Anwar et al v. Fairfield Greenwich Limited et al

Filing 675

MEMORANDUM OF LAW in Opposition re: #663 MOTION for Reargument of Part of the Court's Order dated August 18, 2010.. Document filed by Pasha S. Anwar. (Barrett, David)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
ANWAR, et al.,
Plaintiffs,
v.
FAIRFIELD GREENWICH LIMITED, et al.,

Master File No. 09-cv-118 (VM)

Defendants.
This Document Relates To: All Actions

PLAINTIFFS’ MEMORANDUM IN OPPOSITION
TO THE PRICEWATERHOUSECOOPERS DEFENDANTS’
MOTION FOR REARGUMENT

BOIES, SCHILLER & FLEXNER LLP
575 Lexington Avenue
New York, NY 10022
[phone]
WOLF POPPER LLP
845 Third Avenue
New York, NY 10022
[phone]
LOVELL STEWART HALEBIAN JACOBSON LLP
61 Broadway, Suite 501
New York, NY 10006
[phone]
Co-Lead Counsel for Plaintiffs

The motion of Defendants PwC Netherlands and PwC Canada (collectively
“PwC”) for reargument pursuant to Local Civil Rule 6.3 is frivolous. It is grossly out of
time and utterly meritless in its attempt to resuscitate PwC’s motions to dismiss Count 13
(negligence) and Count 14 (negligent misrepresentation) of the Second Consolidated
Amended Complaint (“SCAC”), which the Court rejected nearly a year ago. Neither the
decisions in CRT Investments Ltd. v. BDO Seidman, 2011 WL 2225050 (1st Dep’t June 9,
2011), nor Sykes v. RFD Third Ave. Assoc. LLC, 15 N.Y.3d 370 (2010), constitute
intervening controlling authority that would justify reconsideration.
PwC’s motion seeks reconsideration of the Court’s Anwar II decision of August
18, 2010. Anwar v. Fairfield Greenwich, Ltd., 728 F. Supp. 2d 372 (S.D.N.Y. 2010)
(“Anwar II”). The Court has already rejected a timely-filed motion for reconsideration of
that decision by the Citco defendants. See Anwar v. Fairfield Greenwich Ltd., 2010 WL
3834057 (S.D.N.Y. Sept. 13, 2010) (“Anwar III”). In reliance on the rulings in Anwar II
and Anwar III, the parties have undertaken extensive litigation activity in this case.
Defendants have filed answers to the SCAC; the parties are actively engaged in extensive
merits discovery (including discovery involving PwC); and Plaintiffs have filed a motion
for class certification, also the subject of substantial discovery. Nothing in PwC’s motion
even approaches the standards for the “extraordinary remedy” of reconsideration under
Rule 6.3 – standards which the Court “must narrowly construe and strictly apply.”
Anwar III, 2010 WL 3834057, at *1. PwC merely rehashes already-rejected arguments
by inaccurately labeling as “new authority” decisions which are both not controlling and
merely apply existing law to distinguishable facts.

ARGUMENT
I.

The Motion for Reargument Is Untimely
PwC’s motion is brought pursuant to Local Rule 6.3. Rule 6.3 requires service of

reargument motions within 14 days after decision of the original motion. PwC not only
missed that deadline by over ten months, but it has not justified the delay. Indeed, one of
its two purported new and “controlling” cases, Sykes, dates from October 2010, some
eight months ago. See, e.g., Virgin Atlantic Airways, Ltd. v. National Mediation Board,
956 F.2d 1245 (2d Cir. 1992) (a “resubmitted” motion was in reality a motion for
reargument barred as untimely under Local Rule 3(j) [now Local Rule 6.3]).

II.

PwC Has Failed to Show Any Intervening Change in Controlling Law
Rule 6.3 is narrowly construed and strictly applied to “ensure the finality of

decisions” and “avoid duplicative rulings on previously considered issues and to prevent
Rule 6.3 from being used to advance different theories not previously argued, or as a
substitute for appealing a final judgment.” Anwar III, 2010 WL 3834057, at *1.
(citations omitted); see Silverman v. Wachovia Bank, N.A., 2010 WL 5090990, at *3
(E.D.N.Y. Dec. 3, 2010) (citations omitted); Glatzer v. Barone, 614 F. Supp. 2d 450, 471
(S.D.N.Y. 2009) (Marrero, J.).
The standard for reconsideration is strict. See Shrader v. CSX Transp., Inc., 70
F.3d 255, 257 (2d Cir. 1995). Reargument is “an extraordinary remedy to be employed
sparingly in the interests of finality and conservation of scarce judicial resources.”
Anwar III, 2010 WL 3834057, at *1 (quotation omitted). Defendants have the burden of
showing “an intervening change in controlling law, the availability of new evidence or

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the need to correct a clear error or prevent manifest injustice.” Id. (citing Virgin Atl.
Airways, 956 F.2d at 1255).
Rather than meeting this high standard, PwC is essentially reprising the same
arguments that were rejected when they were made in its original motions to dismiss.
The two cases cited by PwC do not constitute “controlling” authority, nor did they
change the law.
A.

CRT and Sykes Merely Applied Settled Law to the Facts before Them

CRT did not change the law in any way that justifies reconsideration of Anwar II.
PwC’s motion ignores the fact that the Appellate Division decision in CRT adds nothing
of relevant substance to Justice Lowe’s opinion in the Supreme Court, which PwC
extensively discussed in its reply briefs on the motions to dismiss. See D.E. 454 at 6
(PwC Netherlands Reply Brief); D.E. 463 at 9 (PwC Canada Reply Brief). Thus, this
Court was fully apprised of the state courts’ reasoning in CRT when it decided Anwar II.
See City of New York v. Milhelm Attea & Bros., Inc., 591 F. Supp. 2d 234, 236-37
(E.D.N.Y. 2008) (denying reconsideration based on new Appellate Division decision
where federal court had considered state trial court holding in the same case). Indeed,
most of the First Department’s brief discussion of linking conduct in CRT is borrowed
verbatim from a passage in Justice Lowe’s opinion (see CRT, 2011 WL 2225050, at *2),
which PwC Canada included as a block quote in its reply brief (D.E. 463 at 9). Likewise,
PwC Netherlands cited CRT for the proposition that auditors owed no duty of care where
financial statements were “addressed to plaintiffs as investors” or where they knew “that
investors would rely upon the information contained in financial statements” (D.E. 454 at
6).

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The First Department made no new law in CRT. Its decision on negligent
misrepresentation is a single conclusory sentence: “Where, as here, direct contact
between the accountant and the plaintiff is minimal or non-existent, the plaintiff cannot
recover for the accountant’s alleged negligence.” CRT, 2011 WL 2225050, at *2. Justice
Lowe said the same thing (2010 WL 4340433, at *12), and that conclusion was borrowed
from the well-known decision in Security Pacific Business Credit v. Peat Marwick Main
& Co., 79 N.Y.2d 695, 706 (1992). There is simply nothing new or different in the First
Department’s CRT decision that was not known at the time this Court decided Anwar II.
Nor did the Court of Appeals break any new ground in Sykes. Rather, the court applied
the established three-factor Credit Alliance test (as did this Court in Anwar II) to find that
plaintiffs failed to satisfy the second branch of the test – that they were “known party or
parties” to the defendant (a mechanical engineering firm). That defendant had no contact
whatever with the plaintiffs and faced liability to an unlimited class of potential
purchasers for alleged misrepresentations concerning the capabilities of the climate
control systems for a condominium building.
By sharp contrast in the instant case, PwC specifically addressed the audit reports
to the “directors and shareholders” of the Fairfield Sentry and Fairfield Sigma Funds and
to the partners of Greenwich Sentry and Greenwich Sentry Partners “whom PwC knew
would rely on the audit reports in acquiring and holding shares or partnership interests in
the Funds” (SCAC ¶ 275). See Anwar II, 728 F. Supp. 2d at 456-57.
Moreover, the SCAC alleges that PwC’s Audit Plan expressly recognized that
PwC owed duties of care to the Fund investors. (See SCAC ¶¶ 276-77; D.E. 421-2, Audit
Plan at 8) (“Our audit engagement is directed towards delivering our service at three

4

levels,” which expressly included the “shareholders.”) The Audit Plan further admitted
that PwC would be “delivering” to “shareholders and other stakeholders” in the Funds
“independent opinions and reports that provide assurance on financial information
released by the Funds.” (SCAC ¶ 277; D.E. 421-2, Audit Plan at 8). 1
Because of these facts, neither of the supposedly “new” cases cited by PwC
supports reconsideration. Those cases simply applied the established Credit Alliance
factors to the facts before them.
In Sykes the plaintiffs were merely potential purchasers at the time they allegedly
relied on the defendant’s misrepresentations regarding heating and cooling systems. 2
There were no allegations, for example, that the plaintiffs could not test or inspect the
systems before the purchase or that they retained apartments based on misrepresentations
in the offering plan. See Sykes, 15 N.Y. 3d 370. In contrast, plaintiffs here had no ability
to verify the Funds’ audited financial statements, and relied upon them when they
invested and re-invested in the Funds. See Anwar II, 728 F. Supp. 2d at 455 (quoting
SCAC ¶ 279) (PwC “knew that there was no independent market mechanism or evidence
to value the shares and limited partnership interests in the Funds, and that there was no
1

The claim by PwC Netherlands’ counsel (in the conference call with the Court on June
28, 2011) that the SCAC was quoting a PwC Canada audit plan is not properly raised for
two reasons: (i) it is factual matter outside the complaint that is not usable in opposition
to a motion to dismiss; and (ii) a party seeking reconsideration cannot interject new facts
of which it was aware when the motion to dismiss was originally heard. See Silverman,
2010 WL 5090990, at *3.
2

The PwC Defendants emphasize the gloss that the Court of Appeals in Sykes placed on
Westpac Banking Corp. v. Deschamps, 66 N.Y.2d 16 (1985). Westpac, of course, was
known to this Court when the motion to dismiss was decided and was cited by PwC
Netherlands in its opening brief (D.E. 317 at 21). In contrast to Westpac, here PwC
specifically addressed the financial statements to the shareholders and limited partners of
the Funds and prepared audit plans which admitted that the audits would be directed to
and used by the Funds’ investors who would rely on the financial statements for
investment purposes. See Anwar II, 728 F. Supp. 2d at 455.
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other independently-verified third party financial information about the Funds besides
[the PwC Member Firms’] audited financial statements.”). Further, PwC knew that the
PwC imprimatur was essential to give the Funds legitimacy and, therefore to draw
investors to the Funds. Id. at 456 (citing SCAC ¶ 227, 435).
The CRT decision likewise turns on the fact pattern alleged in that case, which is
far different from the allegations in the SCAC here. Plainitff CRT had invested in Ascot
Fund Ltd., a Cayman company that was audited by BDO Tortuga. BDO Tortuga was
dismissed from the case for lack of personal jurisdiction. Ascot Fund Ltd. was a feeder
fund to Ascot Partners L.P., a Delaware limited partnership. A different accounting firm,
BDO Seidman, audited Ascot Partners L.P., to whose partners its audits were directed.
There was thus no basis for concluding that BDO Seidman (the only remaining auditor
defendant, and whose client was the domestic L.P.) understood or intended that the
remote investors in the offshore Tortuga Fund would rely on its audit of a different fund
in another jurisdiction.
In short, as the Court recognized in Anwar II, the SCAC here alleges facts that
differ significantly from the CRT and Sykes complaints in satisfying the requirements of
Credit Alliance. Even if those cases were “new” and “controlling” authority – which
they are not – reconsideration should be denied because of the obvious factual
distinctions.
B.

PwC Has Failed to Show Any Change in Controlling Law

The authority relied upon by this Court in the relevant sections of Anwar II
remains the controlling law of this Circuit. This Court applied the Second Circuit’s
holding in Dorking Genetic v. United States, 76 F.3d 1261, 1271 (2d Cir. 1996), that the

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New York Court of Appeals did not intend that Credit Alliance “linking conduct” test
should be read “so narrowly” that it requires direct contact between an accounting firm
and persons relying on financial statements. Based on that principle, this Court correctly
found “Plaintiffs’ factual allegations sufficient to show linking conduct evincing the PwC
Member Firms’ understanding of the investors’ reliance.” Anwar II, 728 F. Supp. 2d at
456.
On the other hand, “[i]n the absence of a ruling by the [New York] Court of
Appeals, a federal district court is not bound by the opinions issued by New York State’s
lower courts.” Williams v. J.P. Morgan & Co., Inc., 199 F. Supp. 2d 189, 191 (S.D.N.Y.
2002) (Marrero, J). Rather, this Court must use its best judgment to determine how the
highest State court would rule if the case were before it. The Travelers Ins. Co. v. 633
Third Assocs., 14 F.3d 114, 119 (2d Cir. 1994). In the context of a motion for
reargument, an intervening decision by a State intermediate court does not constitute
controlling authority that would justify re-opening a prior decision. JP Morgan Chase
Bank v. Cook, 322 F. Supp. 2d 353, 355 (S.D.N.Y. 2004) (“[C]ases from another judge of
this Court or from the Third Department of New York’s Appellate Division do not
constitute ‘controlling authority’ for this Court, and, under the standard of review
applicable to motions for reconsideration, that fact should end the matter.”).
Accordingly, even if the First Department’s decision in CRT represented an intervening
change in the law – which it was not – the change is not “controlling authority.”
Here, Dorking Genetic holds that “the [New York] Court of Appeals [did not]
intend the term ‘linking conduct’ to be read so narrowly” as to require direct contact
between auditors and investors. Dorking, 76 F.3d at 1270. The Second Circuit

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recognized that under Credit Alliance, “direct dealings” are but one of several factors that
might establish a relationship sufficiently close to privity. Id. At bottom, “it is enough if
the complaint shows ‘reliance by the plaintiff that was the end and aim of the
transaction’.” Dorking, 76 F.3d at 1271 (quoting Ossining Union Free Sch. Dist. v.
Anderson LaRocca Anderson, 73 N.Y.2d 417 (1989) and Glanzer, 233 N.Y. at 238-29).
Nothing in Sykes or CRT compels any change in Anwar II’s carefully-reasoned decision
upholding Counts 13 and 14 based on the allegations in the SCAC and the authority of
Dorking Genetic.
CONCLUSION
Plaintiffs respectfully request that the Court deny the PwC Defendants’ motion
for reargument.

Dated:

New York, New York
July 5, 2011
Respectfully submitted,
By:

/s/ David A. Barrett
David Boies
BOIES, SCHILLER & FLEXNER LLP
333 Main Street
Armonk, NY 10504
Telephone: [phone]
Facsimile: [phone]
David A. Barrett
Howard L. Vickery, II
BOIES, SCHILLER & FLEXNER LLP
575 Lexington Avenue
New York, NY 10022
Telephone: [phone]
Facsimile: [phone]
Stuart H. Singer

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Carlos Sires
Sashi Bach Boruchow
BOIES, SCHILLER & FLEXNER LLP
401 East Las Olas Boulevard, #1200
Ft. Lauderdale, Florida 33301
Telephone: [phone]
Facsimile: [phone]
Robert C. Finkel
James A. Harrod
WOLF POPPER LLP
845 Third Avenue
New York, NY 10022
Telephone: [phone]
Facsimile: 212.486.2093
Christopher Lovell
Victor E. Stewart
LOVELL STEWART HALEBIAN JACOBSON
LLP
61 Broadway, Suite 501
New York, NY 10006
Telephone: [phone]
Co-Lead Counsel for Plaintiffs

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
ANWAR, et al.,
Plaintiffs,
v.
FAIRFIELD GREENWICH LIMITED, et al.,
Defendants.

Master File No. 09-cv-118 (VM)
CERTIFICATE OF SERVICE

This Document Relates To: All Actions

I hereby certify that on July 5, 2011, Plaintiffs’ Memorandum in Opposition to the
PricewaterhouseCoopers Defendants’ Motion for Reargument was served by ECF on all
parties registered with the Court’s ECF system, under docket number 09-CV-118 (VM).

_/s/ David A. Barrett_______________
David A. Barrett