In re Herald, Primeo and Thema Funds Securities Litigation

Filing 261

DECLARATION of Lewis J. Liman in Support re: #252 JOINT MOTION to Dismiss.. Document filed by The Bank of New York Mellon. (Liman, Lewis)

CLEARY GOTTLIEB STEEN & HAMILTON LLP
One Liberty Plaza
New York, New York 10006
[phone]
[phone] (facsimile)
maofiling@cgsh. corn
Attorneys for The Bank of New York Mellon Corporation
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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Master File No.:

IN RE. HERALD, PRTM4EO AND THEMA FUNDS
SECURITIES LITIGATION

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This Document Relates To: No. 09 Civ, 2558 (RMB)
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No. 09 Civ. 289 (RMB)

DECLARATION OF LEWIS J. LIMAN IN SUPPORT OF THE BANK OF NEW YORK
MELLON CORPORATION'S MOTION TO DISMISS THE THEMA COMPLAINT
I, Lewis J. Liman, declare as follows:
1.

I am a member of the Bar of this Court and a member of the firm of Cleary

Gottlieb Steen & Hamilton LLP, counsel for The Bank of New York Mellon Corporation ("BNY
Mellon"). I submit this declaration in further support of BNY Mellon's motion to dismiss the four
claims asserted against it in Davis v. Benbassat et al., No. 09 Civ. 2558 (RMB), for aiding and
abetting gross negligence and negligence (Count 11); aiding and abetting various defendants'
breaches of fiduciary duties (Count 15), unjust enrichment (Count 19), and derivatively for aiding
and abetting gross negligence and negligence (Count 12). I make this declaration based solely on
my review of the allegations in Plaintiff s Second Amended Complaint in the Thema-related action
("TC") and applicable law, and do not purport to offer evidence on any other subject.
2.

BNY Mellon hereby adopts the arguments set forth in Sections 11(A), (B),

(C)(1), (D), (G) and 111(B) of the Joint Memorandum of Law, each of which arguments demonstrate
that the claims against BNY Mellon should be dismissed.

3.

The sole basis for Plaintiff s claims against BNY Mellon is the allegation that

Bernard L. Madoff Investment Securities LLC ("BLMIS") "had its operating account for its brokerdealer business with" BNY Mellon. (TC T 358.) Plaintiff s actual allegations against BNY Mellon
are few: He alleges that, at times, BLMIS transferred money from its account at BNY Mellon to
another BLMIS account at Barclay's Capital in London, and that certain of the money transferred to
London was subsequently "funneled to Madoff, his family, and" back to BNY Mellon. (TC

359')

Plaintiff also alleges that BNY Mellon provided "fund administration, valuation, and custodial
services to Tremont Partners," a third party investment management company that created and
marketed a group of funds called the Rye Funds, (TC

360.) Plaintiff does not allege that he

invested in the Rye Funds, or in any fund managed by Tremont, but rather that he invested
elsewhere (in the Thema Fund) managed by a different manager (Bank Medici AG). (TC
4.

15-16.)

Plaintiff does not allege that BNY Mellon provided any services to or had any

business dealings whatsoever with Bank Medici AG, Sonja Kohn, UniCredit SpA, Therna, HSBC,
PwC, Genevalor, Benbassat & Cie, BA Worldwide Fund Management Limited, or any other
defendants in this case.
5.

Plaintiff does not allege that he ever interacted with BNY Mellon, that he

knew that BLMIS kept certain of its operating funds in an account at BNY Mellon, or that BNY
Mellon ever provided any services for him whatsoever. Rather, the only fact that Plaintiff pleads
regarding BNY Mellon is that BLMIS's market making business (of which Plaintiff does not allege
he was a customer) held an account at BNY Mellon. (TC

358.) Plaintiff alleges that he was an

indirect investor in a strategy implemented by an entirely different one of BLMIS's "three business
units," (TC

12 1), through his investment in the Therna Fund.
6.

Plaintiff s Claims Are Preempted By The Martin Act. BNY Mellon

maintains its primary place of business at One Wall Street in New York City. (See TC

60, 70.)

BLMIS' account at BNY Mellon was located in New York, (TC

359.) Every single alleged act

that forms the basis of Plaintiffs claims against BNY Mellon relate to banking services provided in
New York to BLMIS exclusively within New York. (TC

327-68.)' None of the claims Plaintiff

asserts against BNY Mellon require that he prove the element of scienter and, accordingly, each is
preempted by the Martin Act. Castellano v. Young & Rubicam, Inc., 257 F.3d 171, 190 (2d Cir,
2001); Jain v. T&C Holding, Inc., No. 10 Civ. 1006 (RMB), 2011 WL 814659, at *6 (S.D.N.Y. Mar.
3, 2011) (Berman, J.).
7.

Plaintiffs Class Claims Are Preempted By SLUSA. Plaintiffs putative

class claims (Counts 11, 15 and 19) are preempted by the Securities Litigation Uniform Standards
Act ("SLUSA") for all of the reasons set forth in the Joint Memorandum of Law.
8.

Plaintiff Lacks Standing To Assert Derivative Claims. As set forth in the

Joint Memorandum of Law, Plaintiff lacks standing under controlling Irish law to assert any claims
derivatively of the Therna Fund. Whatever argument Plaintiff might have with respect to other
defendants, however, there can be no argument that Plaintiff is excused from intracorporate
remedies with respect to the Therna Fund's supposed claim against BNY Mellon (Count 15) - a
third party entity that has no association with and is not accused of engaging in any conduct with
the Therna Fund's managers. See Joint Memorandum of Law at 22-23.
9.

There Is No Such Tort As Aiding and Abetting Negligence. Plaintiff s

claims for aiding and abetting gross negligence and negligence (Counts I I and 15) fail because New
York law recognizes no such tort. See, e.g., In re Bayou Hedge Funds Inv. Litig., 472 F. Supp. 2d
I
For the same reasons, Plaintiff s claims against BNY Mellon are governed by the substantive law of the State of
If
New York. See, e.g., GlobalNet Financial Com, Inc. v. Frank Crystal &Co., Inc., 449 F.3d 377, 384 (2d Cir, 2006) (...
conflicting conduct-regulating laws are at issue, the law of the jurisdiction where the tort occurred will generally apply
because that jurisdiction has the greatest interest in regulating behavior within its borders."') (quoting Conney v. Osgood
Mach, Inc., 81 N.Y.2d 66, 72 (1993)); Pens. Comm. of Univ. of Montreal Pens. Plan v. Banc of Am. Secs LLC, 446 F.
Supp, 2d 163, 194 (S.D.N.Y. 2006) ("Because occurrences in New York and the parties' contacts with that forum bear
the most relation to the torts at issue here, New York has the greatest interest in applying its law,"); San Diego Count
Emples. Retiiernent Ass'n v. Maounis, 749 F. Supp. 2d 104, 125 (S.D.N.Y. 2010) (applying the law of "[t]he jurisdiction
with the greatest concentration of occurrences and contacts with the issues presented.").
I

528, 532 (S.D.N.Y. 2007). Aiding and abetting is, by definition, a knowing violation. Kaufman v.
Cohen, 760 N.Y.S.2d 157, 169 (Ist Dep't 2003). Negligence is the unintentional failure to exercise
It
care. United Nat. Ins. Co. v. Tunnel, Inc., 988 F.2d 351, 353 (2d Cir. 1993) (...is elementary that
the words 'negligence' and 'intentional' are contradictory."') (quoting Martin v. Ycoham, 419 S.W.
2d 937, 944 (Mo. Ct. App. 1967)). Thus, the concept of "aiding and abetting" is wholly inconsistent
with the very nature of the underlying tort, and Plaintiff s claims accordingly are without legal merit.
10.

Plaintiff Alleges No "Actual Knowledge" Of Any Underlying Tort. As set

forth in the Joint Memorandum of Law, to state a claim for aiding and abetting, a plaintiff must
plead facts demonstrating the defendant's "actual knowledge" of an underlying tort. See Joint
Memorandum of Law at 34-35. Here, while asserting that BNY Mellon aided and abetted "the
Medici Defendants, the Director Defendants, the HSBC Defendants, the Advisor Defendants, and/or
the PwC Defendants" (TC

496; see also id. 11500; 511), Plaintiff does not allege that BNY

Mellon even knew that the Thema Fund existed. He certainly does not allege that BNY Mellon
knew that the Therna Fund invested with Madoff, that any of the other defendants had any role with
respect to the management of the Thema Fund, or that any of the other defendants breached any
duty. All that is pled are Plaintiff s deficient allegations that BNY Mellon could have discovered
Madoff s fraud. (TC T 358-68.) Those allegations are not supported by facts and, even if they were,
would not be sufficient to proceed with a claim against BNY Mellon for aiding and abetting.
11.

Plaintiff Alleges No "Substantial Assistance" By BNY Mellon. As to

substantial assistance, all that Plaintiff alleges is that BNY Mellon allowed BLMIS to have a bank
account (TC 358) and that BNY Mellon permitted Madoff to transfer money to another BLMIS
account at another major financial institution (TC

359). The Second Circuit has held that such

conduct does not constitute "substantial assistance" under New York law. See, e.g., MLSMK Inv.
Co. v. JP Morgan Chase & Co., No. 10-3040, 2011 WL 2176152, at *3 (2d Cir. June 6, 2011)

("Banks generally do not owe non-customers a duty to protect them from fraud perpetrated by their
customers,"); see also In re Agge Litigation 681 F. Supp. 2d 352 (E.D.N.Y. 2010) ("The caselaw is
clear that opening accounts and approving transfeT&,:even where there is suspicion of fraudulent
activity, does not amount to substantial assistance .,,).2
12.

BNY Mellon Was Not Unjustly Enriched. Finally, Plaintiff does not plead

that BNY Mellon ever received any fees from Plaintiffs, or that the account fees that BNY Mellon
presumably received from BLMIS were in any way unreasonable. Accordingly, Plaintiff has not
pled that BNY Mellon was unjustly enriched, or that such enrichment was at his expense (Count 19).
See Kramer v. Lockwood Pension Servs., 653 F. Supp. 2d 354, 381 (S.D.N.Y. Sept. 1, 2009);
Redtail Leasing, Inc. v. Bellezza, No. 95 Civ. 5191 (JFK), 1997 WL 603496, at *8 (S.D.N.Y. Sept.
30, 1997) (requiring "some type of direct dealing or actual, substantive relationship with a
defendant").
I declare under penalty of perjury that the foregoing is true and correct.
Dated: June 29, 2011
New York, New York
/s/ Lewis J. Liman
Lewis J. Liman

BNY Mellon does not understand the basis for Plaintiff s allegation that BNY Mellon "fail[ed] to file
Suspicious Activity Reports" regarding BLMIS's account, First, the allegation assumes (without explaining) that the
activity in the account (mere transfers of money between affiliated accounts) would have merited the filing of such
reports. At a more basic level, however, "SARs are confidential," BNY Mellon is prohibited by law from revealing
whether it filed such reports and Plaintiffs have no basis whatsoever for alleging that SARs either were or were not filed
in connection with Madoff s account. See 12 C.F.R. § 21.11 (k); 12 C.F.R. § 353.3(g).
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