Anwar et al v. Fairfield Greenwich Limited et al

Filing 654

REPLY MEMORANDUM OF LAW in Support re: (30 in 1:10-cv-08272-VM) MOTION to Dismiss Operative Complaints in Almiron, Carrillo and Lou-Martinez.. Document filed by Stanchart Securities International Inc., Standard Chartered Bank International (Americas) Limited, Standard Chartered PLC. Filed In Associated Cases: 1:09-cv-00118-VM -THK, 1:10-cv-06186-VM, 1:10-cv-06187-VM, 1:10-cv-08272-VM(Nelles, Sharon)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

PASHA S. ANWAR, et al.,
Plaintiffs,
v.
FAIRFIELD GREENWICH LIMITED, et al.,
Defendants.

Master File No. 09-CV-118 (VM) (THK)

This Document Relates To: Lou-Martinez
v. Standard Chartered Bank International
(Americas) Ltd., et al., No. 10-CV-8272;
Almiron v. Standard Chartered Bank
International (Americas) Ltd., et al.,
No. 10-CV-6186; and Carrillo v. Standard
Chartered Bank International (Americas)
Ltd., et al., No. 10-CV-6187.
REPLY MEMORANDUM OF LAW OF STANDARD CHARTERED BANK
INTERNATIONAL (AMERICAS) LTD., STANDARD CHARTERED PLC
AND STANCHART SECURITIES INTERNATIONAL, INC. IN SUPPORT
OF THEIR MOTION TO DISMISS PLAINTIFFS’ AMENDED COMPLAINT
Sharon L. Nelles
Bradley P. Smith
Patrick B. Berarducci
SULLIVAN & CROMWELL LLP
125 Broad Street
New York, New York 10004
Telephone: [phone]
Facsimile: [phone]
[e-mail]
Diane L. McGimsey
(Admitted Pro Hac Vice)
SULLIVAN & CROMWELL LLP
1888 Century Park East
Los Angeles, California 90067
Attorneys for Defendants Standard
Chartered Bank International
(Americas) Ltd., Standard Chartered
PLC and StanChart Securities
International, Inc.
June 6, 2011

TABLE OF CONTENTS
Page
PRELIMINARY STATEMENT .....................................................................................................1 
I. 

THE LOU-MARTINEZES’ LEGAL ARGUMENTS PROVIDE
NO BASIS FOR MAINTAINING THEIR COMPLAINT. ................................................2 
A. 

The Lou-Martinezes Cannot Explain Away the
Deficiencies in Their Claims for Conversion and Breach of
Fiduciary Duty Based on an Allegedly Unauthorized
Investment. ...............................................................................................................2 
1. 

The Court May Consider the Lou-Martinezes’
Account Statements, Which Fatally Undermine
Plaintiffs’ Alleged Ignorance of Their Fairfield
Sentry Investment. .......................................................................................3 

2. 

The Lou-Martinezes’ Claims for Conversion and
Breach of Fiduciary Duty are Untimely, Implausible
and Inadequately Pleaded. ...........................................................................5 

B. 

C. 

II. 

This Court’s Opinion in Anwar-SCBI Does Not Support the
Lou-Martinezes’ Claims for Breach of Duty of Care or
Gross Negligence. ....................................................................................................8 
The Lou-Martinezes’ Failure To Respond to Standard
Chartered’s Other Arguments Is an Abandonment of Their
Claims. .....................................................................................................................9 

ALMIRON AND CARRILLO’S LEGAL ARGUMENTS
PROVIDE NO BASIS FOR MAINTAINING THEIR
COMPLAINT. .....................................................................................................................9 
A. 

Plaintiffs Fail To Plead a Strong Inference of Scienter
Under Rule 9(b). ....................................................................................................10 

B. 

The Arguments Raised by Almiron and Carrillo Do Not
Save Their Claims for Negligent Misrepresentation or
Violation of Section 517.301. ................................................................................12 
1. 

“Fair Notice” Is Not the Pleading Standard Under
Rule 9(b). ...................................................................................................13 

2. 

The Fact That SCBI’s Alleged Misrepresentations
and Omissions Arose in an Investment
Recommendation Does Not Make Them Material. ...................................15 

3. 

Almiron’s and Carrillo’s Conclusory Allegations
That They Lacked Sophistication Are Not Sufficient
To Plead Actual and Justified Reliance. ....................................................18 

4. 

A Securities Broker Is Not Liable Under
Section 517.211(2) Unless the Broker is Also the
Seller of Securities or the Agent of the Seller............................................20 

C. 

Because Securities Brokers Are Not “Professional Services
Providers,” Almiron’s and Carrillo’s Negligence Claims
Are Not Exempt from the Economic Loss Rule. ...................................................21 

D. 

Conducting a Single Investment Transaction Is Not the
Type of Extensive Advisory Relationship That Would
Create Ongoing Duties for SCBI. ..........................................................................22 

E. 

Almiron and Carrillo Do Not Contest Their Failure To
Plead the Absence of an Adequate Legal Remedy or
Challenge the Validity of Their Account Agreements, and
Thus Cannot Maintain Their Unjust Enrichment Claims. .....................................23 

CONCLUSION ..............................................................................................................................24 

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TABLE OF AUTHORITIES
Page(s)
CASES
Allen v. Gordon,
429 So. 2d 369 (Fla. Dist. Ct. App. 1983) .................................................................................6
Anwar v. Fairfield Greenwich Ltd.,
742 F. Supp. 2d 367 (S.D.N.Y. 2010)........................................................................................4
Anwar v. Fairfield Greenwich, Ltd.,
745 F. Supp. 2d 360 (S.D.N.Y. 2010) (“Anwar-SCBI”) .................................................. passim
Atl. Nat’l Bank v. Vest,
480 So. 2d 1328 (Fla. Dist. Ct. App. 1985) .............................................................................16
Azar v. Richardson Greenshields Sec., Inc.,
528 So. 2d 1266 (Fla. Dist. Ct. App. 1988) .............................................................................16
Bell Atl. Corp. v. Twombly,
550 U.S. 544 (2007) .................................................................................................................17
Bruschi v. Brown,
876 F.2d 1526 (11th Cir. 1989) .........................................................................................19, 20
Carran v. Morgan,
510 F. Supp. 2d 1053 (S.D. Fla. 2007) ....................................................................................16
Chambers v. Time Warner, Inc.,
282 F.3d 147 (2d Cir. 2002).......................................................................................................4
City of Monroe Emps. Ret. Sys. v. Bridgestone Corp.,
399 F.3d 651 (6th Cir. 2005) ...................................................................................................18
Cortec Indus., Inc. v. Sum Holdings L.P.,
949 F.2d 42 (2d Cir. 1991).........................................................................................................5
Davis v. Monahan,
832 So. 2d 708 (Fla. 2002).........................................................................................................7
E.F. Hutton & Co. v. Rousseff,
537 So. 2d 978 (Fla. 1989) ......................................................................................................21
ECA & Local 134 IBEW Joint Pension Trust v. JP Morgan Chase Co.,
553 F.3d 187 (2d Cir. 2009).....................................................................................................18
Eisenstadt v. Centel Corp.,
113 F.3d 738 (7th Cir. 1997) ...................................................................................................18
-iii-

Page(s)
Faulkner v. Beer,
463 F.3d 130 (2d Cir. 2006).......................................................................................................5
First Union Dis. Brokerage Servs., Inc. v. Milos,
744 F. Supp. 1145 (S.D. Fla. 1990) ...................................................................................20, 21
Friedman v. Bache & Co.,
321 F. Supp. 347 (S.D. Fla. 1970) ...........................................................................................21
Garden v. Frier,
602 So. 2d 1273 (Fla. 1992).....................................................................................................21
Gomez v. BankUnited,
No. 10-CV-21707, 2011 WL 114066 (S.D. Fla. Jan. 13, 2011) ................................................6
Henneberry v. Sumitomo Corp. of Am.,
532 F. Supp. 2d 523 (S.D.N.Y. 2007)................................................................................10, 15
Hoffman v. UBS-AG,
591 F. Supp. 2d 522 (S.D.N.Y. 2008)......................................................................................17
In re Alstom SA Sec. Litig.,
406 F. Supp. 2d 402 (S.D.N.Y. 2005)......................................................................................11
In re Austl. & N.Z. Banking Grp. Ltd. Sec. Litig.,
No. 08-CV-11278, 2009 WL 4823923 (S.D.N.Y. Dec. 14, 2009) ..........................................18
In re Managed Care Litig.,
185 F. Supp. 2d 1310 (S.D. Fla. 2002) ....................................................................................23
In re Parmalat Sec. Litig.,
479 F. Supp. 2d 332 (S.D.N.Y. 2007)......................................................................................11
In re Worldcom Inc.,
357 B.R. 223 (S.D.N.Y. 2006)...................................................................................................4
Jeff Isaac Rare Coins, Inc. v. Yaffe,
792 F. Supp. 13 (E.D.N.Y. 1992) ............................................................................................15
Johnson v. Amerus Life Ins. Co.,
No. 05-CV-61363, 2006 WL 3826774 (S.D. Fla. Dec. 27, 2006) ...........................................11
Kalil v. Blue Heron Beach Resort Developer, LLC,
720 F. Supp. 2d 1335 (M.D. Fla. 2010) ...................................................................................16
Kasner v. H. Hentz & Co.,
475 F.2d 119 (5th Cir. 1973) ...................................................................................................21
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Page(s)
Kelly v. Lodwick,
--- So. 3d ----, 2011 WL 2031331 (Fla. Dist. Ct. App. May 25, 2011) .....................................6
Lerner v. Fleet Bank, N.A.,
459 F.3d 273 (2d Cir. 2006).....................................................................................................10
Lipton v. Cnty. of Orange,
315 F. Supp. 2d 434 (S.D.N.Y. 2004)........................................................................................9
Matusovsky v. Merrill Lynch,
186 F. Supp. 2d 397 (S.D.N.Y. 2002)......................................................................................19
Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Del Valle,
528 F. Supp. 147 (S.D. Fla. 1981) ...........................................................................................21
Merrill Lynch, Pierce, Fenner & Smith v. Byrne,
320 So. 2d 436 (Fla. Dist. Ct. App. 1975) ...............................................................................21
Mobil Corp. v. Dade Cnty. Esoil Mgmt. Co., Inc.,
982 F. Supp. 873 (S.D. Fla. 1997) ...........................................................................................23
Moransais v. Heathman,
744 So. 2d 973 (Fla. 1999).......................................................................................................21
Nat’l Western Life Ins. Co. v. Merrill Lynch, Pierce, Fenner & Smith, Inc.,
175 F. Supp. 2d 489 (S.D.N.Y. 2000)........................................................................................7
Nova Info. Sys. v. Premier Operations, Ltd. (In re Premier Operations),
294 B.R. 213 (S.D.N.Y. 2003).................................................................................................17
O’Brien v. Nat’l Prop. Analysis Partners,
936 F.2d 674 (2d Cir. 1991).....................................................................................................12
Odyssey Re (London) Ltd. v. Stirling Cooke Brown Holdings Ltd.,
85 F. Supp. 2d 282 (S.D.N.Y. 2000)........................................................................................13
OSRecovery, Inc. v. One Groupe Int’l, Inc.,
No. 02-CV-8993, 2004 WL 238035 (S.D.N.Y. Feb. 9, 2004) .................................................12
RBS Holdings, Inc. v. Wells Fargo Century, Inc.,
485 F. Supp. 2d 472 (S.D.N.Y. 2007)........................................................................................4
Rombach v. Chang,
355 F.3d 164 (2d Cir. 2004)...................................................................................10, 11, 12, 13
Ross v. Bolton,
904 F.2d 819 (2d Cir. 1990).....................................................................................................13
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Page(s)
Rubin v. Gabay,
979 So. 2d 988 (Fla. Dist. Ct. App. 2008) .........................................................................20, 21
Rushing v. Wells Fargo Bank, N.A.,
No. 10-CV-1572, 2010 WL 4639308 (M.D. Fla. Nov. 8, 2010) .............................................20
Shields v. Citytrust Bancorp.,
25 F.3d 1124 (2d Cir. 1994).....................................................................................................12
Small Bus. Admin. v. Echevarria,
864 F. Supp. 1254 (S.D. Fla. 1994) ...........................................................................................8
Tambourine Comercio Int’l S.A. v. Solowsky,
No. 06-CV-20682, 2007 WL 689466 (S.D. Fla. Mar. 4, 2007)...............................................18
Tracfone Wireless Inc. v. Access Telecom, Inc.,
642 F. Supp. 2d 1354 (S.D. Fla. 2009) ....................................................................................23
Valentino v. Bond,
No. 06-CV-504, 2008 WL 3889603 (N.D. Fla. Aug. 19, 2008) ................................................6
Warter v. Boston Secs. S.A.,
No. 03-CV-81026, 2004 WL 691787 (S.D. Fla. Mar. 22, 2004).............................................22
STATUTES AND RULES
15 U.S.C. § 77k ..............................................................................................................................10
15 U.S.C. § 77l...............................................................................................................................10
17 C.F.R. § 240.10b-5....................................................................................................................20
Fla. Stat. Ann. § 95.031(2)(a) ..........................................................................................................6
Fla. Stat. § 517.211(2)........................................................................................................12, 20, 21
Fla. Stat. § 517.301 ................................................................................................................ passim
Fed. R. Civ. P. 8 .............................................................................................................................17
Fed. R. Civ. P. 9(b) ................................................................................................................ passim
Fed. R. Civ. P. 36 .............................................................................................................................7
Fed. R. Civ. P. 56 .............................................................................................................................5

-vi-

Standard Chartered Bank International (Americas) Ltd. (“SCBI”), Standard
Chartered PLC (“SC PLC”) and StanChart Securities Inc. (“StanChart”) (collectively, “Standard
Chartered”) respectfully submit this unified reply memorandum of law in further support of their
unified motion to dismiss the complaints in Lou-Martinez v. Standard Chartered Bank
International (Americas) Ltd. (“Lou-Martinez”), Almiron v. Standard Chartered Bank
International (Americas) Limited (“Almiron”) and Carrillo v. Standard Chartered Bank
International (Americas) Limited (“Carrillo”).
PRELIMINARY STATEMENT
On March 21, 2011, Standard Chartered filed a unified motion to dismiss the
complaints in Lou-Martinez, Almiron and Carrillo. Rather than filing a unified response, as
contemplated under the Second Amended Scheduling Order Regarding Standard Chartered
Cases, entered on February 4, 2011 (ECF No. 602) (the “Scheduling Order”), plaintiffs in these
cases filed separate responses.1 Nonetheless, plaintiffs’ opposition papers share a unifying
theme: they do not address, much less explain away, the fatal flaws in their pleadings. The LouMartinezes have made allegations that are (1) irreconcilable with their contemporaneous
allegations in Anwar v. Fairfield Greenwich Ltd. (“Anwar”); and (2) contradicted by more than
three years’ of account statements. The Lou-Martinezes make no meaningful counter to the
arguments advanced by Standard Chartered because none exist. Almiron and Carrillo similarly
fail to refute the deficiencies of their allegations under Rule 9(b), including their failure to plead
particularized facts or a strong inference of scienter.

1

Under the Scheduling Order, plaintiffs were required to file a unified opposition brief on
or before May 6, 2011. Instead, plaintiffs in Lou-Martinez (the “Lou-Martinezes”) filed an
opposition brief on April 11, 2011 (the “LM Opp.”), while the plaintiffs in Almiron and Carrillo
served a joint opposition brief on May 7, 2011 (the “AC Opp.”), and filed it with the Court on
May 27, 2011.

The arguments raised in each of the opposition briefs are addressed seriatim
below. For the reasons stated below and in Standard Chartered’s Memorandum of Law In
Support of Its Unified Motion to Dismiss Plaintiffs’ Complaints (“Defs.’ Mem.”), the complaints
in Lou-Martinez, Almiron and Carrillo should be dismissed in their entirety.
I.

THE LOU-MARTINEZES’ LEGAL ARGUMENTS PROVIDE NO BASIS FOR
MAINTAINING THEIR COMPLAINT.
In their opposition papers, the Lou-Martinezes do not contest that (1) they do not

allege any wrongdoing against StanChart or SC PLC; (2) they have not adequately pleaded a
fraudulent omission, (3) their gross negligence claim is barred by the economic loss rule, and
(4) their unjust enrichment claim fails because their relationship with Standard Chartered was
governed by written account agreements. Instead, they attempt to deflect review by advancing
peripherally relevant responses to Standard Chartered’s arguments. In the end, however, the
Lou-Martinezes have served a fatal blow upon themselves. Their complaint rests on allegations
that they did not authorize or even know about their investment in Sentry until January 2009.
Those allegations are demonstrably false, and thus, even under the standard of review applicable
on a motion to dismiss, are insufficient to support the claims for conversion or unauthorized
investment. In all events, the Lou-Martinezes plainly do not allege that Standard Chartered
recommended Sentry to them, precluding their claim based on an alleged duty to conduct due
diligence on the fund.
A.

The Lou-Martinezes Cannot Explain Away the Deficiencies in Their Claims
for Conversion and Breach of Fiduciary Duty Based on an Allegedly
Unauthorized Investment.
The Lou-Martinezes’ claims for conversion and breach of fiduciary duty are

premised on the allegation that Standard Chartered misappropriated $500,000 from their
investment account in September 2005 and did not inform them until January 2009 that it had
invested their money in Sentry. (Lou-Martinez Am. Compl. ¶¶ 36-46.) This allegation cannot be
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reconciled with the Lou-Martinezes’ monthly account statements, which show their investment
in Sentry dating back to September 2005. Under well-settled law, the Court can consider the
monthly account statements even in the context of Standard Chartered’s motion to dismiss.
Plaintiffs’ claims also are barred by Florida’s four-year statute of limitations because the alleged
injury occurred in September 2005, not, as plaintiffs argue, in December 2008 or January 2009.
Plaintiffs’ alleged ignorance of their Sentry investment also directly conflicts with Mr. LouMartinez’s allegations in the Anwar Second Consolidated Amended Complaint (“SCAC”).
Finally, the Lou-Martinezes cannot sidestep that it was Bernard Madoff, not Standard Chartered,
that deprived them of their assets.
1.

The Court May Consider the Lou-Martinezes’ Account Statements,
Which Fatally Undermine Plaintiffs’ Alleged Ignorance of Their
Fairfield Sentry Investment.

Between September 2005 and January 2009, the Lou-Martinezes received thirtyeight monthly account statements showing their investment in Fairfield Sentry. This is fatal to
their claims that Standard Chartered wrongfully “converted” their money without their
knowledge and in so doing breached its fiduciary duty to them. (Lou-Martinez Am. Compl.
¶¶ 36-46.) In response, the Lou-Martinezes contend that this Court should not consider the
account statements on the grounds that they are not integral to the complaint, not authenticated,
and not relevant. (LM Opp. at 8-9.) The law does not permit such a head-in-the-sand review of
plaintiffs’ allegations.
According to the Lou-Martinezes, the account statements are not integral to their
complaint because “there is not even any reference to any account documents” therein. (LM
Opp. at 8.) The account statements need not be referenced in the complaint for the Court to
consider them. As this Court has explained, “documents either in plaintiffs’ possession or of
which plaintiffs had knowledge and relied on in bringing suit may be considered,” even if never
-3-

referenced in the complaint. Anwar v. Fairfield Greenwich, Ltd., 745 F. Supp. 2d 360, 366
(S.D.N.Y. 2010) (“Anwar-SCBI”) (quoting Chambers v. Time Warner, Inc., 282 F.3d 147, 153
(2d Cir. 2002) (internal quotation marks omitted). Here, the declaration submitted by counsel for
the Lou-Martinezes accompanying their opposition brief acknowledges that the Lou-Martinezes
possessed the account statements prior to filing this lawsuit. (Declaration of Laurence E. Curran
III (“Curran Decl.”) Ex. 1).2 Plaintiffs cannot avoid these documents now simply because they
have realized the documents defeat the allegations upon which they rest their claims. See RBS
Holdings, Inc. v. Wells Fargo Century, Inc., 485 F. Supp. 2d 472, 477 (S.D.N.Y. 2007)
(Marrero, J.) (“RBS clearly had actual notice of the Consent and Release when the Amended
Complaint was drafted; it cannot avoid the Court's consideration of this document simply by
failing to explicitly reference it in the Amended Complaint.” (citation omitted)).
The Lou-Martinezes next argue that the Court should not consider the account
statements because Standard Chartered authenticated the statements through its attorney who
“does not purport to speak with personal knowledge.” (LM Opp. at 9.) But “‘[a]uthentication
need not . . . be by someone with personal knowledge of the underlying events described in the
document, the substance or accuracy of the document, and the methods of calculation. . . .
[A]uthentication only requires a showing that the document is what it purports to be.’” Anwar v.
Fairfield Greenwich Ltd., 742 F. Supp. 2d 367, 372 n.3 (S.D.N.Y. 2010) (Marrero, J.) (quoting
In re Worldcom Inc., 357 B.R. 223, 229 (S.D.N.Y. 2006)) (alterations in original). The LouMartinezes do not raise any legitimate question of the account statements’ authenticity.

2

In the June 1, 2010 letter that plaintiffs’ counsel attaches to his declaration, Standard
Chartered’s counsel enclosed copies of, among other documents, “account statements that were
provided to Mr. Martinez on a monthly basis following his investment in Fairfield Sentry in
September 2005,” each of which “reflects that Mr. Martinez was invested in Sentry.” (See
Curran Decl. Ex. 1.)
-4-

The Lou-Martinezes finally argue that “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.” (LM Opp. at 9.) This argument
borders on frivolous.3 Because the Lou-Martinezes contend that they did not make, or were
unaware of, their investment in Fairfield Sentry, it is of course relevant that dozens of their own
account statements show the presence of a Sentry investment in their account for over three
years.4
2.

The Lou-Martinezes’ Claims for Conversion and Breach of Fiduciary
Duty are Untimely, Implausible and Inadequately Pleaded.

Even if the Lou-Martinezes’ account statements did not defeat their claims for
conversion and breach of fiduciary duty for unauthorized investment, these claims should be
dismissed because they are (1) untimely under Florida’s four-year statute of limitations because
they accrued in September 2005; (2) implausible because they rest on factual allegations that Mr.
Lou-Martinez has disavowed in Anwar; and (3) inadequately pleaded because the LouMartinezes do not adequately allege that Standard Chartered deprived (or intended to deprive)
3

The argument is not supported by Faulkner v. Beer, 463 F.3d 130 (2d Cir. 2006), the case
relied on by the Lou-Martinezes. (LM Opp. at 8, 10-11.) In Faulkner, the Second Circuit
vacated a dismissal order because the district court considered various extrinsic documents
without conducting any analysis “of which plaintiffs had received which documents,”
notwithstanding that many plaintiffs likely did not receive each document. 463 F.3d at 134-35.
No such difficulties exist here. The Lou-Martinezes’ do not allege or otherwise argue that they
did not receive the account statements or that the statements were somehow inaccurate or
untimely.

4

Standard Chartered’s motion to dismiss should not be converted to one for summary
judgment if the Court decides to consider the account statements. (LM Opp. at 11-13.) “Where
[a] plaintiff has actual notice of all the information in the movant’s papers and has relied upon
these documents in framing the complaint the necessity of translating a Rule 12(b)(6) motion
into one under Rule 56 is largely dissipated.” Cortec Indus., Inc. v. Sum Holdings L.P., 949 F.2d
42, 48 (2d Cir. 1991). That is true here. More than three months before the Lou-Martinezes
initiated this action, Standard Chartered provided them with copies of their account statements
and explained that the statements evidenced that the Lou-Martinezes had authorized and
confirmed their investment in Sentry. (Curran Decl. Ex. 1.)
-5-

them of their assets. (Defs.’ Mem. at 18-21.) The Lou-Martinezes’ attempts to refute these
arguments all fall short.
First, the Lou-Martinezes contend that their claims accrued either on
December 11, 2008, the date Madoff’s fraud was exposed, or January 2009, the date they
allegedly learned about their Sentry investment. (LM Opp. at 19-20.) Their conversion and
fiduciary duty claims, however, are premised on the alleged injury that occurred when Standard
Chartered allegedly withdrew funds from their account without authorization. (Lou-Martinez
Am. Compl. ¶¶ 37, 44.) The claims thus accrued on the date of the allegedly unauthorized
withdrawal, not the date the Madoff fraud was exposed or the date they supposedly learned of
the investments. E.g., Kelly v. Lodwick, --- So. 3d ----, 2011 WL 2031331, at *3 (Fla. Dist. Ct.
App. May 25, 2011) (statute of limitations for breach of fiduciary duty attaches at time of the
initial injury, even if damages not fully realized at time); Gomez v. BankUnited, No. 10-CV21707, 2011 WL 114066, at *5 (S.D. Fla. Jan. 13, 2011) (statute of limitations for conversion
began to run when defendant wrongfully deposited checks into own account, not where plaintiff
discovered the money was stolen).5 That withdrawal occurred in September 2005. (See LouMartinez Am. Compl. ¶¶ 22-23; Anwar SCAC ¶ 60; Berarducci Decl. Ex. G.) The LouMartinezes’ conversion and breach of fiduciary duty claims are therefore time barred.6

5

See also Valentino v. Bond, No. 06-CV-504, 2008 WL 3889603, at *8 (N.D. Fla. Aug.
19, 2008) (statute of limitations for breach of fiduciary duty claim began to run at the time
defendants allegedly released plaintiffs’ money from an escrow account improperly); Allen v.
Gordon, 429 So.2d 369, 371 (Fla. Dist. Ct. App. 1983) (“The conversion took place . . . upon
appellant taking money from the accounts.”).
6

At most, the Lou-Martinezes could argue that until December 2008 or January 2009 they
were unaware of the injury they had incurred in September 2005. But they do not argue for the
application of Florida’s delayed discovery rule, and that rule plainly would not apply if they had.
The Lou-Martinezes “should have discovered” long before January 2009 “with the exercise of
due diligence” that an unauthorized investment in Sentry was made in their account, Fla. Stat.
Ann. § 95.031(2)(a), and, in any event, the Florida Supreme Court has held that the delayed
-6-

Second, the Lou-Martinezes argue that their respective allegations in this case and
Anwar do not conflict because Standard Chartered has not provided them with “written proof” of
their Sentry investment. (LM Opp. at 2-3.) This argument makes no sense. Irrespective of what
proof of the investment exists, the Lou-Martinezes allege in one case that they did not authorize
or know about the Sentry investment, and allege in another case that they did. In particular, the
Lou-Martinezes allege in this case that “they did not authorize AEBI to withdraw any funds for
an investment in the Fairfield Sentry Fund in September 2005 or at anytime,” (Am. Compl. ¶ 30)
and that they “were never informed by the [Bank] prior to January 2009 that $500,000 of their
funds had been invested from their account at [SCBI] (formerly AEBI) in the Fairfield Sentry
Fund,” (Am. Compl. ¶ 31.) In the Anwar case, Mr. Lou-Martinez, a named plaintiff, alleges that
he “invested assets in Fairfield Sentry in approximately September 2005,” (SCAC ¶ 60), and that
he “justifiably relied upon the false representations made by [Fairfield] by investing [his] assets
in the Fund” (SCAC ¶ 358). Although a party may plead “inconsistent theories or statements of
a claim, there is no authority for the proposition that . . . a party may assert as fact two assertions
that directly contradict each other.” Nat’l Western Life Ins. Co. v. Merrill Lynch, Pierce, Fenner
& Smith, Inc., 175 F. Supp. 2d 489, 492 (S.D.N.Y. 2000) (Marrero, J.) Because the LouMartinezes’ conversion and breach of fiduciary duty claims rely entirely on such clashing factual
allegations, they should be dismissed.7 Id.
Third, the Lou-Martinezes do not dispute that they must plead that Standard
Chartered deprived, and intended to deprive, them of their assets—both necessary elements for a
discovery doctrine does not apply to causes of action for conversion and breach of fiduciary
duty, Davis v. Monahan, 832 So. 2d 708, 709-12 (Fla. 2002).
7

On May 10, 2011, Standard Chartered served on counsel for the Lou-Martinezes six
Requests for Admissions pursuant to Rule 36 in an effort to resolve these conflicts. (Ex. A to
Supplemental Declaration of Patrick B. Berarducci.) Standard Chartered has not heard from the
Lou-Martinezes or their counsel; their responses are due on June 9.
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conversion claim under Florida law, Small Bus. Admin. v. Echevarria, 864 F. Supp. 1254, 126263 (S.D. Fla. 1994). In response to Standard Chartered’s argument that Bernard Madoff, not
Standard Chartered, deprived them of their assets (Defs.’ Mem. at 20-21), the Lou-Martinezes
say only that they “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,” (LM Opp. at 18). They also contend that their allegation “that AEBI
invested their $500,000 without their authorization, if in fact Standard Chartered did invest it in
the Sentry Fund” is adequate to show an intent to deprive. (LM Opp. at 18.) Whatever these
statements mean, they do not show deprivation or intent by Standard Chartered. Indeed,
Standard Chartered could not have deprived, or intended to deprive, the Lou-Martinezes of their
assets merely by purchasing shares of Sentry on their behalf because, as even the LouMartinezes recognize, they were able to redeem those shares for more than three years following
the alleged conversion. (LM Opp. at 5.)
B.

This Court’s Opinion in Anwar-SCBI Does Not Support the Lou-Martinezes’
Claims for Breach of Duty of Care or Gross Negligence.
Relying on this Court’s opinion in Anwar-SCBI, the Lou-Martinezes argue that

their fiduciary duty and gross negligence claims against Standard Chartered should survive
dismissal because this Court previously declined to dismiss similarly-styled claims in other
actions. (LM Opp. at 15-17, 21.) The Lou-Martinezes ignore, however, that their factual
allegations are fundamentally different from the allegations previously considered by this Court.
In Anwar-SCBI, this Court held that the plaintiffs had adequately pleaded a duty to conduct due
diligence by alleging that Standard Chartered recommended Sentry to them, and a duty to
monitor plaintiffs’ accounts because plaintiffs alleged facts indicating that Standard Chartered
undertook an extensive advisory relationship with plaintiffs. 745 F. Supp. 2d at 376-77. By
contrast, here, the Lou-Martinezes allege that Standard Chartered did not recommend Sentry to
-8-

them at all, and they do not allege that Standard Chartered performed any advisory functions for
them.
C.

The Lou-Martinezes’ Failure To Respond to Standard Chartered’s Other
Arguments Is an Abandonment of Their Claims.
“This Court may, and generally will, deem a claim abandoned when a plaintiff

fails to respond to a defendant’s arguments that the claim should be dismissed.” Lipton v. Cnty.
of Orange, 315 F. Supp. 2d 434, 446 (S.D.N.Y. 2004). The Lou-Martinezes fail to respond to
the arguments advanced by Standard Chartered with respect to plaintiffs’ claims for fraud, gross
negligence and unjust enrichment:


The Lou-Martinezes fail to respond to Standard Chartered’s argument that they have
not adequately pleaded their fraud claim, which alleges that Standard Chartered failed
to disclose that Sentry was a feeder fund to BLMIS. (See Defs.’ Mem. at 24.)



The Lou-Martinezes fail to respond to Standard Chartered’s argument that their gross
negligence claim should be barred by Florida’s economic loss rule. (See Defs.’ Mem.
at 33-34.)



The Lou-Martinezes also do not respond to Standard Chartered’s argument that their
unjust enrichment claim should be dismissed. (See Defs.’ Mem. at 35-36.)
In addition, all of the Lou-Martinezes’ claims against StanChart (SCBI’s affiliate)

and SC PLC (SCBI’s ultimate parent) should be dismissed because the Lou-Martinezes do not
respond at all to Standard Chartered’s argument that they failed to plead any allegations of
wrongdoing against these particular defendants.8 (See Defs.’ Mem. at 36-37.)
II.

ALMIRON AND CARRILLO’S LEGAL ARGUMENTS PROVIDE NO BASIS
FOR MAINTAINING THEIR COMPLAINT.
In their joint opposition, Almiron and Carrillo repeatedly seek to avoid or dilute

the heightened pleading requirements of Rule 9(b). Despite basing each of their claims on

8

The Lou-Martinezes also do not even mention Rule 9(b) in their opposition brief, much
less argue that they have met its requirements. (See Defs.’ Mem. at 12-17.) Because the
requirements of Rule 9(b) apply to all of the Lou-Martinezes’ claims (id.), the Lou-Martinezes’
failure to respond to this argument is, by itself, sufficient to dismiss their entire complaint.
-9-

allegations of fraud, they contend that Rule 9(b) applies only to their Section 517.301 claims and
does not require that they plead a strong inference of scienter. They also assert that “fair notice”
satisfies the particularity requirements of Rule 9(b). These arguments are contrary to settled law.
Separately, because plaintiffs’ purchase of Sentry was their first and only transaction with SCBI,
they cannot point to any allegations of a comprehensive advisory relationship with SCBI that
could give rise to ongoing duties to monitor their accounts, thus defeating their negligence and
breach of fiduciary duty claims to the extent they are based on such duties. Moreover, because
securities brokers are not “professionals” under Florida law, plaintiffs’ effort to invoke the socalled “professional services” exception to the economic loss rule fails. Finally, plaintiffs’ unjust
enrichment claims fail because, among other reasons, they do not dispute that their relationship
with SCBI was governed by written agreements.
A.

Plaintiffs Fail To Plead a Strong Inference of Scienter Under Rule 9(b).
Under Rule 9(b), “plaintiffs must allege facts that give rise to a strong inference

of fraudulent intent.” Lerner v. Fleet Bank, N.A., 459 F.3d 273, 290 (2d Cir. 2006) (quotations
and citation omitted). Almiron and Carrillo concede that their Section 517.301 claims are
subject to Rule 9(b) (e.g., AC Opp. at 26), but claim they can evade its requirement to plead a
strong inference of scienter because liability under Section 517.301 may be established by a
showing of negligence. (AC Opp. at 11-12, 17.) Their argument fails. The heightened pleading
requirements of Rule 9(b) apply equally to all claims based on allegations of fraud regardless of
the showing necessary to establish liability. See Rombach v. Chang, 355 F.3d 164, 170-71 (2d
Cir. 2004) (liability under Section 11 and Section 12(a)(2) of Securities Act of 1933 requires
negligence, but Rule 9(b) applies to the extent such claims are based on allegations of fraud).
Thus, their failure to plead a strong inference of scienter is fatal to their Section 517.301 claims.
See Henneberry v. Sumitomo Corp. of Am., 532 F. Supp. 2d 523, 541-43 (S.D.N.Y. 2007)
-10-

(dismissing negligent misrepresentation claim for failure to plead strong inference of scienter
under Rule 9(b)).
The same failure defeats Almiron’s and Carrillo’s claims for breach of fiduciary
duty, negligence, negligent misrepresentation and unjust enrichment. (Defs.’ Mem. at 12-14.)
Almiron and Carrillo argue that, unlike in In re Alstom SA Sec. Litig., 406 F. Supp. 2d 402
(S.D.N.Y. 2005) (Marrero, J.), this case does not involve “broad and overarching allegations of
fraud” that would justify applying Rule 9(b) to each claim. (AC Opp. at 26-27.) As this Court
previously explained, however, “‘Rule 9(b)’s pleading requirements apply to actions involving
claims for negligent misrepresentation’ under Florida law because such actions sound in fraud.”
Anwar, 745 F. Supp. at 372 (quoting Johnson v. Amerus Life Ins. Co., No. 05-CV-61363, 2006
WL 3826774, at *4 (S.D. Fla. Dec. 27, 2006)). Indeed, Rule 9(b) applies to causes of action that
are premised on allegations of fraud, Rombach, 355 F.3d at 171, not just claims that are premised
on “broad and overarching allegations of fraud.”9
Each of Almiron’s and Carrillo’s claims “reallege[s] and incorporate[s] by
reference[]” the same allegations of fraudulent conduct that plaintiffs concede trigger application
of Rule 9(b) to their Section 517.301 claims. See In re Parmalat Sec. Litig., 479 F. Supp. 2d
332, 340 n.30 (S.D.N.Y. 2007) (claim for negligent misrepresentation that “realleges and
incorporates by reference all prior allegations, including those alleging fraud . . . , alleges
intentional, not negligent, misrepresentation and is subject to Rule 9(b).” (internal citation and

9

It is plain, in any event, that Almiron’s and Carrillo’s allegations of fraud were intended
to encompass the entirety of SCBI’s alleged wrongdoing. They characterize, for example, their
factual allegations as describing that SCBI engaged both in “false and misleading
statements . . . and . . . deceptive and manipulative devices and contrivances.” (Almiron Compl.
¶ 67; Carrillo Compl. ¶ 69.)
-11-

quotations omitted)).10 Moreover, their respective negligence and breach of fiduciary duty
claims allege that SCBI failed to conduct due diligence sufficient to uncover Madoff’s fraud
through misconduct that was “akin to fraud.” (Almiron Compl. ¶ 77; Carrillo Compl. ¶¶ 79.)
This is not mere semantics. It is one thing for a customer to allege that SCBI was negligent in
recommending Sentry as an investment without uncovering Bernard Madoff’s Ponzi scheme; it
is quite another to allege, as Almiron and Carrillo do here, that SCBI defrauded its customers by
recommending Sentry. Rule 9(b) is intended “to safeguard a defendant’s reputation from [such]
improvident charges of wrongdoing.” Shields v. Citytrust Bancorp., 25 F.3d 1124, 1128 (2d Cir.
1994) (quoting O’Brien v. Nat’l Prop. Analysis Partners, 936 F.2d 674, 676 (2d Cir. 1991));
Rombach, 355 F.3d at 171 (same).
B.

The Arguments Raised by Almiron and Carrillo Do Not Save Their Claims
for Negligent Misrepresentation or Violation of Section 517.301.
Almiron and Carrillo argue that they have pleaded misrepresentation claims with

particularity by providing “fair notice” of an unspecified number of alleged misrepresentations
and omissions that misled them into investing in Sentry. They claim certain of these
representations were material because they concerned “pivotal facts” about an investment
recommendation. Yet they are unable to point to a single non-conclusory allegation indicating
that they might have evaluated the Sentry fund differently had SCBI presented its alleged
recommendation differently. In fact, they allege quite the opposite: that they “lacked the
expertise to evaluate investment strategies for [themselves].” They also assert that Section
507.211(2) provides for liability against securities brokers such as SCBI even where the broker
and purchaser are not in buyer/seller privity. None of these arguments are correct.

10

See also OSRecovery, Inc. v. One Groupe Int’l, Inc., No. 02-CV-8993, 2004 WL 238035,
at *1 (S.D.N.Y. Feb. 9, 2004) (finding negligent misrepresentation claim subject to Rule 9(b)
because it incorporated fraud claim by reference and “thus also sound[ed] in fraud”).
-12-

1.

“Fair Notice” Is Not the Pleading Standard Under Rule 9(b).

Almiron and Carrillo argue that they have met Rule 9(b)’s heightened pleading
requirements by providing SCBI with “fair notice” of the nature of their claims.11 (AC Opp. at
14-17.) Providing “fair notice” is a primary goal of Rule 9(b). Ross v. Bolton, 904 F.2d 819,
823 (2d Cir. 1990). But “fair notice” is not all the rule requires. Rather, in addition to providing
“fair notice” of a claim, Rule 9(b), requires a plaintiff asserting a claim for material
misrepresentation to “(1) specify the statements that the plaintiff[s] contends were fraudulent,
(2) identify the speaker, (3) state where and when the statements were made, and (4) explain why
the statements were fraudulent.” Rombach, 355 F.3d at 170 (citation and quotation marks
omitted). For alleged omissions, a plaintiff must allege “(1) what the omissions were; (2) the
person responsible for the failure to disclose; (3) the context of the omissions and the manner in
which they misled the plaintiff, and (4) what defendant obtained through the fraud.” Odyssey Re
(London) Ltd. v. Stirling Cooke Brown Holdings Ltd., 85 F. Supp. 2d 282, 293 (S.D.N.Y. 2000).
This is far more than simply “fair notice” and far more than Almiron and Carrillo have alleged in
their complaints.
Despite arguing to the contrary (AC Opp. at 15), Almiron and Carrillo have not
identified with particularity the actual statements or omissions that they contend were fraudulent.
In pleading their Section 517.301 claims in their respective complaints, Almiron and Carrillo
simply reference “misleading statements set forth above” without further identification of the
statements. (Almiron Compl. ¶ 67; Carrillo Compl. ¶ 69.) Later in their respective complaints,

11

In their opposition, Almiron and Carrillo address the particularity requirements of Rule
9(b) only as to their Section 517.301 claims (AC Opp. at 14-16), not their negligent
misrepresentation claims (AC Opp. at 23-24). Because Rule 9(b) applies to both sets of claims
(supra at 10-12), and because Almiron and Carrillo argue that they have adequately pleaded their
negligent misrepresentation claims for the same reasons as their Section 517.301 claims (AC
Opp. at 23-24), SCBI will address both sets of claims under Rule 9(b) in this memorandum.
-13-

Almiron and Carrillo assert claims for negligent misrepresentation based on the following
alleged representations and omissions:12


that SCBI represented Sentry as a “safe, low-risk investment with steady returns.”
(Almiron Compl. ¶ 93(a); Carrillo Compl. ¶ 94(a).)



that SCBI did not disclose that Sentry “was a Madoff-feeder fund that merely
funneled the funds it raised to BLMIS.” (Almiron Compl. ¶ 93(b); Carrillo Compl.
¶ 94(b).)



“[t]hat the private placement memorandum issued by [Sentry] and distributed to the
Plaintiff[s] by [SCBI] was misleading and falsely stated ‘affiliated investment
manager’ of [Sentry] was managing [Sentry]’s assets, never disclosing the identity of
BLMIS, an unknown third-party.” (Almiron Compl. ¶ 93(c); Carrillo Compl.
¶ 94(c).)

Even if the Court might otherwise infer that Almiron’s and Carrillo’s Section 517.301 claims are
based on this same list, Almiron and Carrillo assert that the challenged representations
“includ[e], but [are] not limited to” those listed. (Almiron Compl. ¶ 93; Carrillo Compl. ¶ 94.)
Thus, it is unclear from their respective complaints which representations and omissions Almiron
and Carrillo purport to challenge. Plaintiffs confuse matters further by identifying three
different, allegedly false representations in their joint opposition:


SCBI’s alleged representation that “extensive” due diligence had been conducted on
Sentry;



SCBI’s alleged misrepresentation “that the information Defendants gave to Plaintiffs
about Fairfield Sentry Ltd. was based solely on propaganda received from Fairfield
Sentry Ltd. and not Defendants’ own research”;13 and



SCBI’s alleged failure to disclose that “the funds Plaintiffs thought were being
controlled by Fairfield Sentry Ltd., were in fact turned over to BLMIS.”

12

Of course, Almiron and Carrillo also prefaced that list with the proviso that the
challenged representations “includ[e], but [are] not limited to” those listed. (Almiron Compl.
¶ 93; Carrillo Compl. ¶ 94.)
13

Almiron and Carrillo do not plead this omission, or any facts relating to this omission, in
their complaints.
-14-

(AC Opp. at 7.)14 Plaintiffs’ failure to “state anywhere exactly which of the allegations . . . are
actually the specific [challenged] misrepresentations” itself violates Rule 9(b). See Henneberry,
532 F. Supp. 2d at 541.
Moreover, even if any challenged representations are adequately identified, they
are not pleaded with the requisite particularity. Almiron and Carrillo fail to plead the location of
any alleged misrepresentations and the context of any alleged omissions, including the location
and frequency of their contacts with SCBI (Defs’ Mem. at 24-25), yet they ignore these failures
in their opposition papers (see AC Opp. at 14-17). Nor do Almiron and Carrillo’s allegations
that SCBI recommended Sentry to them in “approximately September 2008” or “late-November
or early-December 2008” (AC Opp. at 16) state with sufficient particularity when the alleged
misrepresentations occurred. See Jeff Isaac Rare Coins, Inc. v. Yaffe, 792 F. Supp. 13, 15
(E.D.N.Y. 1992) (dismissing allegations that misstatements occurred “in early January of 1991”
as not sufficiently particular under Rule 9(b)).
2.

The Fact That SCBI’s Alleged Misrepresentations and Omissions
Arose in an Investment Recommendation Does Not Make Them
Material.

Almiron and Carrillo do not refute SCBI’s argument that none of the particular
misrepresentations or omissions plaintiffs purport to challenge had an impact on their decision to
invest in Sentry. (See Defs.’ Mem. at 26-27.) Instead, they broadly contend that any facts
“concerning the advisability of an investment” are material and actionable. (AC Opp. at 4-7.)
14

Elsewhere in their opposition, Almiron and Carrillo provide excerpts from their
complaints, some of which reference alleged representations or omissions by Standard
Chartered. (See AC Opp. at 5-6.) It is not clear whether Almiron and Carrillo contend these
excerpts identify additional misrepresentations. For example, the excerpts contain references to
Standard Chartered allegedly characterizing Sentry as a “low-risk, long-term investment that
could generate steady returns.” (AC Opp. at 5.) As Standard Chartered explained in its opening
brief, such a characterization of Sentry would not have been false when made. (Defs.’ Mem. at
25-26.) Almiron and Carrillo never respond to this argument and do not list the characterization
as among those that were false when made. (AC Opp. at 7.)
-15-

This proposed standard is unsupported by the two cases on which Almiron and Carrillo rely,
Azar v. Richardson Greenshields Secur., Inc., 528 So. 2d 1266 (Fla. Dist. Ct. App. 1988) and
Carran v. Morgan, 510 F. Supp. 2d 1053 (S.D. Fla. 2007). Azar is inapposite. The plaintiffinvestor there identified particular information that the defendant misrepresented, namely, the
existence of a recommendational report relating to a proposed stock purchase, upon which
plaintiff-investor had historically relied on in making investment decisions. See 528 So. 2d at
1268. Carran is inapposite for the same reason. The plaintiff-investor there identified particular
information that the defendant-broker misrepresented, namely, that the broker would invest
(rather than convert) the plaintiff’s money, that the plaintiff likewise had relied on in making
investment decisions for a long period of time.15 510 F. Supp. 2d at 1058-56. By contrast, here,
Almiron and Carrillo point to conclusory allegations, not particular facts, to support their
argument that any challenged representation was material.
For example, Almiron and Carrillo argue that SCBI’s alleged failure to disclose
that Madoff managed Sentry’s assets was material because it was a “pivotal fact[] regarding
where and how Plaintiffs’ money was going to be invested.”16 (AC Opp. at 7.) Almiron and
Carrillo, however, must allege facts to demonstrate why Madoff’s involvement in Sentry would
have been a “pivotal fact” to them. See Kalil v. Blue Heron Beach Resort Developer, LLC, 720
F. Supp. 2d 1335, 1345 (M.D. Fla. 2010) (plaintiffs’ bare statements that they would not have
entered into a transaction “had they known the truth” not sufficient to render the allegedly
omitted fact material); Atl. Nat’l Bank v. Vest, 480 So. 2d 1328, 1332 (Fla. Dist. Ct. App. 1985)
(alleged misrepresentation not material where plaintiff would have completed the transaction
15

The defendant also held himself out as a licensed investment advisor, yet he allegedly
had no such license. 510 F. Supp. 2d at 1059.

16

Almiron and Carrillo do not allege that Standard Chartered made any representations
concerning the identity of the custodian or investment manager of the Sentry fund.
-16-

with or without the alleged misrepresentation).17 They have not. Rather, Almiron’s and
Carrillo’s allegations suggest the opposite. Both allege (and emphasize in their opposition) that
they “‘lacked the expertise to evaluate investment strategies for [themselves].’” (AC Opp. at 8
(quoting Almiron Compl. ¶ 28; Carrillo Compl. ¶ 29).) It is thus implausible that Almiron and
Carrillo would have disregarded SCBI’s recommendation if only they had known that Madoff
managed Sentry’s assets.
Almiron and Carrillo also allege no facts particular to their case that would make
SCBI’s vague representation that “extensive” due diligence had been conducted on Sentry
material to their decision to invest in Sentry.18 (supra at 13-15; AC Opp. at 7.) Even if false or
misleading (it was not),19 the concept of due diligence includes a vast spectrum of activities,
from making specific inquiries and conducting investigations to “simply the exercise of due
17

Even under Rule 8, 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.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 554 (2007).

18

Standard Chartered did not address this representation in its opening brief because
Almiron and Carrillo did not identify it as one of the challenged misrepresentations in their
complaints. (See supra at 13-14.) This Court should, therefore, consider the arguments raised
herein by Standard Chartered because they are in direct response to Almiron’s and Carrillo’s
opposition brief. See Nova Info. Sys. v. Premier Operations, Ltd. (In re Premier Operations),
294 B.R. 213, 218 (S.D.N.Y. 2003) (Marrero, J.) (considering arguments raised for first time in
reply brief that responded to arguments raised in opposition brief).
19

The factual allegations do not evidence that SCBI made a false statement, much less a
materially false statement. Almiron and Carrillo allege as follows: SCBI “advised the
Plaintiff[s] that extensive due diligence had been done on Fairfield Sentry Ltd. before
recommending it” (Almiron Compl. ¶ 29; Carrillo Compl. ¶ 31); Fairfield “consistently
misrepresented . . . that it conducted extensive due diligence” on the Sentry fund (Almiron
Compl. ¶ 43; Carrillo Compl. ¶ 45); then, after Madoff’s fraud was exposed, an executive from
Standard Chartered stated that Standard Chartered “had done none of [its] own due diligence or
investigations with respect to Fairfield Sentry Ltd., but instead had relied wholly upon
representations made by promoters of Fairfield Sentry” (AC Opp. at 7 (quoting Almiron Compl.
¶ 58; Carrillo Compl. ¶ 60)). Even taken as true, these allegations do not “affirmatively create an
impression that was materially different from the truth” because SCBI’s alleged representation
that due diligence had been performed on Sentry was not inconsistent with a later statement that
SCBI’s due diligence relied on information obtained from Fairfield. Hoffman v. UBS-AG, 591 F.
Supp. 2d 522, 535 (S.D.N.Y. 2008).
-17-

care.” Eisenstadt v. Centel Corp., 113 F.3d 738, 741 (7th Cir. 1997). Thus, without more
information concerning what constitutes “extensive” due diligence, “[n]o investor would take
such statements seriously in assessing a potential investment, for the simple fact that almost
every . . . bank makes these statements.” ECA & Local 134 IBEW Joint Pension Trust v. JP
Morgan Chase Co., 553 F.3d 187, 197-98, 205-06 (2d Cir. 2009) (statement regarding bank’s
“highly disciplined” risk management procedures not material where plaintiffs alleged that poor
discipline led to bank’s involvement in Enron and Worldcom scandals).20
3.

Almiron’s and Carrillo’s Conclusory Allegations That
They Lacked Sophistication Are Not Sufficient
To Plead Actual and Justified Reliance.

Almiron and Carrillo do not refute SCBI’s argument that they have failed to plead
actual reliance, which, under Florida law, requires “a plaintiff to establish that, but for the
alleged misrepresentation or omission, the plaintiff would not have entered into the transaction at
issue.” Tambourine Comercio Int’l S.A. v. Solowsky, No. 06-CV-20682, 2007 WL 689466, at *6
(S.D. Fla. Mar. 4, 2007) (See AC Opp. at 7-11; Defs.’ Mem. at 27-29.) Instead, they presume
(without pointing to any allegations) that they have pleaded actual reliance, and then contend that
their reliance was justified because they “‘lacked the expertise to evaluate investment strategies
for [themselves].’” (AC Opp. at 8 (quoting Almiron Compl. ¶ 28; Carrillo Compl. ¶ 29).)
Such contentions are directly contradicted by Almiron’s and Carrillo’s respective
account agreements, in which Almiron and Carrillo agree they are sophisticated investors who
will not rely on representations by SCBI:
20

See also City of Monroe Emps. Ret. Sys. v. Bridgestone Corp., 399 F.3d 651, 671 (6th
Cir. 2005) (statement from company that it “employed [r]igorous testing under diverse
conditions . . . [that] helps ensure reliable quality” not actionable under Section 10(b)); In re
Austl. & N.Z. Banking Grp. Ltd. Sec. Litig., No. 08-CV-11278, 2009 WL 4823923, at *12
(S.D.N.Y. Dec. 14, 2009) (bank’s “generalized statements concerning the quality of its risk
management practices and controls are not actionable” where plaintiffs alleged that bank’s
inadequate risk management led to heavy loan losses).
-18-

[ALMIRON AND CARRILLO ARE] SOPHISTICATED
INVESTOR[S] WHO WILL MAKE EACH INVESTMENT
DECISION AFTER CONSIDERING ALL OF THE RISKS
INVOLVED AND WILL NOT RELY ON ANY STATEMENT,
REPRESENTATION, WARRANTY, INFORMATION,
RECOMMENDATION, SUGGESTION, OPINION, OR
ACTION, OR THE ABSENCE THEREOF, BY AEBI OR ITS
REPRESENTATIONS.
(Berarducci Decl. Exs. C-D ¶ 11(c).) Almiron and Carrillo seek to evade this language, asserting
it does not supplant a prior representation or directly contradict the substance of SCBI’s alleged
misrepresentation. (AC Opp. at 9-11.) This misses the point. Almiron and Carrillo cannot plead
justifiable reliance by conclusorily alleging that they lack sophistication and are unable to
evaluate investment decisions, because they both entered into written agreements representing
that they were sophisticated investors and would not rely on representations from SCBI.
Matusovsky v. Merrill Lynch, 186 F. Supp. 2d 397, 400 (S.D.N.Y. 2002) (Marrero, J.)
(allegations that are contradicted by other materials cannot survive a motion to dismiss).
Almiron and Carrillo have not alleged any facts to demonstrate why they should not be held to
the terms of their account agreements in executing their first and only transactions through their
accounts.
Almiron and Carrillo also assert that their reliance on SCBI’s alleged
representations was justified under the seven factors set forth in Bruschi v. Brown, 876 F.2d
1526 (11th Cir. 1989):
(1) the sophistication and expertise of the plaintiff in financial and
security matters; (2) the existence of long standing business or
personal relationships between the plaintiff and the defendant; (3)
the plaintiff's access to relevant information; (4) the existence of a
fiduciary relationship owed by the defendant to the plaintiff, (5)
concealment of fraud by the defendant; (6) whether the plaintiff
initiated the stock transaction or sought to expedite the transaction;
and (8) [sic] the generality or specificity of the misrepresentations.

-19-

(AC Opp. at 8 (quoting Bruschi, 876 F.2d at 1529).) As an initial matter, the Bruschi court was
applying these factors to Rule 10b-5, 876 F.2d at 1529, not, as Almiron and Carrillo claim,
Florida law (AC Opp. at 8). In any event, the three factors Almiron and Carrillo claim support
their reliance on SCBI do not. First, they point to their purported lack of investment
sophistication. (AC Opp. at 8.) This assertion is contradicted by the clear representation in
Almiron’s and Carrillo’s account agreements. (Berarducci Decl. Exs. C-D ¶ 11(c).) Next,
Almiron and Carrillo argue that they have alleged a “long-standing business relationship” with
AEBI/SCBI. (AC Opp. at 8.) Yet their business relationship consisted of opening investment
accounts at AEBI (representing they were sophisticated investors who would not rely on
AEBI/SCBI’s representations), and then purchasing Sentry shares as their first and only
transactions through those accounts. Finally, Almiron and Carrillo argue that they have alleged
SCBI’s misrepresentations with specificity (AC Opp. at 8), a claim SCBI refutes (supra at 1315).
4.

A Securities Broker Is Not Liable Under Section 517.211(2) Unless the
Broker is Also the Seller of Securities or the Agent of the Seller.

The private right of action for claims under Section 517.301 is set forth in
Section 517.211(2), which limits the liability of agents of purchasers, such as securities brokers,
to only “the person [1] selling the security to or [2] purchasing the security from” the agent.
Thus, a securities broker acting as an agent is liable only to those he sells to or purchases from—
in other words, where buyer/seller privity exists. Rushing v. Wells Fargo Bank, N.A., No. 10CV-1572, 2010 WL 4639308, at *1261 (M.D. Fla. Nov. 8, 2010) (dismissing claim where
plaintiffs failed to establish either buyer/seller privity or that defendant was the seller’s agent).
In response, Almiron and Carrillo rely on Rubin v. Gabay, 979 So. 2d 988 (Fla. Dist. Ct. App.
2008) and First Union Discount Brokerage Servs., Inc. v. Milos, 744 F. Supp. 1145 (S.D. Fla.
1990) (“Milos”) to argue that Section 517.211(2) provides for liability of brokers in the absence
-20-

of privity. (AC Opp. at 13-14.) Both cases are inapposite. In Rubin, the court never analyzed
whether a purchaser’s agent could be liable in the absence of buyer/seller privity because it
determined that “neither actual nor apparent agency was established” in the first place. 979 So.
2d at 990-91. In Milos, although the court stated that a stock broker could be liable to an
investor under Section 517.211(2) in the absence of buyer/seller privity, 744 F. Supp. at 1154-55,
the cases relied on by the Milos court were decided before the Florida Supreme Court in E.F.
Hutton & Co. v. Rousseff, 537 So. 2d 978, 981 (Fla. 1989) clarified that buyer/seller privity is
required under Section 517.211(2). In any event, the cases the Milos court relied on did not even
contemplate or discuss the privity issue. See 744 F. Supp. at 1155.21
C.

Because Securities Brokers Are Not “Professional Services Providers,”
Almiron’s and Carrillo’s Negligence Claims Are Not Exempt from the
Economic Loss Rule.
In response to SCBI’s argument that Almiron’s and Carrillo’s negligence claims

should be barred by the economic loss rule (Defs.’ Mem. at 33-34), Almiron and Carrillo argue
that their claims should survive because they involve “neglect in providing professional
services,” which is an exception to the economic loss rule. (AC Opp. at 22-23.) As explained by
Almiron’s and Carrillo’s principal authority, Moransais v. Heathman, 744 So. 2d 973 (Fla.
1999), the so-called professional-services exception applies only to professions “‘requiring at a
minimum a four-year college degree before licensing is possible in Florida.’” 744 So. 2d at 976
(quoting Garden v. Frier, 602 So. 2d 1273, 1275 (Fla. 1992)). This exception, therefore, does

21

Specifically, of the four cases relied upon in Milos, one court discussed the Section
517.301 claim only in the context of a motion to dismiss a counterclaim for lack of pendent
jurisdiction, Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Del Valle, 528 F. Supp. 147, 151
(S.D. Fla. 1981), another involved the parties stipulating that the transaction at issue fell within
the “orbit of Florida’s Blue Sky Laws,” Merrill Lynch, Pierce, Fenner & Smith v. Byrne, 320
So. 2d 436, 440 (Fla. Dist. Ct. App. 1975), and the two remaining cases simply do not discuss
the privity issue, Kasner v. H. Hentz & Co., 475 F.2d 119 (5th Cir. 1973); Friedman v. Bache &
Co., 321 F. Supp. 347 (S.D. Fla. 1970).
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not help Almiron and Carrillo because Florida law is clear that a “securities broker is not a
‘professional’ for purposes of the economic loss rule because securities brokers are not required
to obtain a four-year degree for licensing in Florida.” Warter v. Boston Secs. S.A., No. 03-CV81026, 2004 WL 691787, at *12-13 (S.D. Fla. Mar. 22, 2004) (barring negligence claim against
Edge Act bank and securities broker).
D.

Conducting a Single Investment Transaction Is Not the Type of Extensive
Advisory Relationship That Would Create Ongoing Duties for SCBI.
Almiron and Carrillo next assert that, although SCBI was a nondiscretionary

broker, it “undertook a substantial and comprehensive advisory role” sufficient to create ongoing
duties. (AC Opp. at 20-21.) They rely in particular on this Court’s reasoning in Anwar-SCBI,
which found that Maria Akriby Valladolid, a customer of SCBI, adequately pleaded an ongoing
duty to monitor her account by alleging, among other things, that “she was ‘assured . . . that
[Standard Chartered was] in the business of advising and protecting investors’ and that Standard
Chartered became her ‘investment guide for making investments in the United States.’” 745 F.
Supp. 2d at 377 (alterations in original). In this case, the only comparable allegations referenced
by Almiron and Carrillo are that they “‘relied on representations’ [from SCBI] and ‘lacked the
expertise to evaluate investment strategies.’” (AC Opp. at 21.) Such allegations do not indicate
that SCBI played a “substantial and comprehensive advisory role” for Almiron and Carrillo, each
of whom made only a single transaction through SCBI.22 (Almiron Compl. ¶ 25; Carrillo
Compl. ¶ 26.)
22

Almiron and Carrillo also argue that SCBI owed them a duty to recommend Sentry “only
after studying [the fund] sufficiently to become informed as to [the fund’s] nature, price, and
financial prognosis.” (AC Opp. at 17-19.) This is beside the point. SCBI does not dispute that,
in light of this Court’s ruling in Anwar-SCBI, Almiron and Carrillo plausibly could state claims
for breach of fiduciary duty based on this duty. SCBI argues, however, that Almiron and
Carrillo fail to allege such claims here because, as currently pleaded, the claims sound in fraud
but fail to comply with Rule 9(b). (Supra at 10-12.) To the extent the claims survive Rule 9(b)
analysis, however, SCBI does not dispute they should survive.
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E.

Almiron and Carrillo Do Not Contest Their Failure To Plead the Absence of
an Adequate Legal Remedy or Challenge the Validity of Their Account
Agreements, and Thus Cannot Maintain Their Unjust Enrichment Claims.
As SCBI explained in its opening brief, Almiron’s and Carrillo’s unjust

enrichment claims fail, first, because they “have not explicitly alleged that an adequate remedy at
law does not exist,” and, second, because written agreements with SCBI govern the subject
matter of their claims. (Defs.’ Mem. at 35-36.) In response to the first argument, Almiron and
Carrillo rely on Mobil Corp. v. Dade Cnty. Esoil Mgmt. Co., Inc., 982 F. Supp. 873, 880 (S.D.
Fla. 1997) to argue that claims for unjust enrichment are not precluded merely because the face
of a complaint indicates an adequate legal remedy may exist. (AC Opp. at 25.) This fails to
address SCBI’s argument that Almiron and Carrillo have failed to plead the absence of an
adequate legal remedy. In re Managed Care Litig., 185 F. Supp. 2d 1310, 1337 (S.D. Fla. 2002).
As to SCBI’s second argument, Almiron and Carrillo rely on Tracfone Wireless
Inc. v. Access Telecom, Inc., 642 F. Supp. 2d 1354, 1366 (S.D. Fla. 2009) to argue that
“dismissing a claim for unjust enrichment at this stage is premature when a defendant has not
conceded a plaintiff is entitled to recovery under the contract, because it is possible that, if the
contractual claim fails, the plaintiff may still be entitled to recovery under an unjust enrichment
theory.” (AC Opp. at 25.) This argument makes no sense. Almiron and Carrillo do not assert
claims for breach of contract. In any event, Florida law precludes recovery for unjust enrichment
“‘if the subject matter of that claim is . . . covered by a valid and enforceable contract,’” Anwar,
745 F. Supp. 2d at 378 (quoting In re Managed Care Litig., 185 F. Supp. 2d at 1337), not just
where a right to contractual recovery is established beyond dispute. As Tracfone Wireless Inc.
explains, where a contract governs the subject matter of an unjust enrichment claim, “recovery
for unjust enrichment . . . cannot be permitted, even if the contract ultimately does not provide a
recovery to Plaintiff.” TracFone Wireless, Inc., 642 F. Supp. 2d at 1365. Because Almiron and
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Carrillo do not question the validity, scope or enforceability of their account agreements, their
unjust enrichment claims must fail. Anwar, 745 F. Supp. 2d at 378.
CONCLUSION
SCBI, SC PLC and StanChart respectfully request that the Court dismiss with
prejudice the operative complaints in Lou-Martinez, Almiron and Carrillo.
Dated: June 6, 2011
New York, New York
/s/ Sharon L. Nelles
Sharon L. Nelles
Bradley P. Smith
Patrick B. Berarducci
SULLIVAN & CROMWELL LLP
125 Broad Street
New York, New York 10004
Telephone: [phone]
Facsimile: [phone]
[e-mail]
Diane L. McGimsey
(Admitted Pro Hac Vice)
SULLIVAN & CROMWELL LLP
1888 Century Park East
Los Angeles, California 90067
Attorneys for Defendants Standard
Chartered Bank International
(Americas) Ltd., Standard Chartered
PLC and StanChart Securities
International, Inc.

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