Board Of Trustees Of The AFTRA Retirement Fund et al v. JPMorgan Chase Bank, N.A.
Filing
157
OPINION AND ORDER re:#101307 127 MOTION in Limine TO EXCLUDE IRRELEVANT, PREJUDICIAL, AND HEARSAY MATTERS FROM TRIAL filed by JP Morgan Chase Bank, N.A., JPMorgan Chase Bank, N.A., 124 MOTION in Limine Notice of Plaintiffs' Omnibus Motion In Limine filed by Board of Trustees of The Imperial County Employees' Retirement System, Board Of Trustees Of The AFTRA Retirement Fund, The Investment Committe of the Manhattan and Bronx Service Transit Operating Authority Pension Plan. For the aforementioned reasons, JPMC Bank's motion is granted in part and denied in part, and plaintiffs' motion is granted in part and denied in part. The Clerk of the Court is directed to close these motions [Docket Nos. 124 and 127]. (Signed by Judge Shira A. Scheindlin on 1/19/2012) (lmb) Modified on 1/20/2012 (jab).
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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
------------------------------------------------------)(
i
RETIREMENT FUND, in its capacity as a
fiduciary of the AFTRA Retirement Fund,
individually and on behalf of all others
similarly situated,
Plaintiff,
- againstJPMORGAN CHASE BANK, N.A.,
Defendant.
------------------------------------------------------ )(
BOARD OF TRUSTEES OF THE
IMPERIAL COUNTY EMPLOYEES'
RETIREMENT SYSTEM, in its capacity
as a fiduciary of the Imperial County
Employees' Retirement System,
individually and on behalf of all others
similarly situated,
Plaintiff,
- againstJPMORGAN CHASE BANK, N.A.,
Defendant.
------------------------------------------------------ )(
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OPINION AND ORDER
09 Civ. 686 (SAS)
\
THE INVESTMENT COMMITTEE OF
THE MANHATTAN AND BRONX
SURFACE TRANSIT OPERATING
AUTHORITY PENSION PLAN, in its
capacity as a fiduciary of the MaBSTOA
Pension Plan, individually and on behalf of
all others similarly situated,
Plaintiff,
- against JPMORGAN CHASE BANK, N.A.,
Defendant.
X
SHIRA A. SCHEINDLIN, U.S.D.J.:
I.
INTRODUCTION1
Plaintiffs and defendant bring cross-motions in limine seeking rulings
on evidence and the burden of proof in advance of trial. For the following reasons,
both motions are granted in part and denied in part.
1
This Opinion assumes familiarity with the background and applicable
law of this case, as stated in prior opinions. See Board of Trustees of the AFTRA
Retirement Fund v. JPMorgan Chase Bank, N.A., 269 F.R.D. 340, 355 (S.D.N.Y.
2010) (class certification); Board of Trustees of the AFTRA Retirement Fund v.
JPMorgan Chase Bank, N.A., — F. Supp. 2d —, No. 09 Civ. 686, 2011 WL
3477219 (S.D.N.Y. Aug. 5, 2011) (summary judgment); Board of Trustees of the
AFTRA Retirement Fund v. JPMorgan Chase Bank, N.A., No. 09 Civ. 686, 2011
WL 6288415 (S.D.N.Y. Dec. 15, 2011) (Daubert rulings).
2
II.
LEGAL STANDARD
The purpose of a motion in limine is to allow a court to rule on the
admissibility of potential evidence in advance of trial.2 A court will exclude
evidence on a motion in limine only if the evidence is “clearly inadmissible on all
potential grounds.”3 However, a court “considering a motion in limine may reserve
judgment until trial, so that the motion is placed in the appropriate factual
context.”4
III.
APPLICABLE LAW
Rule 401 of the Federal Rules of Evidence defines “relevant
evidence” as “evidence having any tendency to make the existence of any fact that
is of consequence to the determination of the action more probable or less probable
than it would be without the evidence.” Rule 402 states that “[i]rrelevant evidence
is not admissible.” Rule 403 states that relevant evidence “may be excluded if its
probative value is substantially outweighed by the danger of unfair prejudice,
confusion of the issues, or misleading the jury.”
2
See Luce v. United States, 469 U.S. 38, 40 n.2 (1984).
3
United States v. Ozsusamlar, 428 F. Supp. 2d 337, 340 (S.D.N.Y.
2002).
4
In re Methyl Tertiary Butyl Ether(“MTBE”) Prods. Liab. Lit., 643 F.
Supp. 2d 471, 476 (S.D.N.Y. 2009) (citation and quotation marks omitted).
3
IV.
DISCUSSION
A.
JPMC Bank’s Motion in Limine
Initially, I note that JPMorgan Chase Bank’s (“JPMC Bank”) opening
memorandum raised two issues that are now moot. First, JPMC Bank sought to
exclude “hearsay marketing documents” produced by Interactive Data Pricing and
Reference Data, Inc., a securities pricing service. The parties have reached a
consensual resolution of this issue.5 Second, JPMC Bank also sought to exclude
“patently prejudicial and irrelevant evidence and assertions by counsel and
experts.”6 This issue is moot as plaintiffs have represented that they have no
intention to “invite the jury to return a verdict ‘based on generalized views about
Wall Street, banks or the financial crisis.’”7 Two issues remain to be resolved on
JPMC Bank’s motion.
1.
Lawsuits Against Other Securities Lending Agents
Plaintiffs contend that they will not introduce evidence about similar
5
See Plaintiffs’ Memorandum of Law in Opposition to JPMorgan’s
Motion In Limine (“Pl. Opp. Mem.”) at 3 (“The parties have agreed to stipulate to
the authenticity and admissibility of certain IDC pricing documents and plaintiffs
have agreed to withdraw the remainder.”).
6
JPMC Bank’s Memorandum of Law in Support of Its Motion in
Limine to Exclude Irrelevant, Prejudicial, and Hearsay Matters from Trial (“Def.
Mem.”) at 15.
7
Pl. Opp. Mem. at 2 (quoting Def. Mem. at 15).
4
lawsuits if JPMC Bank is precluded from introducing evidence about third-parties’
decisions to purchase or hold Sigma notes.8 However, plaintiffs argue that if
JPMC Bank introduces evidence about how third-parties acted, plaintiffs should be
able to introduce evidence that such third-parties are also facing lawsuits.
Plaintiffs’ opposition brief does not cite a single case for the
proposition that mere allegations of misconduct are probative. Indeed, courts
generally exclude evidence of other related lawsuits.9 As I stated at the January 10,
2012 conference, “I see little probative value in allegations only.”10 Accordingly,
evidence of the existence of similar lawsuits is excluded from this trial.
2.
Evidence About JPMC Bank’s Repo Financing of Sigma
Plaintiffs seek to introduce evidence on the contractual terms and
protections that JPMC Bank negotiated while providing repo financing to Sigma.
Plaintiffs note that a fiduciary owes “a duty to the beneficiary in administering the
8
See infra Part IV.B.3.
9
See Figueroa v. Boston Scientific Corp., No. 00 Civ. 7922, 2003 WL
21488012, at *4 (S.D.N.Y. June 27, 2003) (“The probative value of the fact that
approximately 720 plaintiffs have brought suit is substantially outweighed by the
danger of unfair prejudice, confusion of the issues, and considerations of undue
delay and waste of time.”); Foster v. Berwind Corp., No. 90 Civ. 0857, 1991 WL
83090, at *1 (E.D. Pa. May 14, 1991) (excluding evidence of other lawsuits
because “the complaints in these other actions are just that: allegations” and “are
dispositive of nothing and would confuse the complex issues already present”).
10
1/10/12 Tr. at 18:1-2.
5
trust to exercise such care and skill as a man of ordinary prudence would exercise
in dealing with his own property.”11 Accordingly, plaintiffs contend that how
JPMC Bank dealt with Sigma when its own money was on the line is highly
relevant.
Plaintiffs do not seek to introduce evidence of non-public information
JPMC Bank received in connection with the repo financing. Specifically, plaintiffs
do not intend to introduce evidence concerning (1) the reasons JPMC Bank
extended repo financing to Sigma; (2) JPMC Bank’s non-public analysis of
specific Sigma assets; and (3) the reasons for JPMC Bank’s decision to declare
Sigma in default. Rather, they seek to introduce evidence focusing on measures
JPMC Bank took to protect its own funds in light of public risks and compare that
with the steps JPMC Bank took (or failed to take) as fiduciaries charged with
protecting the class’s assets. In particular, JPMC Bank demanded and received
stringent contractual and financial protections in extending repo financing to
Sigma. Plaintiffs also seek to introduce evidence that JPMC Bank declared Sigma
in default.
I agree that there is some probative value in comparing JPMC Bank’s
conduct when its own money was at risk with JPMC Bank’s conduct when
11
Restatement (Second) of Trusts § 174 (1959) (emphasis added).
6
investing funds held in a fiduciary capacity. However, the analogy between how
JPMC Bank acted as an investment advisor and as a repo financier is so tenuous
that the probative value of the terms of JPMC Bank’s repo financing agreement
with Sigma is outweighed by risks of prejudice and confusion. The prudent man
standard involves weighing JPMC Bank’s conduct against the “care and
management . . . prudent [people] . . . employ in their own like affairs.”12 JPMC
Bank’s conduct in providing repo financing to Sigma is so different from its
investment in a debt security that the confusion to the jury would outweigh any
minimal probative value in admitting the evidence.
A repo financier and an investor in a debt security have a
fundamentally different relationship with Sigma. A repo financier negotiates the
terms of the financing individually with a counterparty. The relationship is
maintained with continuous discussions about margin and posting of securities.
Most importantly, repo agreements are negotiated and maintained by personnel
with access to confidential information. Despite the claims of plaintiffs, allowing
the terms of the repo financing to be admitted into evidence would inevitably bring
into question the confidential information to which JPMC Securities Lending
lacked access. The terms and protections that the private side of JPMC Bank
12
LNC Invs., Inc. v. First Fidelity Bank, No. 92 Civ. 7584, 1997 WL
528283, at *17 (S.D.N.Y. Aug. 27, 1997).
7
negotiated in connection with its repo financing were based on that confidential
information. On the other hand, Sigma issued large quantities of debt securities on
a regular basis with fixed terms. Plaintiffs have presented no evidence that
Securities Lending could have negotiated protections when purchasing debt
securities. Although plaintiffs are welcome to make the argument that JPMC Bank
should have tried to negotiate more protections from Sigma when purchasing the
medium-term notes (“MTNs”), it would be misleading to draw a comparison with
how JPMC Bank acted as a repo financier, where extensive conditions and
protections are customarily negotiated with access to confidential information.
While it is true that Securities Lending could have obtained some
confidential information concerning Sigma’s individual assets if it negotiated a
ratio trade, plaintiffs need not introduce evidence of the terms of the repo
agreement to make the argument that Securities Lending should have pursued ratio
trades more aggressively. In a ratio trade, the note holder would redeem the note
in exchange for buying some specific assets of Sigma. Plaintiffs have argued
extensively that this alternative was preferable to holding the Sigma MTNs. JPMC
Bank disagrees. Regardless, the issue of the prudence of ratio trades can be fully
argued without a misleading comparison to the terms of JPMC Bank’s repo
financing.
8
Finally, JPMC Bank’s identity as the repo financier of Sigma, as well
as the fact that it issued a notice of default, are irrelevant to the claims at issue here.
JPMC Bank declared Sigma in default in its capacity as a repo financier because
Sigma failed to meet a margin call. Securities Lending, in contrast, had no right to
make margin calls or declare a default before Sigma entered receivership. To
admit this evidence would invite the jury to return a verdict based on the conduct
of JPMC Bank’s private side, a claim which I dismissed in the summary judgment
opinion.13
Likewise, JPMC Bank’s identity as Sigma’s primary repo financier is
irrelevant. At the time of the investments in Sigma, this information was
confidential. Securities Lending was only aware of rumors in the marketplace.
While plaintiffs may state that JPMC Bank was involved in repo financing – like
every other large bank – the fact that JPMC Bank was Sigma’s largest repo
financier is irrelevant – claims concerning JPMC Bank’s conduct as a repo
financier have been dismissed from this case. Plaintiffs may also prove that Sigma
obtained repo financing. Indeed, plaintiffs’ arguments on the claims at issue hinge
on the fact that plaintiffs believe Sigma had too much repo financing. The source
of such financing is not material. Accordingly, the terms of JPMC Bank’s repo
13
AFTRA Ret. Fund, 2011 WL 3477219.
9
financing agreement with Sigma, JPMC Bank’s identity as Sigma’s primary repo
financier, and the fact that JPMC Bank declared Sigma in default are not
admissible at trial. Of course, the fact of the default is admissible.
B.
Plaintiff’s Motion in Limine
1.
Judith Polzer
At the January 10, 2012 conference I denied plaintiffs’ motion in
limine to the extent it sought to exclude Judith Polzer from testifying.14
2.
Evidence Concerning Individual Account Holders
JPMC Bank seeks to introduce evidence that certain individual
account holders did not object to holding the Sigma notes. Plaintiffs point to
language from the class certification opinion to argue that this evidence is not
relevant. Specifically, the class certification opinion stated that “[f]or purposes of
determining liability, it is JPMC’s conduct – rather than that of individual class
members – that is the key issue” and “[t]he direct account holders’ ability to direct
JPMC to sell the Sigma MTNs does not detract from the overarching question of
whether JPMAM’s recommendation to hold the notes was prudent.”15 Moreover,
14
See 1/10/12 Tr. at 3:13-15 (“Depose her [Polzer]. I am not going to
preclude her. That is what the pilot project says.”).
15
AFTRA Ret. Fund, 269 F.R.D. at 352-53.
10
according to plaintiffs, individual account holders were not privy to Lisa Shin’s
increasing level of concern with Sigma. In sum, plaintiffs believe this evidence
seeks to draw the jury away from the real issue – JPMC Bank’s conduct.
While plaintiffs are correct that JPMC Bank may not use evidence
concerning the individual account holders’ investment decisions to abrogate its
role as a fiduciary, the evidence of communications between JPMC Bank and
individual account holders is admissible here. Plaintiffs’ concerns are best
addressed in the jury charge explaining JPMC Bank’s obligations as a fiduciary,
regardless of the views of the investors.
With regards to prudence, JPMC Bank, in deciding whether to hold
the Sigma notes, considered the conduct of other sophisticated investors, such as
the account holders. When fact witnesses are asked the factors they considered in
assessing Sigma, they must be able to give a full and complete answer. Such an
answer will likely include statements that they considered the analysis and
recommendations from individual account holders, which were largely
sophisticated investors. Moreover, to the extent that plaintiffs contend JPMC Bank
failed to disclose Sigma’s risks, JPMC Bank’s communications with account
holders are admissible to rebut such contentions. Plaintiffs’ concern that the
communications from the account holders were based on inadequate information
11
about Sigma goes to the weight of the evidence and is best addressed through
vigorous cross examination. The internal communications of account holders,
which JPMC Bank never saw, are irrelevant because these communications were
not part of JPMC Bank’s analysis of Sigma. However, such communications may
be admissible with respect to causation and damages and will have to be assessed
individually for that purpose.
To the extent that plaintiffs’ losses resulted from account holders’
independent decision to hold the notes based on their own analysis and despite
JPMC Bank’s advice, plaintiffs’ claims fail. The issue of whether plaintiffs would
have purchased and continued to hold the Sigma MTNs – even if JPMC Bank had
scrupulously complied with its fiduciary duties – is one for the finder of fact.
While plaintiffs may present evidence showing that JPMC Bank’s breach of
fiduciary duty caused the class’s loss as a whole, they cannot prevent JPMC Bank
from presenting evidence with respect to individual accounts to rebut plaintiffs’
showing of causation and damages.
3.
Evidence Concerning Third-Party Investments in Different
Sigma Notes
Plaintiffs also seek to exclude evidence relating to other investors who
12
purchased securities issued by Sigma during the same time period.16 Plaintiffs
have three primary arguments. First, third-party investors were acting for different
clients with different investing goals. Accordingly, their investment decisions
have no bearing on whether JPMC Bank breached its duty under this specific set of
facts. Second, the third-party investors invested in different securities – JPMC
Bank purchased the entire issue of the June 2009 Sigma medium-term notes
(“MTNs”). Third, there is no evidence that the third-parties acted prudently in
purchasing Sigma securities – there is no evidence about their due diligence
efforts, what information was available to them, and their respective risk tolerance.
JPMC Bank argues in response that evidence showing other sophisticated,
conservative institutional investors invested in Sigma securities is relevant to
prudence because conformity with an accepted practice can establish due care.
I find plaintiffs’ first two arguments unconvincing. Plaintiffs’ first
argument, that these funds were operating with different goals, is undermined by
16
The class certified in this action consists of “[a]ll plans and entities for
which [JPMC Bank], pursuant to a securities lending agreement, invested cash
collateral, either directly or through a collective investment vehicle, in one or more
debt securities of Sigma Finance, Inc. and continued to hold those debt securities
as of the close of business on September 30, 2008.” AFTRA Ret. Fund, 269 F.R.D.
at 341. Specifically, the class is limited to “only those investors who held Sigma
Medium-Term Notes that were purchased in June 2007 and had a maturity date of
June 2009.” Id. The discussion in this section applies to investments in Sigma by
non-class members.
13
the fact that these third-party funds had investment guidelines substantially similar
to the investment guidelines here. Plaintiffs’ second argument, that the third-party
funds invested in Sigma securities with different maturity dates, is off-point
because none of plaintiffs’ evidence concerning JPMC Bank’s lack of prudence
distinguish the June 2009 MTNs as being meaningfully different from the other
Sigma MTNs. Plaintiffs argue that JPMC Bank should not have invested in Sigma
because it was (1) an SIV, (2) not transparent, (3) formed under foreign law, and
(4) financed excessively through repo financing. All of these arguments apply
equally to all Sigma securities, not just the June 2009 MTNs. Any difference
among the Sigma notes goes to the weight of this evidence, not its admissibility.
However, I am persuaded by plaintiffs’ argument that there is no
evidence concerning the third-parties’ due diligence efforts, respective risk
tolerances, and the information available to them. The confusion and wasted time
resulting from requiring a mini-trial on the prudence of every non-party investor in
Sigma would substantially outweigh any probative value this evidence has.17
Therefore, plaintiffs’ motion in limine is granted to the extent that JPMC Bank may
not admit evidence of investments in Sigma by other, unrelated investors.
17
See 1/10/12 Tr. at 21:20-24 (“I am not keen on allowing any proof of
what BNY Mellon did because I think it’s a trial within a trial, we have a mini trial,
we have . . . to try the BNY Mellon case, which thankfully is in Oklahoma and not
in my court. So, let that judge live with that case.”).
14
This ruling does not mean, however, that fact witnesses may not state
that one factor they considered in investing in Sigma was that other large,
sophisticated, conservative investors were investing in Sigma. Likewise, JPMC
Bank’s expert witnesses may testify that a prudent investment manager would look
at the behavior of other such investors in the marketplace, and the fact that they
were investing in Sigma is relevant to JPMC Bank’s prudence.18 However,
witnesses may not name specific institutions that invested in Sigma.19 I note that
this ruling applies equally to evidence plaintiffs plan to present on ratio trades –
plaintiffs may present evidence concerning the existence and amount of such ratio
trades, but they may not name the specific institutions engaged in the ratio trades
with Sigma.
Any remaining concerns that plaintiffs have may be addressed on
18
See id. at 27:3-9 (“I certainly can have the expert say one of the things
I look at, looking in hindsight as to whether things were done correctly, is to see
what the larger community was doing. There were many other banks investing in
SIVs, or lending in SIVs, or whatever they want[] to say, or putting their investors
into SIVs. I mean that’s certainly OK.”) id. at 28:5-9 (“So, if they just want to give
the generalities, I researched this and I found that, you know, banks were doing it,
ten banks, major banks were doing the same thing, that’s sort of a generality, but it
makes the point that they looked at that as a factor.”).
19
See id. at 27:17-23 (“They don’t need to name them. It could be
banks A, B, C and D. But if you start putting the names of the four biggest banks,
it lends it a certain gravitas that may not be fair given that there are lawsuits
pending, given that there is discovery that may have shown that they did or didn’t
do certain things, or they knew or didn’t know certain things.”).
15
cross-examination, where they can ask JPMC Bank’s witnesses their knowledge of
the due diligence employed by these other investors. Indeed, plaintiffs’ counsel
indicated at the January 10, 2012 conference that they have no objection to JPMC
Bank introducing testimony that other large, sophisticated conservative investors
were investing in Sigma securities and JPMC considered that factor in deciding
whether to purchase and hold the Sigma MTNs.20
4.
Burden of Proof on Causation
Plaintiffs seek an in limine ruling on the causation element of their
claim. Courts may entertain in limine motions to make pre-trial rulings allocating
burdens of proof in order to avoid uncertainty at trial.21 Plaintiffs contend that after
they have established a breach of fiduciary duty and prima facie case of loss, the
burden shifts to JPMC Bank on the element of causation. Plaintiffs’ position is
based on the principle that “once a breach of trust is established, uncertainties in
20
See id. at 29:13-23 (“[THE COURT]: But the expert can say that one
of the factors that he or she looks back at is w[hat] is going on in the market, were
other, as you put it, prudent investors going into the same security, and just leave it
at that generality. I don’t think we can go further. . . . MR. LEVAN: The only
issue, your Honor, would be that you said the other prudent investors. I think we
have an objection to the adjective ‘prudent,’ but otherwise there would not be an
issue on behalf of plaintiffs.”).
21
See, e.g., Reale Int’l, Inc. v. Federal Republic of Nigeria, No. 78 Civ.
23, 1984 WL 837, at *2-4 (S.D.N.Y. Sept. 11, 1984) (considering and denying
“Plaintiff’s motion for a ruling in limine reducing or modifying its burden of
proof”).
16
fixing damages will be resolved against the wrongdoer.”22 Plaintiffs contend that
the Second Circuit has extended this principle to shift the burden of proof on
causation to defendants after plaintiffs establish a breach of fiduciary duty and a
prima facie case of loss. Plaintiffs rely primarily on two Second Circuit decisions
– Donovan v. Bierwirth23 and New York State Council Health & Hospital Fund v.
Estate of DePerno.24
In Donovan, the fiduciaries of the Grumman Corporate Pension Plan,
who were also high-ranking officials at Grumman Corporation, used Plan funds to
purchase Grumman stock to fight off a tender offer. The Grumman stock was
purchased at $38 a share, an inflated price due to the pending tender offer. After
the takeover failed, the price of Grumman stock dropped to $23 per share.
Seventeen months later, the fiduciaries sold the stock for $47 per share. The
district court dismissed the complaint, holding that the Plan had suffered no loss
because the stock had increased in value to $47. The Second Circuit framed the
issue on appeal as follows – “The chief issue presented for our review concerns the
applicable measure of damages. Specifically, if securities are purchased in breach
22
Donovan v. Bierwirth, 754 F.2d 1049, 1056 (2d Cir. 1985).
23
754 F.2d 1049 (2d Cir. 1985).
24
18 F.3d 179 (2d Cir. 1994).
17
of trust but are later sold at a price exceeding the purchase price, is there a ‘loss’
within the meaning of ERISA section 409?”25 The Second Circuit found that the
district court’s ruling that “‘loss’ to the Plan would be established only if the stock
had been sold for less than its purchase price” was erroneous.26 Rather, the Second
Circuit held that the proper measure of loss “applicable under ERISA section 409
requires a comparison of what the Plan actually earned on the Grumman
investment with what the Plan would have earned had the funds been available for
other Plan purposes.”27 In applying this test the Second Circuit held that “[w]here
several alternative investment strategies were equally plausible, the court should
presume that the funds would have been used in the most profitable of these. The
burden of proving that the funds would have earned less than that amount is on the
fiduciaries found to be in breach of their duty.”28 Finally the court noted that
“[t]his is nothing more than application of the principle that, once a breach of trust
is established, uncertainties in fixing damages will be resolved against the
wrongdoer.”29
25
754 F.2d at 1052 (emphasis added).
26
Id. at 1053.
27
Id. at 1056.
28
Id. (emphasis added).
29
Id.
18
In DePerno, the district court found that defendants “had violated
several provisions of ERISA, but that plaintiffs had failed to prove any losses due
to the violations, and that they were therefore entitled to neither damages nor their
attorney’s fees.”30 The Second Circuit affirmed the finding of an ERISA violation
and remanded “for consideration of damages” after concluding “that after the
plaintiffs sustained their burden of showing the defendants’ violation of their
fiduciary duty to the Fund and the payment of money as a result of that violation,
the burden should have shifted to the defendants to demonstrate factors mitigating
the costs incurred by the plaintiffs.”31 The Magistrate Judge erred in “[a]sserting
that the plaintiffs had the burden of proof as to damages,”32 and was instructed to
determine “the damages question with the burden of proof properly placed on the
defendants.”33
Plaintiffs overstate the significance of Donovan and DePerno. In both
cases, the Second Circuit framed the issue as one of damages. This line of cases
simply establishes that where there is uncertainty in damages, there is a
30
18 F.3d at 180.
31
Id. at 180-81.
32
Id. at 181 (emphasis added).
33
Id. at 183 (emphasis added).
19
presumption that the fund plans would have been invested in the most profitable of
equally plausible investment strategies. Defendants have the burden to prove that
the damages would have, in fact, been less.
The Second Circuit directly addressed the issue of causation in a more
recent case – Silverman v. Mutual Benefit Life Insurance Company.34 In Silverman
the plaintiff alleged that a defendant’s “failure to investigate . . . embezzlement
and to take reasonable steps to recover missing plan funds” breached its fiduciary
duty under ERISA. The court began its analysis with the language of ERISA,
emphasizing that “[a]ny person who is a fiduciary with respect to a plan who
breaches any of the responsibilities, obligations, or duties imposed upon fiduciaries
by this subchapter shall be personally liable to make good to such plan any losses
to the plan resulting from each such breach.”35 Accordingly, “[c]ausation of
damages is . . . an element of the claim, and the plaintiff bears the burden of
proving it.”36 In fact, in Silverman, both Silverman and the Secretary of Labor, as
amicus curiae, made the exact same argument plaintiffs make here, requesting “a
shift of the burden of proof on the issue of causation, so that once a plaintiff has
34
138 F.3d 98 (2d Cir. 1998).
35
Id. at 104 (quoting 29 U.S.C. § 1109(a)) (emphasis in original).
36
Id. at 105 (Jacobs, C.J., joined by Meskill, J., concurring).
20
shown a breach of section 1105(a)(3) and a related loss, the defendant must prove
that the loss was not caused by its breach of fiduciary duty.”37 The Second Circuit
noted that such an argument is derived “from the common law of trusts, under
which a defaulting fiduciary bears the burden of disproving causation.”38
However, “Congress has placed the burden of proving causation on the plaintiff by
requiring him to prove that the losses ‘result[ed] from’ the defendant’s inaction.”39
Plaintiffs attempted distinction of Silverman is unavailing. Plaintiffs
contend that “the Silverman panel found that the plaintiff failed to make a prima
facie showing of damages against Principal in the first instance.”40 However, the
loss of $130,000 in Silverman was undisputed, the question was whether
defendant’s breach caused this loss. Plaintiffs rely on Slovaara v. Eckert to
support their contention.41 Despite the language in Slovaara, the holding in
37
Id. at 105-06 (Jacobs, C.J., joined by Meskill, J., concurring)
(quotation omitted) (emphasis in original).
38
Id. at 106 (Jacobs, C.J., joined by Meskill, J., concurring).
39
Id. (Jacobs, C.J., joined by Meskill, J., concurring) (quoting 29 U.S.C.
§ 1109(a)) (emphasis in original).
40
Plaintiffs’ Memorandum of Law in Support of Their Omnibus Motion
in Limine (“Pl. Mem.”) at 15.
41
No. 94 Civ. 3430, 1998 WL 276186 (S.D.N.Y. May 28, 1998) (“[T]he
Court finds that plaintiff must demonstrate both breach of fiduciary duty and a
prima facie case of loss to the fund before the burden shifts to the defendant on the
issue of causation of loss, and further that plaintiff’s demonstration of a breach of
21
Silverman is unambiguous. ERISA states that a fiduciary is liable for “any losses
to the plan resulting from each such breach.” The Second Circuit interpreted the
language “resulting from” to make causation an element of the claim, for which
plaintiffs have the burden of proof. Indeed, the Third Circuit has recognized that
Silverman places the burden of proof for causation on plaintiffs.42
Because I am bound by the Second Circuit’s decision in Silverman,
which states that plaintiffs have the burden of proof on causation in ERISA
actions, I must deny plaintiffs’ motion in limine to the extent it requests a ruling
that the burden of proof on causation shifts to defendants after plaintiffs have
established a breach of fiduciary duty and prima facie case of loss for the ERISA
claim.
I note that plaintiffs only cited law with respect to their ERISA claim,
and they did not make any arguments with respect to the New York common law
claim for breach of fiduciary duty. Accordingly, I decline to make any decision
with respect to New York state law at this time. JPMC Bank cites cases for the
fiduciary duty alone is not sufficient to shift the burden to defendant to disprove
loss.”).
42
See In re Unisys Sav. Plan Litig., 173 F.3d 145, 160 n.23 (3d Cir.
1999) (recognizing that the circuits are split on whether the plaintiff or defendant
bears the burden of proof on causation and noting that the Second Circuit, under
Silverman, places the “burden of proof on plaintiff”).
22
proposition that New York law is the same as under ERISA. 43 However, because
plaintiffs did not discuss New York law, I reserve ruling on the burden of proof on
that claim.
V.
CONCLUSION
For the aforementioned reasons, JPMC Bank's motion is granted in
part and denied in part, and plaintiffs' motion is granted in part and denied in part.
The Clerk of the Court is directed to close these motions [Docket Nos. 124 and
127].
Dated:
January 19,2012
New York, New York
See In re Parmalat Sees. Litig., 684 F. Supp. 2d 453 (S.D.N.Y. 2010);
Northbay Constr. Co. v. Baueo Constr. Corp., 832 N.Y.S.2d 280 (2d Dep't 2007)
(citing cases).
43
23
- Appearances For Plaintiffs:
Joseph H. Meltzer, Esq.
Peter H. LeVan, Jr., Esq.
Barroway Topaz Kessler Meltzer &
Check, LLP
280 King of Prussia Road
Radnor, Pennsylvania 19087
(610) 667-7706
Bradley E. Beckworth, Esq.
Brad Seidel, Esq.
Nix Patterson & Roach, LLP
205 Linda Drive
Daingerfield, Texas 75638
(903) 645-7333
Milo Silberstein, Esq.
Dealy & Silberstein, LLP
225 Broadway, Suite 1405
New York, New York 10007
(212) 385-0066
David L. Wales, Esq.
Bernstein, Litowitz, Berger &
Grossman, LLP
1285 Avenue of the Americas
New York, New York 10019
(212) 554-1400
Gregory M. Nespole, Esq.
Wolf Haldenstein Adler Freeman
Herz LLP
270 Madison Avenue
New York, New York 10016
(212) 545-4761
For JPMC:
Lewis Richard Clayton, Esq.
Jonathan H. Hurwitz, Esq.
Samuel E. Bonderoff, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison LLP
1285 Avenue of the Americas
New York, New York 10019
(212) 373-3215
24
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