and not excluded by the court,
the motion shall be treated as one for summary judgment and disposed of as
provided in Rule 56, and all parties shall be given reasonable opportunity to
present all material made pertinent to such a motion by Rule 56.
Global Network, 458 F.3d at 154-155 (quoting then Fed. R. Civ. P. 12(b) and citing to
Friedl v. City of New York, 210 F.3d 79, 83-84 (2d Cir. 2000) (conversion required
“whenever there is a ‘legitimate possibility’ that the district court relied on material
outside the complaint in ruling on the motion”) (citation omitted). See Fed.R.Civ.P. 12(f).
As indicated by the word “must” in Rule 12(d), the conversion of a Rule 12(b)(6) motion
into one for summary judgment under Rule 56 when the court considers matters outside
the pleadings is “strictly enforce[d]” and “mandatory.” Global Network, 458 F.3d at 155
(quoting Amaker v. Weiner, 179 F.3d 48, 50 (2d Cir. 1999) and citing Goldman v. Belden,
754 F.2d 1059, 1066 (2d Cir. 1985) (all referring to former wording, “shall”).
The Global Network court further explains the important policies behind the mandatory
conversion requirement:
the requirement expressly addresses and solves the major problem that arises when
a court considers matters extraneous to a complaint, namely, the lack of notice to
the plaintiff that outside matters would be examined. It deters trial courts from
engaging in fact finding when ruling on a motion to dismiss and ensures that when
a trial judge considers evidence dehors the complaint, a plaintiff will have an
opportunity to contest defendant’s relied-upon evidence by submitting material
that controverts it.

11

Global Network, 458 F.3d at 155; see also Sahu v. Union Carbide Corp., 548 F.3d 59 (2d
Cir. 2008). In most cases, the policies behind the mandatory conversion rule mean that a
district court “must give notice to the parties before converting a motion to dismiss
pursuant to Rule 12(b)(6) into one for summary judgment and considering matters
outside the pleading.” Sahu, 548 F.3d at 67 (quoting Gurary v. Winehouse, 190 F.3d 37,
43 (2d Cir. 1999) and citing Kopec v. Coughlin, 922 F.2d 152, 154-55 (2d Cir. 1991)).
The importance of providing the plaintiff with opportunity to prepare for a summary
judgment motion was emphasized in First Fin. Ins. Co. v. Allstate Interior Demolition
Corp., 193 F.3d 109 (2d Cir. 1999):
[C]are should, of course, be taken by the district court to determine that the party
against whom summary judgment is rendered has had a full and fair opportunity
to meet the proposition that there is no genuine issue of material fact to be tried,
and that the party for whom summary judgment is rendered is entitled thereto as a
matter of law.
Id. at 115 (quoting Ramsey v. Coughlin, 94 F.3d 71, 73-74 (2d Cir. 1996)). Once a court
decides to consider extrinsic evidence to decide a motion for summary judgment rather
than limit itself to the pleadings as it would on a motion to dismiss, therefore, the
plaintiffs should be given “a reasonable opportunity to meet facts outside the pleadings.”
Sahu, 548 F.3d at 70 (quoting In re G. & A. Books, Inc., 770 F.2d 288, 295 (2d Cir.
1985)).
The Court has the discretion to exclude the documents. Assuming that the Court
does not find these documents to be within the “integral” exception to Rule 12(d), then
there is no need to convert if the Court excludes the documents in question. There are
several reasons not to convert. First, the meaning of the documents and their application
to the Plaintiffs may require depositions of all of the principal witnesses in the case, but

12

on relatively narrow grounds: were these documents received by Plaintiffs, what do these
documents mean, what was their intent? But because Standard Chartered will not have
provided the Plaintiffs their documents, it would be impossible to cover the entirety of
the subjects that would be covered in the “merits” discovery of such witnesses.
Therefore, there would be substantial repetitive discovery of witnesses, at great cost to all
parties (with Standard Chartered, a world-wide banking institution, having the deepest
pockets and the greatest incentive to take advantage of that situation). Even then, if the
parties had different recollections of their intent, or if other issues were disputed, it might
not be possible to determine the issue of the effects of these documents on Plaintiffs’
claims on summary judgment – meaning that the entire exercise would turn out to be a
waste of time, effort and resources. There would therefore not appear to be anything
gained, and a potential of great waste, if the Court were not to exclude these documents.
For the reasons stated above, it is respectfully requested that the Court exercise its
discretion not to expand the scope of the Motion and therefore exclude the documents
from consideration.
D.

The Allegations that the Court Must Accept as True.

Having disposed of the issues raised by Standard Chartered’s requests that the Court
consider extraneous documents and take notice of extraneous information, the Plaintiffs
now turn to the factual allegations that the Court must, under the cases, accept as true:
•

that the Plaintiffs were offshore private banking clients of Standard Chartered’s

Miami-based Edge Act bank, now called Standard Chartered Bank International
(Americas) Ltd.;
•

that in 1998, Plaintiffs opened an account at AEBI. Lou Am.Cplt., ¶ 20;

13

•

that Plaintiffs ordinarily relied on Standard Chartered for investment advice;

•

that Standard Chartered charged them a regular annual fee and a special bounty for

placing allegedly them in the Madoff feeder fund of Fairfield Sentry Ltd.;
•

that Standard Chartered failed adequately to investigate the riskiness of the alleged

investment;
•

that Standard Chartered owed fiduciary duties to the Plaintiffs, including to

determine on the basis of a proper investigation whether the alleged investment was
suitable for these Plaintiffs;
•

that had Standard Chartered performed that duty, it would have discovered, if it did

not know, that there was a material risk that this investment was not safe and that Madoff
was running a scam of some sort, because of a number of facts – “red flags” – that an
alert and careful advisor would have noticed and understood did not bode well;
•

that these red flags included the fact that the hedge fund operators, after taking a

large fee, simply handed the money, lock, stock and barrel, over to Madoff, a brokerage
firm; that Madoff claimed to have realized steady, profitable results, in good markets and
bad, over many years; that Madoff did not process trades electronically; that Madoff’s
financial statements were audited by an unknown one- or two-man accounting firm in
Upstate New York; and so on; and
•

that the Plaintiffs lost the entirety of their investment because either Standard

Chartered never invested the $500,000 at issue in the Fairfield Sentry Fund or because
Standard Chartered did invest that money in the Sentry Fund - as Standard Chartered
alleges - and then Fairfield Greenwich handed the money to Madoff, who was running a
Ponzi scheme.

14

II.

THE COMPLAINT PROPERLY STATES CLAIMS FOR BREACH OF
FIDUCIARY DUTY

A.

The Disputed Issue Is Not Whether Standard Chartered Owed the
Plaintiffs Fiduciary Duties, but Whether It Breached Its Duty to
Plaintiffs By Making an Investment in the Fairfield Sentry Fund
Without Authorization or With Authorization.
The Plaintiffs allege that Standard Chartered’s duties included having a reasonable

basis for recommendations made to its customers (Lou Am.Cplt., at ¶¶ 42); taking steps
necessary to determine and understand the material risks associated with an investment
(Lou Am.Cplt., at ¶ 43); monitoring the performance of the funds it recommends to
determine whether any investment previously made in such a fund should remain in the
fund or be removed (Lou Am.Cplt., at ¶¶ 43, 50); and disclosing all material facts to the
investor and neither making nor communicating any material misrepresentations (Lou
Am.Cplt., at ¶¶ 51. There is no dispute between the parties as to whether Standard
Chartered owed the Plaintiffs fiduciary duties. It did and we submit that this issue has
previously been briefed and decided by the Court in its Decision and Order of October 4,
2010 regarding the "Florida" Complaints that were the subject of a prior Motion to
Dismiss the Complaints and that therein contains relevant law of this case in part.
The other fiduciary duty that is most relevant here is the duty not to make an
unauthorized investment. While Standard Chartered's counsel contends that it would not
be logical for Standard Chartered to have made an unauthorized investment of $500,000
from Plaintiffs' account, no documentary or other evidentiary proof has been provided
that the bank either received authorization for the investment or that the alleged
investment in the Fairfield Sentry Fund actually occurred. Either way it is quite a mystery

15

and since Standard Chartered had custody and control of Plaintiffs' funds at all relevant
times, we submit that Standard Chartered should provide proof that the funds were in fact
invested as it alleges in the Sentry Fund or if no proof is forthcoming, then it is selfevident that Standard Chartered has converted the $500,000 since January 2009 when
Plaintiffs asked SCBI for its money or proof of the Sentry Fund investment.
Since Florida law governs the Lou complaint, a brief review of Florida law is
therefore in order. Florida law plainly imposes fiduciary duties on a bank providing
investment advice to its customer, as well as advice on other business matters. Ward v.
Atlantic Security Bank, 777 So.2d 1144 (Fla. 3d DCA 2001) (investment advice); Capital
Bank v. MVB, Inc., 644 So.2d 515, 518(Fla. 3d DCA 1994) (bank giving business advice
to a bank customer from which the bank derived benefit owed the customer fiduciary
duties); Atlantic Nat’l Bank v. Vest, 480 So.2d 1328, 1333 (Fla. 4th DCA 1985) (bank
officer’s answering customer’s question a legal question created jury question of whether
doing so imposed fiduciary duty on bank).
But no Florida case holds that the contours of a bank’s fiduciary relationship with
clients it is providing investment advice are determined by whether the account is
discretionary or non-discretionary, or that those duties are to be borrowed from duties
ascribed to broker-dealers. Most significantly, Standard Chartered can cite no Florida
case holding that the nature of the duties owed to a customer by a bank -- or brokerdealer, for that matter -- turns on whether the account is discretionary or nondiscretionary. Rather, every indication is that Florida law looks to the nature of the
relationship between the bank and its customer/client. Therefore, the Court, in deciding
this case under Florida law, would have no basis to conclude that the Florida Supreme

16

Court, if faced with this issue, would hold that the discretionary/nondiscretionary
dichotomy is controlling or even significant. See Elliott Assocs., L.P. v. Banco de la
Nacion, 194 F.3d 363 (2d Cir.1999) (“it is our job to predict how the forum state's highest
court would decide the issues before us”) (citation and internal quotation marks omitted).
Since the question is whether, as a matter of law, Standard Chartered did not owe
two of the duties the Plaintiffs allege to have existed, Standard Chartered’s argument
comes down to a preposterous one: no matter what was discussed between Standard
Chartered’s representatives and the individual Plaintiffs and how the relationship
developed, the duties of Standard Chartered were circumscribed by whether the account
was discretionary or non-discretionary. Standard Chartered has made no such showing
that this is the law in Florida, and it could not do so. Therefore, the Court must examine
the allegations of the Complaints, not pursuant to some artificial and inapposite test, to
determine whether the alleged duties could be found by the jury to attach to Standard
Chartered. Since this Court has already found in the affirmative in regard to the "Florida"
Complaints of Headway, Maridom and Lopez, we submit that the finding of a fiduciary
duty should apply here too whether Standard Chartered actually invested Plaintiffs'
$500,000 with or without authorization, or did not invest it in the Sentry Fund.
B.

Contrary to Standard Chartered's Contention, Plaintiffs Were Deprived
of the Possession of Their Assets.
Standard Chartered has cited some Florida case law reciting that "conversion is an

unauthorized act which deprives another of his property permanently or for an indefinite
time.” Small Bus. Admin. v. Echevarria, 864 F. Supp. 1254, 1262 (S.D. Fla. 1994) (citing
Nat’l Union Fire Ins. Co. v. Carib Aviation, Inc., 759 F.2d 873 (11th Cir. 1985)).
Standard Chartered did not cite Florida law for the provision that a finding of conversion

17

of funds depends on whether the rightful owner demanded the property back after it was
taken from the account. The essence of an action for conversion is not the acquisition of
property by the wrongdoer but rather the refusal to surrender the possession of the
property after the rightful owner has demanded the property back. Joseph, 940 So. 2d.
483 at 487 (citing Murrel v. Trio Towing Serv., Inc., 294 So. 2d 331 (Fla. 3d DCA 1974).
To be liable for conversion, a plaintiff must demonstrate “a present intent on the part of
the wrongdoer to deprive the person entitled to possession of the property.” Senfeld v.
Bank of Nova Scotia Trust Co. (Cayman), 450 So. 2d 1157, 1161 (Fla. Dist. Ct. App.
1984).
Hence contrary to Standard Chartered's other contention, Plaintiffs submit that they
can maintain a claim for conversion against Standard Chartered because they have
alleged that Standard Chartered intended to, and did, deprive them of their $500,000.
Plaintiffs have alleged that AEBI invested their $500,000 without their authorization, if in
fact Standard Chartered did invest it in the Sentry Fund. The bank thus deprived them of
possession of their property and converted those funds through the Sentry Fund
investment or alternatively by withdrawing those funds from Plaintiffs' account for some
other wrongful purpose. Either way Plaintiffs have been deprived of their $500,000 by
Standard Chartered because if Plaintiffs were not so deprived, they would not have had to
bring the lawsuit to recover their missing $500,000.
If as Standard Chartered alleges, after the investment in the Sentry Fund, the
Plaintiffs retained complete control over the money and the unimpaired ability to redeem
the Sentry shares to obtain their cash value, then it is puzzling why Standard Chartered
has never produced evidence to the Plaintiffs of Sentry Fund shares in Plaintiffs name or

18

any Sentry Fund Subscription Agreement showing that Plaintiffs purchased and
subscribed to the Sentry Fund.

Contrary to Standard Chartered's contention, the

deprivation of those Sentry Fund shares could not have been caused by Bernard Madoff's
fraud. It was rather caused either by Standard Chartered purportedly purchasing Sentry
on their behalf without their authorization in September 2005 or not actually doing so at
all and never returning those funds to Plaintiffs despite demands to do so.
C.

Plaintiffs' Claims Are Not Time Barred
Under the statute of limitations, actions for negligence or breach of fiduciary duty

must be commenced within four years of when the cause of action accrued. See Kelly v.
Lodwick, et al., 2011 Fla. App. LEXIS 4810 April 6, 2011 (Fla. 4th DCA 2011) (citing §
95.11(3)(a), (p), Fla. Stat. (2009)). "A cause of action accrues when the last element
constituting the cause of action occurs." § 95.031(1), Fla. Stat. (2009) (emphasis
added). The last element constituting a cause of action for negligence or breach of
fiduciary duty is the occurrence of damages. See Clay Elec. Coop., Inc. v. Johnson, 873
So. 2d 1182, 1185 (Fla. 2003) (traditionally, a cause of action based on negligence
comprises four elements: duty, breach, proximate cause, and actual loss or damage)
(citation omitted); Gracey v. Eaker, 837 So. 2d 348, 353 (Fla. 2002) ("The elements of a
claim for breach of a fiduciary duty are: the existence of a fiduciary duty, and the breach
of that duty such that it is the proximate cause of the plaintiff's damages."). Thus, "the
issue of when legally cognizable damages occurred is dispositive of this case."
Kellermeyer v. Miller, 427 So. 2d 343, 345 (Fla. 1st DCA 1983).
Here, the damages for the Plaintiffs occurred either on December 11, 2008 when
the Madoff Ponzi scheme was revealed - if Plaintiffs are actually shareholders in the

19

Fairfield Sentry Fund - or alternatively Plaintiffs were injured in January 2009 when
Standard Chartered advised them that they had $500,000 invested in the Sentry Fund but
provided no evidence of that investment or share certificates so that Plaintiffs held
something for the loss of their $500,000 from their account.
In Kelly, the Court clearly delineated when damages occurred in an insurance case
by ruling that
damages to the school and the employee first occurred on April 20, 2005, when
the school and the employee were forced to defend themselves against the
plaintiffs' claim. At that time, if the school had coverage with the second insurer,
then the plaintiffs' suit against the school and the employee would have triggered
the second insurer's duty to defend the school and the employee.
The damages did not occur in that case more than a year earlier when the school
discovered it needed insurance coverage. See id. (citing Hale v. State Farm Fla. Ins. Co.,
51 So. 3d 1169, 1171 (Fla. 4th DCA 2010)). The damages occurred only when the school
and the employee did not have the second insurer to defend them and they were forced to
defend themselves against the plaintiffs' claim and thereby incurred damages. Once the
school and the employee incurred damages, the four-year limitations period commenced.
Similarly in this case, the Lous did not incur damages either through breach of
fiduciary duty, conversion, negligence or any other manner on September 28, 2005 when
Standard Chartered alleges it invested $500,0000 from the Lous account with the
Fairfield Sentry Fund. Rather the damages for the Lous occurred either on December 11,
2008 when the Madoff Ponzi scheme was publicly revealed and trading of the Sentry
Fund was stopped or in January 2009 when the Lous enquired about their money and
were given neither a return of those funds nor share certificates in the Sentry Fund.

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IV. LOUS PROPERLY STATE CAUSES OF ACTION FOR NEGLIGENCE
AND GROSS NEGLIGENCE
Based on the Court's prior decision and order in regard to the Lopez’ claim for
gross negligence and negligence, we submit that the Lous have also properly stated
causes of action for both negligence and gross negligence.
V.

LOUS PLED SUFFICIENT FACTS THAT GIVE RISE TO A DUTY OF
STANDARD CHARTERED TO CONDUCT DUE DILIGENCE
Although Plaintiffs do not recall learning about an investment of their funds in the

Sentry Fund at the time SCBI alleges it made the investment in September 2005, clearly
SCBI had a duty to act prudently and to conduct due diligence before making the
investment in the Sentry Fund without advising its client, the Lous. Or alternatively, if
SCBI did in fact advise the Lous regarding that Sentry Fund investment, the situation
would be similar as for the other investor plaintiffs known as the "Florida" Plaintiffs Headway, Maridom, Lopez and Valladolid - where this Court has found that a cause of
action against Standard Chartered has been properly stated in the Complaints.
CONCLUSION
As the Plaintiffs have demonstrated in this Opposition, the Plaintiffs’ Complaint are
straightforward, relatively simple pleadings that, under a variety of legal theories, seek to
hold Standard Chartered responsible, principally, for having either converted its funds or
alternatively failed to keep those funds away from an overly risky investment. The issue
of whether Standard Chartered actually invested the Lous' funds in the Fairfield Sentry
Fund or the issue of whether Standard Chartered should have done its job as well as the
numerous institutions that, taking account of obvious red flags, avoided Madoff and the
Madoff feeder funds will be questions for the juries. The Court should deny Standard

21

Chartered’s Motion to Dismiss and allow the evidence-gathering process to begin.
Dated: April 11, 2011

_Laurence
 E.
 Curran
 III_______

Laurence
 E.
 Curran
 III
 (LC-­‐4557)

CURRAN
 &
 ASSOCIATES

701
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 Avenue
 -­‐
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 33131

Tel.:
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Fax:
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Email
 address:
 [e-mail]

Attorney
 for
 Plaintiffs

CERTIFICATE
 OF
 SERVICE

I
 HEREBY
 CERTIFY
 that
 I
 caused
 a
 true
 and
 correct
 copy
 of
 the
 foregoing
 to

be
 served
 by
 email,
 in
 PDF
 format,
 upon
 the
 persons
 on
 the
 attached
 service
 list,
 this

11th
 day
 of
 April
 2011.

_Laurence
 E.
 Curran
 III______________

 Laurence
 E.
 Curran
 III

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SERVICE
 LIST
 FOR
 STANDARD
 CHARTERED
 CASES

Sullivan & Cromwell LLP
Simpson Thacher & Bartlett LLP
New York, New York
New York, New York
Attorneys for Standard Chartered
Attorneys for FGG Defendants
Defendants
Peter E. Kazanoff Sharon L. Nelles [e-mail]
[e-mail]
Greenberg Traurig, P.A.
Miami, Florida
Attorneys for Individual FGG
Defendants

Brown & Heller
Miami, Florida
Attorneys for CITCO Fund Services
(Europe) B.V.

Ricardo Alejandro Gonzalez [e-mail]

Amanda McGovern - amcgovern @ghblaw.com

Rivero Mestre LLP
Coral Gables, Florida
Attorneys for Headway

Richard E. Brodsky
The Brodsky Law Firm
Miami, Florida
Attorneys for Maridom, et al.

Jorge Mestre [e-mail]

[e-mail]

Dimond Kaplan & Rothstein, P.A.
Miami, Florida
Attorneys for Pujals

Jones & Adams
Miami, Florida
Attorneys for Almiron and Carrillo

Robert Linkin - [e-mail]

Matthew Jones - matthew@jones-­‐
adams.com

Levine Kellogg Lehman Schneider +
Grossman LLP
Miami, Florida
Attorneys for DaSilva Ferreira

de la O Marko Magolnick & Leyton PA
Miami, Florida
Attorneys for Gerico, de Rivera

Amanda Star Frazer [e-mail]

Joel S. Magolnick [e-mail]

Kachroo Legal Services, P.C.
Cambrudge, Massachusetts
Attorneys for Caso

Aguirre, Morris & Severson
San Diego, California
Attorneys for Maria Akriby Valladolid

Gaytri D. Kachroo [e-mail]

Maria C. Severson –
[e-mail]

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