Anwar et al v. Fairfield Greenwich Limited et al

Filing 910

ORDER: For the reasons stated above, it is hereby ORDERED that the motion (Docket Nos. 886 and 901) of defendants PwC Canada and PwC Netherlands for reconsideration is hereby GRANTED in part and DENIED in part in accordance with this Decision and Order. (Signed by Judge Victor Marrero on 8/6/2012) (lmb)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-----------------------------------X
:
PASHA S. ANWAR, et al.,
:
09 Civ. 0118 (VM)
Plaintiffs, :
:
DECISION AND ORDER
- against :
:
FAIRFIELD GREENWICH LIMITED,
:
et al.,
:
Defendants. :
-----------------------------------X
VICTOR MARRERO, United States District Judge.
By letters dated May 29, 2012 (Docket No. 886) and
July 13, 2012 (Docket No. 901), defendants PwC Canada and
PwC

Netherlands

(together,

the

“PwC

Defendants”)

have

requested a pre-motion conference to discuss the effect on
the

negligence-based

claims

in

this

case

of

two

recent

Second Circuit Court of Appeals summary orders, Stephenson
v.

PricewaterhouseCoopers,

1764191

(2d

Cir.

June

LLP,
13,

No.

2012)

11-1204-cv,

2012

(“Stephenson”),

WL
and

Meridian Horizon Fund, LP v. KPMG (Cayman) (In re Tremont
Sec. Law), Nos. 11-3311-cv, 11-3275-cv, 2012 WL 2754933 (2d
Cir. July 10, 2012) (“Tremont”).
The PwC Defendants — who are joined in their request
by the Fairfield Defendants,1

1

the Citco Defendants,2

and

The Fairfield Defendants are:
Fairfield Greenwich Ltd.; Fairfield
Greenwich Group; Fairfield Healthcliff Capital, LLC; Fairfield Risk
Services Ltd.; Greenwich Sentry L.P.; Fairfield Sentry Ltd.; Fairfield
Greenwich (Bermuda) Ltd.; Fairfield Greenwich Advisors, LLC; Fairfield
International Managers, Inc.; and Fairfield Greenwich Corp.

-1-

defendant

GlobeOp

“Defendants”)
Circuit’s

—

Financial
argue

holdings

in

Services

that,

in

Stephenson

LLC

light
and

(collectively,
of

the

Tremont,

Second

the

Court

should dismiss the negligence-based claims with prejudice,
or at least allow the Defendants to bring a renewed motion
to dismiss.

In letter-briefs dated June 4, 2012 (Docket

No. 908) and July 17, 2012, plaintiffs, who are members of
a putative class of investors (collectively, “Plaintiffs”),
opposed

the

PwC

Defendants’

request.

The

Court

hereby

deems the PwC Defendants’ May 29, 2012 and July 13, 2012
letters

a

discussed

motion

for

below,

reconsideration.

the

PwC

For

Defendants’

the

reasons

motion

for

reconsideration is GRANTED in part and DENIED in part.
I.

BACKGROUND

As explained in greater detail in previous opinions in
this

case,3

this

lawsuit

is

a

putative

class

action

on

behalf of individuals and entities who invested large sums
of money in four feeder-funds (the “Funds”), which in turn
invested heavily in the Ponzi scheme operated by Bernard L.
Madoff

(“Madoff”).

The

Second

Consolidated

Amended

2

The Citco Defendants are: Citco Group Ltd.; Citco Fund Services
(Europe) B.V.; Citco Fund Services (Bermuda) Ltd.; Citco Bank Nederland
N.V. Dublin Branch; and Citco (Canada) Inc.

3

See Anwar v. Fairfield Greenwich Ltd., 728 F. Supp. 2d 354 (S.D.N.Y.
2010); Anwar v. Fairfield Greenwich Ltd., 728 F. Supp. 2d 372 (S.D.N.Y.
2010) (“Anwar II”).

-2-

Complaint (“SCAC”) alleges that certain defendants who were
outsiders

to

the

Funds

—

i.e.,

investment

managers,

administrators, custodians, and auditors — owed duties of
care to the Plaintiffs as investors in the Funds.
Plaintiffs

claim

that,

as

a

result

of

the

The

Defendants’

negligence, they were 1) induced to invest in the Funds
(“Inducement

Claims”);

and

2)

induced

to

retain

their

investments in the Funds (“Holder Claims”).
A.

ANWAR II
The

Court

has

twice

addressed

the

adequacy

of

Plaintiffs’ negligence-based claims, once at the motion to
dismiss phase and once upon reconsideration.
In Anwar II, the Court granted in part and denied in
part

the

Defendants’

motions

to

dismiss

the

Plaintiffs’

negligence-based claims.

See Anwar II, 728 F. Supp. 2d at

431-357, 448-50, 454-57.

In reaching that conclusion, the

Court rejected the Defendants’ argument that the Plaintiffs
lacked standing to bring their common law claims because,
according to Defendants, those claims were derivative.

Id.

at 401 (“[T]o the extent that Plaintiffs properly allege
duties owed by each defendant directly to them . . . they
have standing to pursue such claims.”)
In

order

to

determine

whether

the

Plaintiffs

had

adequately pled that the Defendants owed them a duty of

-3-

care,

the

Court

applied

the

test

articulated

in

Credit

Alliance Corp. v. Arthur Andersen & Co., 483 N.E.2d 110,
118 (N.Y. 1985):
To show that a defendant not in privity with a
plaintiff nevertheless owes a duty to give that
plaintiff accurate information, the plaintiff must
show, according to Credit Alliance Corp.[], ‘(1) an
awareness by the maker of the statement that it is to
be used for a particular purpose ; (2) reliance by a
known party on the statement in furtherance of that
purpose [the “Known Party” requirement]; and (3) some
conduct by the maker of the statement linking it to
the relying party and evincing its understanding of
that reliance [the “Linking Conduct” requirement].’
Anwar II, 728 F. Supp. 2d at 432 (quoting Pension Comm. of
Univ. of Montreal Pension Plan v. Banc of Am. Sec., 446 F.
Supp. 2d 163, 199 (S.D.N.Y. 2006) (citation omitted).

The

Court found that the SCAC satisfied all the requirements of
Credit

Alliance,

adequately

pled

and
that

therefore
the

Citco

the

Plaintiffs

Defendants,

had

GlobeOp

Financial Services LLC, and the PwC Defendants owed a duty
of care to the Plaintiffs, despite the fact that they were
not in privity with them.

Id. at 432-35, 448-49, 454-57.

A year later, the Court denied the PwC Defendants’
motion for reconsideration of Anwar II’s ruling regarding
the negligence-based claims.

Anwar v. Fairfield Greenwich

Ltd., 800 F. Supp. 2d 571 (2d Cir. 2011).

-4-

II.
A.

DISCUSSION

LEGAL STANDARD FOR RECONSIDERATION
Reconsideration of a previous order by the Court is an

“extraordinary

remedy

to

be

employed

sparingly

in

the

interests of finality and conservation of scarce judicial
resources.”

In re Health Mgmt. Sys. Inc. Sec. Litig., 113

F. Supp. 2d 613, 614 (S.D.N.Y. 2000) (internal citations
and

quotation

marks

omitted).

“The

provision

for

reargument is not designed to allow wasteful repetition of
arguments

already

briefed,

considered

and

decided.”

Schonberger v. Serchuk, 742 F. Supp. 108, 119 (S.D.N.Y.
1990).

“The major grounds justifying reconsideration are

‘an intervening change of controlling law, the availability
of new evidence, or the need to correct a clear error or
prevent manifest injustice.’”

Virgin Atl. Airways, Ltd. v.

Nat’l Mediation Bd., 956 F.2d 1245, 1255 (2d Cir. 1992)
(quoting 18 C. Wright, et al., Federal Practice & Procedure
§ 4478 at 790).
To

these

ends,

a

request

for

reconsideration

under

Local Rule 6.3 (“Rule 6.3”) must demonstrate controlling
law or factual matters put before the court in its decision
on the underlying matter that the movant believes the court
overlooked and that might reasonably be expected to alter
the conclusion reached by the court.

-5-

See Shrader v. CSX

Transp., Inc., 70 F.3d 255, 257 (2d Cir. 1995).

Rule 6.3

is intended to “‘ensure the finality of decisions and to
prevent the practice of a losing party . . . plugging the
gaps of a lost motion with additional matters.’”

Sec. and

Exch. Comm’n v. Ashbury Capital Partners, No. 00 Civ. 7898,
2001 WL 604044, at *1 (S.D.N.Y. May 31, 2001) (quoting
Carolco Pictures, Inc. v. Sirota, 700 F. Supp. 169, 170
(S.D.N.Y.

1988)).

A

court

must

narrowly

construe

and

strictly apply Rule 6.3 so as to avoid duplicative rulings
on previously considered issues and to prevent Rule 6.3
from being used either to advance different theories not
previously argued or as a substitute for appealing a final
judgment.

See Montanile v. Nat’l Broad. Co., 216 F. Supp.

2d 341, 342 (S.D.N.Y. 2002); Shamis v. Ambassador Factors
Corp., 187 F.R.D. 148, 151 (S.D.N.Y. 1999).
Here, the PwC Defendants move for reconsideration on
the basis of a change in law as a result of the Stephenson
and Tremont summary orders.
B.

STEPHENSON AND TREMONT
In Stephenson and Tremont, the Second Circuit affirmed

judgments

dismissing

the

negligence-based

claims

of

law,

the

investors in Madoff feeder funds.
Stephenson

held

that,

under

Delaware

plaintiff lacked standing to make a holder claim because he

-6-

had not pled individualized harm. 2012 WL 1764191, at *2
(quoting Tooley v. Donaldson, Lufkin & Jenrette, Inc., 845
A.2d 1031, 1033 (Del. 2004)) (“Stephenson cannot ‘prevail
[on

his

holding

claim]

without

[partnership as a whole].’”).

showing

injury

to

the

While the Court held that

Stephenson did have standing to bring an inducement claim,
it found that he had failed to satisfy the “Known Party”
prong of the Credit Alliance test:
Because
Stephenson
was
nothing
more
than
a
‘prospective limited partner[], unknown at the time
and who might be induced to join [the partnership],’
he was not a known party to PWC prior to his
investment in Greenwich Sentry and thus cannot
maintain a claim for malpractice against PWC under an
inducement-to-invest theory.
Id. at *3 (quoting White v. Guarente, 372 N.E.2d 315 (N.Y.
1977)).
In

Tremont,

the

Second

Circuit

held

that

the

plaintiff-investor had failed to satisfy both the “Known
Party”

requirement

of

Credit

Alliance,

as

well

as

the

requirement that the plaintiff show “some conduct on the
part of the accountants linking them to [the plaintiffs,
which

evinces

plaintiffs’]
118;

see

the

accountants’

reliance.”
Tremont,

Specifically,

Tremont

Credit

2012
held

WL
that

understanding
Alliance,

2754933,
the

483
at

of

N.E.2d

*4

allegation

[the
at

(same).
that

the

defendant-auditors addressed their audit reports to “The

-7-

Partners” of the fund was not sufficient linking conduct
because the fund itself, rather than the auditors, sent the
report to the limited partners (including the plaintiffs).
Id. at *4 (quoting CRT Invs., Ltd. v. BDO Seidman, LLP, 925
N.Y.S.2d 439, 441 (App. Div. 1st Dep’t 2011)).
C.

THE IMPLICATIONS OF STEPHENSON AND TREMONT FOR ANWAR
Although Stephenson

and

and Tremont

are summary orders,

thus

precedential

effect,

do

not

have

see

Second

Circuit Local Rule 32.1.1, they are nevertheless persuasive
authority to the extent that their factual patterns align
with the instant case and their reasoning is compelling.
1.

Inducement Claims

As a preliminary matter, in their letter dated June 4,
2012, the Plaintiffs concede that, following Stephenson,
“damages are not available from PwC for the class negligent
misrepresentation

cause

of

action

with

investors making initial investments.”

respect

to

new

(Docket No. 908.)

This conclusion is correct because Stephenson held that the
“known party” prong of Credit Alliance cannot be satisfied
when

the

investment.

claim
See

pertains

to

Stephenson,

inducement
2012

WL

of

an

1764191,

initial
at

*3.

Defendants, who were not in privity with Plaintiffs, cannot
owe a duty to prospective investors who were unknown to
Defendants

at

the

time

-8-

they

made

the

alleged

misrepresentations.
based

initial

prejudice.

Therefore, the Plaintiffs’ negligence-

investment

claims

are

dismissed

without

Such claims may be repled only if Plaintiffs —

either as individuals or as members of a certified class —
can show that they were, in fact, known to the Defendants
prior to their initial investment in the Funds.
Despite this concession, Plaintiffs are correct that
Stephenson

and

Tremont

do

not

directly

address

claims

regarding inducement to make subsequent investments.

The

plaintiff in Stephenson made an initial investment of $60
million

in

the

Greenwich

Sentry

fund,

but

there

is

indication or discussion of subsequent investments.
id.

at *1.

Tremont
Second
Thus,

See

According to Defendants, the plaintiffs in

did

make

Circuit’s
the

no

Court

subsequent
decision

cannot

does

investments;
not

conclude

however,

discuss

that

this

the

nuance.

Plaintiffs’

claims

regarding inducement to make subsequent investments should
necessarily fail the “Known Party” requirement of Credit
Alliance.
Nor
regarding

does
the

the

Second

“Linking

Circuit’s

Conduct”

ruling

requirement

in

Tremont

of

Credit

Alliance compel dismissal of Plaintiffs’ Inducement Claims.
In

Anwar

allegation

II,
that

the
the

Court
PwC

specifically
Defendants

-9-

cited

had

the

addressed

SCAC’s
audit

reports

to

the

Plaintiffs

as

fulfilling

Linking Conduct requirement of Credit Alliance.
II, 728 F. Supp. 2d at 455.

the

See Anwar

Tremont found similar conduct

insufficient because the audit reports were sent to the
Plaintiffs by the funds, and not the auditors.

2012 WL

However, the pleadings in Anwar do not

2754933, at *4.

indicate whether the Funds or the PwC Defendants themselves
sent

the

audit

Plaintiffs

reports

allege

to

that

the

PwC’s

investors.

“Audit

Plan”

Indeed,

the

contained

an

acknowledgment that the purpose of their engagement was to
deliver information directly to the Funds’ investors.

It

does not appear that Tremont involved similar allegations.
Moreover,

in

Tremont,

the

Second

Circuit

cited

CRT

Invs. Ltd., 925 N.Y.S.2d 439 (“CRT II”), in reaching its
holding

on

the

Linking

Conduct

requirement.

CRT

II

affirmed the holding and underlying reasoning of CRT Invs.
Ltd. v. Merkin, 918 N.Y.S. 2d 397 (N.Y. Sup. 2010) (“CRT
I”), a New York Supreme Court case that this Court already
distinguished from Anwar when it denied the PwC Defendants’
first motion for reconsideration.
2d at 573.
the

See Anwar, 800 F. Supp.

In CRT I, the New York Supreme Court held that

pleadings

failed

to

satisfy

the

“Linking

Conduct”

requirement of Credit Alliance because “the direct contact
between

the

accountant

and

the

-10-

plaintiff

is

minimal

or

nonexistent[.]”

Id. at *12.

As this Court explained in

denying the first Anwar motion for reconsideration,
[i]n the course of rendering [Anwar II], the Court had
the New York Supreme Court decision in CRT Investments
before it, took it into account, and found it to be
sufficiently distinguishable.
In particular, among
other reasons, in Anwar II, the Court found it
compelling that the auditors recognized that their
reports
would
be
communicated
directly
to
shareholders, who might thus rely on those financial
statements to make investment decisions.
Id.

Unlike this case, neither Tremont nor CRT I included

allegations that the defendant-auditor agreed to provide
audit

reports

defendant

was

directly
aware

to

that

the

plaintiffs

providing

such

or

that

the

information

investors was the primary purpose of its engagement.

to

Thus,

the Court is not persuaded that Tremont, which cites and is
factually similar to New York case law which the Court
already

found

Plaintiffs’

distinguishable,

negligence-based

compels

dismissal

Inducement

Claims

of
at

the
this

stage of the proceedings.
However, the Court recognizes that evidence uncovered
during

discovery

ultimately

have

Alliance test.

might
proved

determine
all

the

whether

the

elements

of

Plaintiffs
the

Credit

The Defendants are free to raise Stephenson

and Tremont at the motion for summary judgment phase, when
their argument may benefit from a fuller record.

-11-

2.

Holder Claims

The PwC Defendants argue that the Plaintiffs have no
standing

to

bring

Holder

Claims

that such claims are derivative.

because

Stephenson

held

However, Stephenson based

that portion of its holding on Delaware law, while Anwar II
found that New York law is applicable to the claims in this
case.4

See Anwar II, 728 F. Supp. 2d at 399-400.

Indeed,

other courts in this District have recognized that New York
law

considers

shareholders’

tort

claims

based

on

misrepresentation, rather than mismanagement, to be direct
and not derivative.

See Pension Comm., 446 F. Supp. 2d at

192 (applying New York law and declining to dismiss commonlaw

claims

based

plaintiff-investors

on

retention

alleged

of

injuries

securities
arising

where

out

of

misrepresentations of fund administrators); In re WorldCom,
Inc. Sec. Litig., 382 F. Supp. 2d 549, 559 (S.D.N.Y. 2005)
(citation omitted) (“New York recognizes a claim of fraud
where

investors

were

induced

4

to

retain

securities

in

The law regarding whether a claim is direct or derivative is similar
in New York and Delaware, but not identical; Delaware law is slightly
more strict, requiring that courts consider both the harm and the
remedy.
Compare Stephenson, 2012 WL 1764191, at * 2 (“Under settled
Delaware law, to determine whether a claim is direct or derivative
courts must consider: ‘(1) who suffered the alleged harm (the
corporation or the suing stockholders, individually); and (2) who would
receive the benefit of any recovery or other remedy (the corporation or
the stockholders individually)[.]’”) (quoting Tooley, A.2d at 1033)
with Fraternity Fund Ltd. v. Beacon Hill Asset Mgmt. LLC, 376 F. Supp.
2d 385, 409 (S.D.N.Y. 2005) (“a shareholder may sue individually ‘when
the wrongdoer has breached a duty owed to the shareholder independent
of any duty owing to the corporation wronged’”) (quoting Abrams v.
Donati, 489 N.E.2d 751 (N.Y. 1985)).

-12-

reliance on a defendant’s misrepresentations.”).

Cf. In re

Optimal U.S. Litig., 813 F. Supp. 2d 351, 376-80 (S.D.N.Y.
2011)

(distinguishing

between

mismanagement-

misrepresentation-based shareholder claims).

and

As the Court

explained in Anwar II, Plaintiffs’ principal claim is not
mismanagement, but “nondisclosure of or failure to learn
facts which should have been disclosed based on duties that
were independently owed to Plaintiffs.”

728 F. Supp. 2d at

Thus, the Court’s decision in Anwar II, based on

401 n.9.

New York law, was correct.

Since Stephenson is based on

Delaware law, rather than New York law, the Court is not
persuaded to reconsider its earlier decision.
In

fact,

Plaintiffs

in

would

Anwar
have

II,

standing

728 F. Supp. 2d at 401 n.9.
analysis

because

plaintiff

in

“holding

claim

partner

and

its

involve[d]
no

Court

even

under

had
no

are

that

Delaware

no

distinguishable.
standing

‘harm’

‘recovery’

to
for

partner, distinct from other partners.”
at *2.

noted

the
law.

Stephenson does not change that

facts

Stephenson

s[ought]

the

because

The
his

an

individual

any

individual

2012 WL 1764191,

In contrast, in Anwar II, the Court explained that

the “asymmetrical injury alleged” in the SCAC — the fact
that some investors lost money, while others did not —
further supported the Court’s conclusion that, “[a]t the

-13-

pleadings

stage,

information

to

Plaintiffs

show

that

have

alleged
suffered

Plaintiffs

sufficient
individual

harm distinct from losses experienced by other investors.”
728 F. Supp. 2d at 402.
Indeed, the Court explained in Anwar II that “this
facet

of

Plaintiffs’

standing

argument

[i.e.,

the

differential injury argument] is ripe for further factual
development

and

certification

is

more

or

properly

summary

decided

judgment

Id. (citation omitted).

proceeding.”

at

the
of

stage

class
this

The Court notes that

after many months of litigation, the discovery phase of
this

case

motion
Given

is

for
how

standing

now

class
far

at

nearly

certification

litigation

this

complete,

point

has

would

is

and

the

currently

progressed,
be

more

Plaintiffs’
sub

the

judice.

issue

appropriately

of
and

fairly addressed following the Court’s decision regarding
class certification and with the benefit of a full record
at summary judgment.

The Court therefore denies the PwC

Defendants’ motion for reconsideration with respect to the
Plaintiffs’ Holder Claims without prejudice to Defendants’
raising the issue again on summary judgment.

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