In re Herald, Primeo and Thema Funds Securities Litigation

Filing 339

REPLY AFFIRMATION of Franklin B. Velie in Support re: #252 JOINT MOTION to Dismiss.. Document filed by UniCredit Bank Austria AG. (Velie, Franklin)

SULLIVAN & WORCESTER LLP
Franklin B. Velie
Jonathan G. Kortmansky
Mitchell C. Stein
1290 Avenue of the Americas
New York, New York 10104
Telephone: [phone]
Facsimile: [phone]
Attorneys for Defendant
UniCredit Bank Austria AG

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

In re HERALD, PRIMEO and THEMA
FUNDS SECURITIES LITIGATION,

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:
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This Document Relates To:
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ALL ACTIONS.
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Civil Action No. 09 CIV 289 (RMB) (HBP)
(Consolidated with 09 CIV 2032 and
09 CIV 2558)
ECF CASE

REPLY DECLARATION OF FRANKLIN B. VELIE IN
SUPPORT OF MOTION TO DISMISS CLAIMS AGAINST
DEFENDANT UNICREDIT BANK AUSTRIA AG

FRANKLIN B. VELIE, pursuant to 28 U.S.C. §1746, declares:
1.

In my declaration dated June 29, 2001 (“FBV Dec.”), UniCredit Bank Austria AG

(“BA”) showed the pleadings against it allege only provision of ordinary banking and financial
services. (FBV Dec. ¶3). Plaintiffs’ opposition brief (“Opp. Br.”) identifies only the following
paragraphs beyond those discussed in the FBV Dec: Primeo Complaint (“P.”) ¶26; Herald
Complaint (“H.”) ¶¶2, 31, 54, 228, 235-36, 248, 365. None of them allege anything other than
ordinary banking services. As in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007), the
allegations are consistent with lawful conduct and fail to state any plausible claims against BA.
2.

Plaintiffs lack standing to sue BA. In the FBV Dec. ¶¶3-4, BA showed that the Herald

and Primeo Plaintiffs fail to allege they purchased their shares before BA’s role with respect to
the funds ended in April, 2007. Plaintiffs do not deny this, and concede that BA’s alleged
conduct was not the direct cause of their injuries. See Opp. Br. at 89. Plaintiffs have not pointed
to a single allegation showing that BA “constrained or influenced the decision of the final actor
in the chain of causation” to the extent required to show indirect injury, see Carver v. City of
New York, 621 F.3d 221, 226 (2d Cir. 2010), nor have they identified the purported “final actor”
who allegedly caused their injuries. Where, as here, “speculative inferences are necessary to
connect [Plaintiffs’] injury” to BA’s alleged conduct, see Simon v. Eastern Ky. Welfare Rights
Org., 426 U.S. 26, 45 (1976), there is no standing to sue BA.
3.

The Herald Plaintiffs fail to state a RICO claim. In the FBV Dec. ¶5, BA showed that

the RICO claim should be dismissed because the allegations fail to show that BA: (1) conducted
or participated in the affairs of the alleged enterprise, (2) managed or controlled the alleged
enterprise, (3) had the requisite scienter or committed predicate acts, (4) engaged in a continuous
pattern of racketeering, or (5) caused the alleged RICO injuries. The Herald Plaintiffs’

{N0286840; 10}

conclusory claim that they have “abundantly pled” scienter and causation (see Opp. Br. 94-96) is
belied by the utter lack of particularized facts showing BA’s scienter. The only allegation
relating to BA’s knowledge is that BA knew about “Madoff and the consistent returns that he
generated for the accounts.” (H. ¶228).1 Further, Plaintiffs concede that BA’s conduct was “not
the very last step in the chain of causation.” (Opp. Br. at 89), and therefore fail the RICO
causation test set forth in Hemi Group v. City of New York, 130 S.Ct. 983, 989 (2010).
4.

With respect to management and control and continuity of the enterprise, Plaintiffs

improperly lump together BA and other defendants without identifying allegations that
demonstrate BA managed or controlled the enterprise, or how BA’s conduct satisfied RICO’s
continuity requirements. (Opp. Br. p. 97). The allegations, at best, show that BA provided
services in support of the alleged enterprise, which does not constitute management and control,
even if BA knew of the fraud (which it did not).2 Plaintiffs have not refuted BA’s argument that
BA’s three alleged predicate acts do not meet RICO’s continuity requirements (FBV Dec. ¶5).
5.

Plaintiffs’ argument in Opp. Br. p. 97, fn.52 that BA can be held vicariously liable as an

“aggressor corporation” misconstrues the pleadings and applicable law. Where, as here,
Plaintiffs fail to allege any predicate acts by BA employees, vicarious liability does not attach.3
Nor do Plaintiffs allege facts demonstrating that BA executives knew of or were recklessly

1

Each of the predicate acts alleged against BA require scienter. See FBV Dec. ¶4, Br. at 43-44.
Plaintiffs have failed to allege the additional required elements of each individual predicate act.
2

Dep’t of Econ. Dev. v. Arthur Anderson & Co. (USA), 924 F. Supp. 449, 467 (S.D.N.Y. 1996);
Indus. Bank of Latvia v. Baltic Financial Corp., 1994 WL 286162 at *3 (S.D.N.Y. June 27,
1994); Madanes v. Madanes, 981 F. Supp. 241, 256-257 (S.D.N.Y. 1997); see also Br. pp. 4344.
3

Lutin v. New Jersey Steel Corp., 1996 WL 636037, at *12 (S.D.N.Y. Nov. 1, 1996).

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indifferent to the illegal activity of the purported enterprise. USA Certified Merchants v. Koebel,
262 F. Supp. 2d 319, 328 (S.D.N.Y. 2003).
6.

The Herald Plaintiffs fail to state a claim for RICO conspiracy. In the FBV Dec. ¶6,

BA showed that the Herald complaint fails to allege that BA knew of or agreed to participate in
any illegal conspiracy. Plaintiffs do not rebut, and thus concede, this point. The Herald pleading
confirms that Madoff’s alleged unlawful agreement with Kohn was secret. (H. ¶¶173-179).
7.

Plaintiffs’ common law claims against BA should be dismissed. In the FBV Dec. ¶¶7-

11, BA showed that all common law claims against it should be dismissed. Plaintiffs do not
deny they purchased securities only after BA was no longer involved with the funds (Opp. Br.
p. 89). BA therefore owed no duty to Plaintiffs, nor could BA have caused Plaintiffs’ alleged
harm.4 Plaintiffs’ “aiding and abetting claims” against BA must fail because Plaintiffs do not
allege that BA had “actual knowledge” of Madoff’s fraudulent activity (Defendants’ Reply Brief
(“Rep. Br.”) pp. 23-25), nor do Plaintiffs allege specific acts by BA that amount to providing
“substantial assistance” to Madoff.5 Plaintiffs do not rebut BA’s arguments with respect to the
“aiding and abetting conversion” claims, but instead attempt to rebut arguments raised by other

4

See, e.g., MLSMK Investments Co. v. JP Morgan Chase & Co., 737 F. Supp. 2d 137, 146
(S.D.N.Y. 2010), aff’d in part, No. 10-3040-cv, MLSMK Inv. Co. v. JP Morgan Chase & Co.,
2011 WL 2176152 (2d Cir. June 6, 2011).
5

Plaintiffs’ only allegations that identify any “assistance” by BA are that BA “generated
misleading Primeo marketing materials” or participated in other activities to market and
distribute the Primeo and Herald Funds. See, e.g., HC ¶¶ 231, 269, 270. Plaintiffs do not
specify any “materials” in particular and fail to explain how these materials were “misleading” or
fraudulent. Such allegations fall far short of the requirements of Rule 9(b). See Pension Comm.
of Univ. of Montreal Pension Plan v. Banc of Am. Sec., 446 F. Supp. 2d 163, 184 (S.D.N.Y.
2006).

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defendants. See Opp. Br. 54-56. The remaining common law claims are foreclosed for the
reasons set forth in the FBV Dec. ¶¶7-11.6
8.

This Court lacks personal jurisdiction over BA. In the FBV Dec. ¶¶12-13, BA

showed that this Court should dismiss the Primeo and Herald actions against BA for lack of
personal jurisdiction, and dismiss the Herald action for failure to serve the summons and
complaint. The Herald Plaintiffs do not deny, and therefore concede, they have failed to serve
BA without good cause. Plaintiffs’ response to BA’s personal jurisdiction arguments fails to
explain how Plaintiffs’ claims “arise out of” the contacts Plaintiff identify for BA, namely a
former BA branch office in NY (H. ¶62), trips to NY to meet with Madoff (H. ¶¶120, 334) and
the opening of BA accounts at BLMIS and transfers in and out of those accounts (P. ¶34). Nor
do such contacts create general jurisdiction over BA. Plaintiffs allege no facts showing the BA
branch, which closed in 1996, was an agent or “mere department” of BA (Reply Br. at p. 1). Nor
do plaintiffs refute BA’s argument that a former branch cannot create jurisdiction (FBV Dec.
¶12). Likewise, occasional trips to New York and the transfer of money through New York
accounts are insufficient to establish a “continuous and systematic course of doing business” in
New York as required by CPLR 301. See Landoil Res. Corp. v. Alexander & Alexander Servs.,
Inc., 918 F.2d 1039, 1045-1046 (2d Cir. 1990).
I declare under penalty of perjury that the foregoing is true and correct.
Dated: New York, New York
October 28, 2011

/s/ Franklin B. Velie
Franklin B. Velie

6

Plaintiffs allege a conspiracy “in connection” with aiding and abetting fraud. See Opp. Br. at
42 n.25. The conspiracy claim thus is subject to Rule 9(b) pleading requirements, which are not
satisfied by Plaintiffs’ vague allegations that “Defendants” entered into a “common
understanding and agreement.” See H. ¶647. Absent an actionable aiding and abetting claim
against BA, Plaintiffs’ civil conspiracy claim upon which it is based also must be dismissed.

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