Anwar et al v. Fairfield Greenwich Limited et al

Filing 709

ENDORSED LETTER addressed to Judge Victor Marrero from Jason Kellogg dated 8/16/11 re: counsel for plaintiff writes, please accept this letter as the response by Plaintiffs, Arlete and Lorrene da Silva Ferreira, to the August 9, 2011 letter (the "Letter") submitted by Defendant, EFG Capital International, Inc. ("EFG Capital"), regarding Florida's economic loss rule. Nothing set forth in the Letter alters the conclusion reached by this Court in its October 4, 2010 Order: that Florida law, as evidenced by several Florida intermediate court rulings that have been acknowledged without disapproval by the Supreme Court of Florida, recognizes an exception to the economic loss rule for breach of fiduciary duty claims, even where an underlying contract exists. See Oct. 4 Order at 28-31. ENDORSEMENT: The Clerk of Court is directed to enter into the public record of this action the letter above submitted to the Court by Respondent. (Signed by Judge Victor Marrero on 8/17/11) Filed In Associated Cases: 1:09-cv-00118-VM -THK, 1:11-cv-00813-VM(pl) Modified on 8/18/2011 (pl).

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August 16,2011
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Honorable Victor Marrero
United States District Court Judge
Southern District of New York
500 Pearl Street, Suite 660
New York, New York 10007

DOCUMENT
ELECTRONICALLY PILE

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RE:
Dear Judge Marrero:
Please accept this letter as the response by Plaintiffs, Arlete and Lorrene da Silva
Ferreira, to the August 9, 2011 letter (the "Letter") submitted by Defendant, EFG Capital
International, Inc. ("EFG Capital"), regarding Florida's economic loss rule. Nothing set forth in
the Letter alters the conclusion reached by this Court in its October 4, 2010 Order: that Florida
law, as evidenced by several Florida intermediate court rulings that have been acknowledged
without disapproval by the Supreme Court of Florida, recognizes an exception to the economic
loss rule for breach of fiduciary duty claims, even where an underlying contract exists. See Oct.
4 Order at 28-31. 1
EFG Capital's letter cites two federal court cases for the proposition that a breach of
fiduciary duty claim may be barred by the economic loss rule if it is "intertwined" with a breach
of contract claim. See Letter at 3. But this Court considered and cited that line of federal court
cases (including the Royal Surplus Lines case) in its October 4 Order, and held that under Second
Circuit law, the holdings of the Florida intermediate courts govern the issue. See Oct. 4 Order
at 31. Other federal district courts have conducted the very same analysis, considered the same
cases cited by EFG Capital (such as Royal Surplus Lines, Interstate Securities, Granat and
Detwiler) and arrived at the very same conclusion as this Court did in its October 4 Order?

Citing Fixel v. Rosenthal & Rosenthal, 842 So. 2d 204, 209 (Fla. 3d DCA 2003); Invo Fla., Inc.
v. Somerset Venturer, Inc., 751 So. 2d 1263, 1266-67 (Fla. 3d DCA 2000) (per curiam); First Equity
Corp. ojFla. v. Watkins, 1999 WL 542639 (Fla. 3d DCA July 28, 1999) (per curiam).

See Fla. Auto. Joint Underwriting Ass'n v. Milliman, Inc., No. 4:06cv546-WCS, 2007 WL
1341127, at *4-6 (N.D. Fla. May 3, 2007); see also Rushing v. Wells Fargo Bank, NA., 752 F. Supp. 2d
1254, 1263-64 0.2 (M.D. Fla. 2010); Hilliard v. Black, 125 F. Supp. 2d 1071, 1077-80 (N.D. Fla. 2000);
Crowell v. Morgan Stanley Dean Witter Serv., Co., Inc., 87 F. Supp. 2d 1287, 1293 (S.D. Fla. 2000).

www.LKLlaw.com

Hon. Victor Marrero
August 16, 2011
Page 2

Even if EFG Capital's standard did apply, it would not bar Plaintiffs' fiduciary duty
claim because the duties that EFG Capital breached are not intertwined with the duties arising
out onts contract with Plaintiffs (the "Agreement,,).3 Here, the Agreement creates very limited
contractual duties. EFG Capital itself describes those duties on page two of its Letter: to place
Plaintiffs' orders, credit Plaintiffs' accounts for principal and interest, and deduct taxes. 4
Plaintiffs' Complaint does not allege that EFG Capital botched Plaintiffs' orders or failed to
apply the proper credits. Rather, the Complaint alleges that EFG Capital assumed and breached
broader duties of care and loyalty imposed upon securities brokers under Florida law. 5 Plaintiffs
allege that despite knowledge of numerous red flags, EFG Capital failed to conduct ade~uate due
diligence or to maintain and preserve Plaintiffs' investments. (CompI.,-r,-r 57-63,81-88).
EFG Capital also argues that Florida's exception to the economic loss rule only applies to
claims against a "professional," and that "a securities broker is not a 'professional' for purposes
of the economic loss rule ...." See Letter at 2. EFG Capital wrongly characterizes the fiduciary
duty exception to the economic loss rule as being a subset or "extension" of the professional
malpractice exception invoked by the Supreme Court of Florida in Moransais v. Heathman, 744
So. 2d 973 (Fla. 1999). The two exceptions are mutually exclusive. As the Florida courts
recognize, the breach of fiduciary duty exception is one of many "well-established causes of
actions in tort," such as professional malpractice, that are not barred by the economic loss rule. 7
Moreover, neither case cited by EFG Capital governs the issue. The portion of the
opinion that EFG Capital cites from Medalie v. FSC Securities Corp., 87 F. Supp. 2d 1295, 1302
See City of St. Petersburg v. Wachovia Bank, NA., No. 810-cv-693-T-26TBM, 2010 WL
2991431, at *3 (M.D. Fla. July 27,2010) ("Where the duties breached do not arise under the contract, ...
an action for an independent tort may exist even though the parties are in contractual privity.") (citing
Indemn. Ins. Co. ofN Am. v. Am. Aviation, Inc., 891 So. 2d 532, 537 (Fla. 2004)).
4

Like the Standard Chartered defendants, EFG Capital argues that the Agreement's exculpatory
clause shields it from liability. But like the Standard Chartered plaintiffs, the Plaintiffs in this case have
alleged a breach of fiduciary duty-EFG Capital's failure to conduct adequate due diligence and to
monitor Plaintiffs' investment (even in the face of numerous red flags}-that meets the exculpatory
clause's "willful misconduct or gross negligence" standard. See Oct. 4 Order at 38.

See Gochnauer v. A.G. Edwards & Sons, Inc., 810 F.2d 1042, 1049 (l1th Cir. 1987) ("The law is
clear that a broker owes a fiduciary duty of care and loyalty to a securities investor.").
6

As this Court recognized in its Oct. 4 Order, under Florida law the existence of a fiduciary
relationship as between two parties is fact-specific, and may even expand as the parties assume broader
duties. See Oct. 4 Order at 33-34 (citing Wardfv. Atl. Sec. Bank, 777 So. 2d 1144 (Fla. 3d DCA 2001)).
In discovery, Plaintiffs have discovered facts showing that EFG Capital, through its actions, assumed a
broader, advisory role toward all of its customers holding Fairfield Sentry shares, thus expanding the
scope of its fiduciary duties to Plaintiffs and the putative class members. (See Plaintiffs' Reply in
Support of Class Certification at 13-14). Therefore, should this Court deem Plaintiffs' allegations
supporting the breach of fiduciary duty claim insufficient for any reason, Plaintiffs ask for leave to amend
to plead these newly discovered facts.

See First Equity, 1999 WL 542639, at *1 (citing Moransais v. Heathman, 744 So. 2d 973 (Fla.
1999)).
LEVINE KELLOGG LEHMAN SCHNEIDER + GROSSMAN LLP

201 South Biscayne Boulevard, 34 th Floor, Miami Center, Miami, Florida 33131 . Main: 305.403.8788 . Fax: [phone]

Hon. Victor Marrero
August 16, 2011
Page 3

(S.D. Fla. 2000), is not the holding of the court. s It simply paraphrases defendant's argument.
And although the Medalie court felt compelled to follow an Eleventh Circuit decision from 1991
barring a fiduciary duty claim, the court noted that it would have allowed the claim if not bound. 9
Today, the Medalie court would likely not have barred the claim because in 2004, the Supreme
Court of Florida issued its American Aviation opinion and added some clarity to the rule. lo That,
in tum, has led this Court and others cited herein to hold that fiduciary duty claims are not
barred. The other case cited by EFG Capital, Warter v. Boston Sees., S.A., 2004 WL 691787, at
*13 (S.D. Fla. March 22, 2004), did not even involve a breach of fiduciary duty claim. It
involved a negligence claim, and applied the economic loss rule's professional malpractice
exception rather than the fiduciary duty exception.
The fact is, Florida courts in case after case have ignored the "professional" distinction in
cases involving securities brokers like EFG Capital, and repeatedly recognize that bringing a
fiduciary duty claim against a securities broker does not violate the economic loss rule, even
where a contract exists. 11
In any event, the parties' Agreement should not be considered by this Court at the motion
to dismiss stage. Plaintiffs' Complaint neither attaches the Agreement nor incorporates it by
reference. The Complaint refers to the Agreement only in a single background sentence.
(CompI. ~ 33). Plaintiffs' claims do not rely upon the terms or effect of that Agreement. Rather,
Plaintiffs' claims are based on common-law duties arising from Florida law. Because the
Agreement is not relied upon by Plaintiffs (much less "heavily relied upon," as is the standard set
out by this Court on page nine of its Oct. 4 Order), the Agreement should not be considered.
Thank you for your consideration.
Very truly yours,

cc:

Joseph Coates, counsel for EFG Capital (by emai

EFG Capital erroneously cites MedaUe as an Eleventh Circuit case. It is a district court case.
9

Id. at 1304 n.6.

10

891 So. 2d at 542-43.

II

See Rushing, 752 F. Supp. 2d at 1263; Hilliard, 125 F. Supp. 2d at 1077-80; Crowell, 87 F. Supp.
2d at 1293; First Equity, Nos. 98-851,98-589,1999 WL 542630, at *1; see also City a/St. Petersburg,
No. 810-cv-693-T-26TBM, 2010 WL 2991431, at *3; MaUner v. Wachovia Bank, NA., No. 04­
60237CIV, 2005 WL 670293, at * 11 (S.D. Fla. Mar. 1,2005); Fla. Auto. Joint Underwriting Association,
No. 4:06cv546-WCS, 2007 WL 1341127, at *4-6.
LEVINE KELLOGG LEHMAN SCHNEIDER + GROSSMAN LLP
201 South Biscayne Boulevard, 34th Floor, Miami Center, Miami, Florida 33131 . Main: 305.403.8788 . Fax: [phone]
NY241,277,748.1117444.011400