Soward v. Deutsche Bank AG et al
Filing
23
OPINION AND ORDER: For the foregoing reasons, Deutsche Bank's motions to dismiss are granted. The Clerk of the Court is directed to close these motions (10 Civ. 9248, docket no. 11; 11 Civ. 01615, docket no. 7) and these cases. (Signed by Judge Shira A. Scheindlin on 9/1/2011) (jfe)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
----------------------------------------------------
)(
DAVID C. SOWARD,
Plaintiff,
OPINION AND ORDER
- against-
10 Civ. 9248 (SAS)
DEUTSCHE BANK AG and DEUTSCHE
BANK SECURITIES, INC.,
Defendants.
THOMAS R. BECNEL and JARDINE
VENTURES, LLC,
Plaintiffs,
11 Civ. 01615 (SAS)
-againstDEUTSCHE BANK AG and DEUTSCHE
BANK SECURITIES, INC.,
Defendants.
----------------------------------------------------
)(
SHIRA A. SCHEINDLIN, U.S.D.J.:
I.
INTRODUCTION
Plaintiffs, Thomas R. Becnel and Jardine Ventures, LLC (collectively
"Becnel") and David Soward, bring these diversity actions against Deutsche Bank
AG and Deutsche Bank Securities, Inc. (collectively "Deutsche Bank") alleging
1
state-law claims of fraud, conspiracy to commit fraud, fraudulent concealment,
aiding and abetting fraud, breach of fiduciary duty, aiding and abetting breach of
fiduciary duty, breach of contract and breach of implied duty of good faith and fair
dealing. Soward filed his Complaint on December 10, 2010 and Becnel filed his
Complaint on March 9, 2011. These cases arise out of a tax shelter scheme known
as the Bond Linked Issue Premium Structure Strategy (“BLIPS Strategy”), which
the parties carried out between September 1999 and May 2000. Deutsche Bank
argues that each of Soward’s and Becnel’s claims is time-barred as well as
insufficient as a matter law. Deutsche Bank now moves to dismiss Soward’s
Amended Complaint and Becnel’s Complaint pursuant to Rules 9(b) and 12(b)(6)
of the Federal Rules of Civil Procedure. For the reasons given below, these two
cases are dismissed in their entirety.
II.
BACKGROUND1
A.
The BLIPS Strategy
Soward and Becnel claim that Deutsche Bank conspired with Presidio
Growth LLC and Presidio Advisory Services, LLC (collectively “Presidio”) to
defraud them by inducing them to invest in “investment program[s]” called
1
On a motion to dismiss, a plaintiff’s factual allegations are accepted as
true. See, e.g., Pension Comm. of the Univ. of Montreal Pension Plan v. Banc of
Am. Sec. LLC, 568 F.3d 374, 376 (2d Cir. 2009).
2
“Alverstone Strategic Investment Fund” (“Alverstone”) and “Hubbard Strategic
Investment Fund” (“Hubbard”), respectively, and to charge them fees for loans, to
be supplied by Deutsche Bank, that never existed.2 What Soward and Becnel refer
to as an “investment program” is actually an illegal tax shelter known as the BLIPS
Strategy.3 On December 21, 2010, Deutsche Bank entered into a non-prosecution
agreement admitting wrongdoing in connection with the BLIPS strategy.4 In the
NPA, Deutsche Bank admitted that “the BLIPS transactions were designed to
enable BLIPS investors to claim a purported tax benefit . . . . The BLIPS
transactions were designed by KPMG and Presidio to create the impression that the
loans [supplied by Deutsche Bank] had an unusual premium structure at an interest
rate well above prevailing market rates.”5 As part of the tax shelter strategy, the
BLIPS customer and Deutsche Bank would enter into a series of interest rate
swaps, which had the net effect of “‘convert[ing] the loans to variable-rate loans,
2
See David C. Soward’s Memorandum of Law in Opposition to
Deutsche Bank’s Motion to Dismiss (“Soward Mem.”) at 6. See also Becnel
Complaint (“Becnel Compl.”) ¶ 1.
3
See 12/21/10 Deutsche Bank AG - Non-Prosecution Agreement
(“NPA”), Ex. 4 to Declaration of Keith Blackman, Attorney for Deutsche Bank, in
Support of Motion to Dismiss Plaintiff’s Amended Complaint (“Blackman Decl.”).
4
See Soward Mem. at 7; see also Soward Amended Complaint
(“Soward Am. Compl.”) ¶ 28.
5
NPA ¶¶ 6, 10.
3
at market rates, with no premium.’”6 During these transactions, Deutsche Bank
“‘took steps to have the BLIPS series of transactions approved with [Deutsche
Bank].’”7 “‘[Deutsche Bank’s] credit reports, for example, falsely identified the
primary purpose of BLIPS as providing the investor with an opportunity to make
profits based on the potential depreciation of emerging market currencies.’”8
1.
Soward and the BLIPS Strategy
As part of the BLIPS Strategy,9 Soward entered into a credit
agreement (“Soward Credit Agreement”) with Deutsche Bank for loans totaling
$10.4 million on or about September 3, 1999.10 Deutsche Bank then opened an
account for Voltaire, LLC (“Voltaire”), a limited liability company solely owned
by Soward, which Presidio Growth LLC and Presidio Advisory Services, LLC
6
Soward Mem. at 13 (quoting NPA ¶ 10).
7
Id. (quoting NPA ¶ 10).
8
Id. (quoting NPA ¶ 10).
9
Soward does not call the scheme “BLIPS” in his Amended Complaint
but uses the name “Alverstone Strategic Investment Fund (“Alverstone”)”. See
Soward Am. Compl. ¶ 1. However, in Soward’s brief, he refers to the transactions
as BLIPS transactions. See Soward Mem. at 6. Soward requests leave to further
amend his complaint to incorporate the contents of the original complaint,
including references to the BLIPS transaction. See id. at 9.
10
See Soward Am. Compl. ¶ 16. The loan detailed in the Soward Credit
Agreement consisted of a principal amount of $ 6.5 million and a premium amount
of $ 3.9 million with a maturity date of seven years from the date of funding.
4
(collectively “Presidio”) formed for Soward.11 Soward deposited $224,250.00 into
the Voltaire account to serve as collateral for the loans Deutsche Bank was
supposed to supply.12 Approximately three weeks after Soward entered into the
Soward Credit Agreement, Soward entered into an assignment and assumption
agreement (“Soward Assignment Agreement”) and assigned Voltaire’s rights in the
Soward Credit Agreement to the Alverstone Strategic Investment Fund.13 Soward
claims that the Fund was purportedly managed by Presidio but was actually under
the control of Deutsche Bank.14 The Voltaire and Alverstone accounts were closed
by Deutsche Bank on May 15, 2000.15 Soward alleges that the loan between
Deutsche Bank and Voltaire was a sham and that Deutsche Bank and Presidio
“defrauded Soward by charging him fees and interest upon the fraudulent
representation that there was a bona fide loan in place.”16
2.
Becnel and the BLIPS Strategy
Becnel’s participation in the BLIPS strategy is nearly identical to
11
See id. ¶¶ 1-2.
12
See id. ¶ 2.
13
See id. ¶ 21.
14
See id.
15
See id. ¶ 14.
16
See id. ¶ 33.
5
Soward’s. On or about September 12, 1999, Becnel entered into a credit
agreement (“Becnel Credit Agreement”) with Deutsche Bank for a loan totaling
eighty million dollars.17 Becnel then opened an account at Deutsche Bank for
Jardine Ventures, LLC (“Jardine”), a limited liability company created by Presidio
and solely owned by Becnel, and deposited $2.1 million into the account as
collateral for the eighty million dollar loan.18 Approximately three weeks after
Becnel executed the credit agreement, Becnel executed an assignment and
assumption agreement (“Becnel Assignment and Assumption Agreement”),
assigning Jardine’s rights to the Becnel Credit Agreement to Hubbard Strategic
Investment Fund.19 The Jardine and Hubbard accounts were closed by Deutsche
Bank on or about May 15, 2000.20 As with Soward, Becnel claims that the loan
from Deutsche Bank was a sham.21 Becnel, like Soward, alleges that because
“[c]ontrol of the funds never passed from Deutsche Bank to [Becnel] . . . there was
17
See Becnel Compl. ¶¶ 19, 21. The loan included a stated principal
amount of fifty million dollars and a premium amount of thirty million dollars with
a maturity date of seven years from the date of funding.
18
See id.
19
See id. ¶ 22.
20
See “Plaintiffs’ Memorandum of Law in Opposition to Deutsche
Bank’s Motion to Dismiss (“Becnel Mem.”) at 17.
21
See Becnel Compl. ¶ 18.
6
no legitimate basis for the fees charged by Deutsche Bank and Presidio.”22
B.
The Class Actions
On January 28, 2005, Becnel filed claims “as lead plaintiff on behalf
of others similary situated against Deutsche Bank, Presidio, KPMG, Sidley Austin
and others in a class action law suit.”23 Becnel v. KPMG, LLP, et al. was filed in
the Circuit Court of Clark County, Arkansas and later removed to the United States
District Court for the Western District of Arkansas.24 Class certification was
denied on August 9, 2005; the case was dismissed without prejudice on September
12, 2005.25 On September 2, 2005, Kottler v. Deutsche Bank AG, et al. was filed in
the United States District Court for the Southern District of New York involving
the same investment program.26 Becnel became a member of the Kottler class
action.27 Class certification was denied on March 29, 2010.28
22
Id. ¶ 30. Specifically, Becnel claims that Deutsche Bank and Presidio
returned only $273,000 of the $2.1 million, resulting in an economic loss of $1.827
million. See id. ¶ 25.
23
Id. ¶ 63.
24
See id.; see also Becnel v. KMPG, 229 F.R.D. 592 (W.D. Ark. 2005).
25
See id.
26
See id. ¶ 64.
27
See Becnel Mem. at 19.
28
See No. 05 Civ. 7773, 2010 WL 1221809 (S.D.N.Y. Mar. 29, 2010).
7
III.
APPLICABLE LAW
A.
Statute of Limitations and New York’s Borrowing Statute
“When diversity of citizenship is the basis of jurisdiction, a federal
court must look to the statute of limitations of the state in which it sits.”29 “New
York courts generally apply New York’s statute of limitations even when the
injury giving rise to the action occurred outside New York. This general rule,
however, is subject to a traditional statutory exception, New York’s ‘borrowing’
statute.”30
Under New York’s borrowing statute,31 “when a nonresident plaintiff
sues upon a cause of action that arose outside of New York, the court must apply
the shorter limitations period, including all relevant tolling provisions, of either:
(1) New York; or (2) the state where the cause of action accrued.”32
29
Cuccolo v. Lipsky, Goodkin & Co., 826 F. Supp. 763, 766 (S.D.N.Y.
1993) (citing Popkin v. National Benefit Life Ins. Co., 711 F. Supp. 1194, 1197 n. 1
(S.D.N.Y. 1989)).
30
Stuart v. American Cyanamid Co., 158 F.3d 622, 627 (2d Cir. 1998)
(citations omitted).
31
See N.Y. C.P.L.R. § 202 (“An action based upon a cause of action
accruing without the state cannot be commenced after the expiration of the time
limited by the laws of either the state or the place without the state where the cause
of action accrued, except that where the cause of action accrued in favor of a
resident of the state the time limited by the laws of the state shall apply.”).
32
Stuart, 158 F.3d at 627 (citing N.Y. C.P.L.R. § 202).
8
“For the purposes of the borrowing statute, a cause of action accrues
where the injury is sustained rather than where the defendant committed the
wrongful acts.”33 “Hence, an action by a nonresident on a foreign cause of action
is untimely if it is barred under the law of either New York or the state where the
injury occurred.”34 “In cases involving economic harm, [the place where the injury
occurred] is normally the state of plaintiff’s residence.”35
The burden of proving that a particular statute of limitation has
expired falls on the defendant. However, the plaintiff bears the
burden of proving that a particular statute of limitation has been
tolled. Finally, when another state’s statute of limitations is
considered pursuant to N.Y. C.P.L.R. 202, the party seeking to
benefit therefrom bears the burden of proof.36
B.
American Pipe Tolling and Cross-Jurisdictional Tolling
In American Pipe and Construction Co. v. Utah, the Supreme Court
held, in the context of exclusively federal claims, that “the commencement of a
class action suspends the applicable statute of limitations as to all asserted
members of the class who would have been parties had the suit been permitted to
33
Gordon & Co. v. Ross, 63 F. Supp. 2d 405, 408 (S.D.N.Y. 1999)
(citations omitted).
34
Stuart, 158 F.3d at 627.
35
Gorlin v. Bond Richman & Co., 706 F. Supp. 236, 240 (S.D.N.Y.
1989) (citations omitted).
36
Cuccolo, 826 F. Supp. at 776 n. 2 (citations omitted).
9
continue as a class action.”37 “Once the statute of limitations has been tolled, it
remains tolled for all members of the putative class until class certification is
denied.”38 The Second Circuit has held that state law applies to tolling issues.39
However,
[s]ome states that have adopted American Pipe tolling have
refused to expand the doctrine to include ‘cross-jurisdictional
class action tolling,’ thereby declining to apply the tolling doctrine
in situations where they otherwise would have if the original class
action had been filed in its own jurisdiction . . . . Only a small
fraction of states have addressed the cross-jurisdictional issue,
though, and there is no clear consensus among them . . . . As a
result, federal diversity courts are often left to predict how a
state’s highest court would rule.40
The Second Circuit very recently instructed that “a federal court evaluating the
timeliness of state law claims must look to the law of the relevant state to
determine whether, and to what extent, the statute of limitations should be tolled by
37
414 U.S. 538, 554 (1974).
38
Crown, Cork & Seal Co., Inc. v. Parker, 462 U.S. 345, 354 (1983).
39
See In re Agent Orange Prod. Liab. Litig., 818 F.2d 210, 213 (2d Cir.
1987) (citations omitted). Accord Williams v. Dow Chem. Co., No. 01 Civ. 4307,
2004 WL 1348932, at *11 (S.D.N.Y. June 16, 2004) (“[T]he Second Circuit has
held that state, not federal law, applies to the tolling issues even where the tolling
was sought on the basis of a federal lawsuit filed in federal court . . . . Thus, in this
case, I will look to state law to determine if tolling applies.”) (citing In re Agent
Orange, 818 F.2d at 213).
40
In re Fosamax Prods. Liab. Litig., 694 F. Supp. 2d 253, 257-58
(S.D.N.Y. 2010) (citations omitted).
10
the filing of a putative class action in another jurisdiction.”41 When “a question of
state law has not been conclusively resolved by those courts, [the] general practice
is to look next to the law of the circuit in which the state is based.”42
IV.
DISCUSSION
Because of New York’s borrowing statute,43 the threshold issue is
where the causes of action accrued. Soward resided in California at all relevant
times44 and therefore his claims accrued in California. Soward’s claims will be
time-barred under New York’s borrowing statute if they are untimely under either
New York or California law after accounting for each state’s tolling provisions.45
Becnel is a Florida resident and his claims accrued in Florida.46 Becnel’s claims
will be time-barred if they are untimely under either New York or Florida’s statute
41
Casey ex rel. Estate of Casey v. Merck & Co., Inc., __ F.3d __, Nos.
10-1137-cv, 10-1196-cv, 10-1150-cv, 10-1149-cv, 2011 WL 3375104, at *5 (2d
Cir. Aug. 5, 2011) (“We find . . . that tolling here is properly understood to be a
question of state law.”) (citations omitted).
42
Id.
43
See N.Y. C.P.L.R. § 202.
44
See Soward Am. Compl. ¶ 10.
45
See N.Y. C.P.L.R. § 202.
46
See Becnel Compl. ¶ 11.
11
of limitations.47
A.
Soward’s Fraud-Based and Fiduciary Duty-Based Claims
Under New York law, the statute of limitations for fraud is the greater
of six years from the time of accrual or two years from the time the plaintiff
discovered the fraud or could with reasonable diligence have discovered it.48 This
statute of limitations applies to Soward’s allegations of fraud, aiding and abetting
fraud and fraudulent concealment.49 Soward’s fiduciary duty-based claims, which
include his claims for breach of fiduciary duty and aiding and abetting breach of
fiduciary duty, have the same statute of limitations.50
Soward argues that his claims are timely under the accrual prong of
section 213 because, due to the doctrine of continuous representation, the statute of
limitations did not begin to run until May 15, 2000 when Deutsche Bank closed the
Voltaire and Alverstone accounts.51 Furthermore, Soward argues that the claims
were tolled from January 28, 2005 to March 29, 2010 during the pendency of the
47
See N.Y. C.P.L.R. § 202.
48
See id. § 213(8).
49
See Malone v. Bayerische Hypo-Und Vereins Bank, Nos. 08 Civ.
7277, 09 Civ. 3676, 2010 WL 3918216, at *4 (S.D.N.Y. Feb. 4, 2010).
50
See N.Y. C.P.L.R. § 213(2).
51
See Soward Mem. at 20.
12
Becnel and Kottler class actions.52 Alternatively, Soward contends that his claims
are timely under the second prong of section 213 – the discovery prong – because
his claims did not accrue until November 18, 2003, when the Senate issued its
report, and were tolled during the pendency of Becnel and Kottler.53
1.
Accrual Prong
Even accepting Soward’s argument that the statute did not begin to
run until the closing of the accounts, Soward filed this action on December 20,
2010 well after the six-year statute of limitations expired. In order for Soward’s
claims to be timely under this prong, the six-year statute of limitations must have
been tolled by the continuous representation doctrine and cross-jurisdictional
tolling. If either of these theories fail, Soward’s claims will be untimely.
Whether or not Becnel and Kottler toll the statute of limitation in New
York is a question of cross-jurisdictional tolling.54 Few states have addressed
cross-jurisdictional tolling,55 and New York is not one of them. Deutsche Bank
52
See id. at 23.
53
See id. at 27.
54
Even though Kottler was filed in this district, it still implicates crossjurisdictional tolling because it was filed in federal court based on diversity of
citizenship.
55
See In re Fosamax, 694 F. Supp. 2d at 257 (“Only a small fraction of
states have addressed the cross-jurisdictional tolling, though, and there is not clear
13
argues that New York does not allow cross-jurisdictional tolling and points to two
unpublished, and ultimately unhelpful, New York Supreme Court cases.56 Soward
relies on Primavera Familienstifung v. Askin, where a court in this district,
applying New York’s borrowing statute, examined Connecticut’s statute of
limitations and tolling provisions.57 Despite no Connecticut authority on point, the
Primavera court held that Connecticut would recognize cross-jurisdictional tolling
because (1) there were no issues of forum shopping and (2) “federal interests
consensus among them.”).
56
See Deutsche Bank AG and Deutsche Bank Securities, Inc’s
Memorandum of Law in Support of Their Motion to Dismiss Plaintiff’s Amended
Complaint at 14 (“Notably, neither New York nor California courts toll a statute of
limitations on the basis of a prior class action arising in a different jurisdiction.”).
The two New York Supreme court cases relied on by Deutsche Bank
do not, as Deutsche Bank suggests, hold that New York will not recognize cross
jurisdictional tolling. In Ansley v. Wyeth, cross-jurisdictional tolling played only a
minor rule in the court’s refusal to toll the statute of limitations under American
Pipe. The court’s reasoning included the fact that “the wisdom of adopting the
American Pipe rule in mass tort cases is, to say the least, highly debatable.” No.
109479/2005 (Sup. Ct. N.Y. Co. Nov. 30, 2009) (citing In re Rezulin Prods. Liab.
Litig., 2005 WL 26867, at *3), Ex. 6 to Blackman Decl. The next case cited by
Deutsche Bank, Feltch v. Warner Lambert, does not support its argument. The
Feltch court’s decision to reject tolling based on the filing of a federal class action
turned on the fact that “the claim in the class action that plaintiff . . . invokes were
for medical monitoring or consumer fraud, while the claims here are for personal
injury and possible wrongful death.”). See No. 125170/2002 (Sup. Ct. N.Y. Co.
Mar. 22, 2000), Ex. 7 to Blackman Decl.
57
See 130 F. Supp. 2d 450 (S.D.N.Y. 2001).
14
should be considered where all of the litigation involved is occurring in the federal
forum.”58 The Primavera court rejected defendant’s contention that “crossjurisdictional tolling may only apply where the state supplying the statute of
limitations would recognize such tolling.”59 Soward claims that the federal interest
in Becnel lies in the fact that the Becnel court found federal subject matter
jurisdiction because there was a substantial, federal question to be decided.60
Soward did not suggest any “federal interests” that would apply to the Kottler class
action.
Soward’s reliance on Primavera proves unavailing. The Second
58
Id. at 516. The court did not elaborate on what “federal interests” it
took into consideration.
59
Id. at 515 (“[The] Erie doctrine analysis is not so simple as
[defendant] would have it. . . . These are difficult, barely-charted waters.
However, in the absence of any interest on the part of Connecticut in having tolling
barred in the circumstances present here, and the interest of both Connecticut and
the federal forum in judicial economy, [plaintiff] may take advantage of the tolling
period engendered by the filing of the Primavera Action.”). But see Dow Chem.,
2004 WL 1348932, at *13 (“Two federal courts . . . determined that the state-law
claims were not tolled while the certification was pending, even though the two
states in questions – Virginia and New Mexico – had not adopted clear positions
regarding cross-jurisdictional tolling . . . . Barela observed in part that ‘[t]his
Court does not believe that any overriding federal interest in class actions mandates
application of American Pipe in diversity cases in the absence of applicable state
tolling law.’”) (quoting Barela v. Denko K.K., No. CIV. 9301469, 1996 WL
316544, at *4 (D.N.M. Feb. 28, 1996)).
60
See Soward Mem. at 23.
15
Circuit has recently made clear that the question of “whether, and to what extent,
the statute of limitations should be tolled by the filing of a putative class action in
another jurisdiction” is purely a question of state law.61 Rather than considering
“federal interests” and forum shopping, the Second Circuit looked solely at various
sources of state law and, noting that it lacked “sufficient indicia of Virginia law,”
certified the question to the Supreme Court of Virginia.62
None of the cases cited by Soward or Deutsche Bank, or indeed
uncovered by this Court, answers the question as to whether New York would
allow cross-jurisdictional tolling. Predicting how New York courts would rule on
the issue of cross-jurisdictional tolling would be difficult. The few states that have
considered the issue have been split in both their acceptance of cross-jurisdictional
tolling and the rationale for their decision.63 Furthermore, little authority exists as
to how a federal court in this Circuit decides whether a state would allow crossjurisdictional tolling when that state has not addressed the issue. Of the federal
courts that have considered this issue, most have refused to extend the doctrine into
61
See Casey, 2011 WL 3375104, at *5.
62
Id. at *5, *8.
63
See Stevens v. Novartis Pharm. Corp., 358 Mont. 474, 484 (2010)
(“So called ‘cross-jurisdictional tolling’ has rarely been addressed, and the few
state courts and secondary sources to have considered the doctrine have expressed
widely divergent viewpoints.”).
16
a state that has yet to consider it.64 In this regard, Primavera is in the minority of
cases that have imported the doctrine into another jurisdiction’s law before that
64
See In re Fosamax, 694 F. Supp. 2d at 258 (“Recognizing the lack of
consensus on the [cross-jurisdictional tolling] issue, federal courts generally have
been disinclined to import cross-jurisdictional tolling into the law of a state that has
not ruled on the issue.”). Accord, e.g., Clemens v. DaimlerChrysler, 534 F.3d 1017
(9th Cir. 2008) (declining to toll a California statute of limitations based on an
Illinois class action); Wade v. Danek Med., Inc., 182 F.3d 281, 286 (4th Cir. 1999)
(declining to toll Virginia’s statute of limitations) (“In predicting whether the
Virginia Supreme Court would apply an equitable tolling rule, we are mindful of
the general principle that, ‘[i]n trying to determine how the highest state court
would interpret the law, we should not create or expand that State’s public
policy.’” (alteration in original) (citations omitted); In re Urethane Antitrust Litig.,
663 F. Supp. 2d 1067, 1081-82 (D. Kan. 2009) (“In the absence of a Tennessee
decision compelling the opposite result, this Court declines to import a tolling
doctrine into Tennessee state law where it previously did not exist.”) (also refusing
to import cross-jurisdictional tolling into Indiana law in the absence of any Indiana
authority recognizing the doctrine) (citations omitted); Love v. Wyeth, 569 F. Supp.
2d 1228, 1235-36 (N.D. Ala. 2008) (declining to toll Alabama’s statute of
limitations during the pendency of a class action filed in a Louisiana federal court)
(“Conspicuous, and ultimately significant, is what the Supreme Court [of Alabama]
did not say in White. It did not say that an Alabama plaintiff can rely upon the
pendency of a putative class action filed in another state in which the ‘would-be’
class is national in scope.”) (alteration in original); In re Vioxx Prods. Liab. Litig.,
522 F. Supp. 2d 799, 811 (E.D. La. 2007) (“[T]he Court finds that the plaintiff’s
claims are not saved by American Pipe tolling under Puerto Rico law, although
Puerto Rico has not explicitly adopted cross-jurisdictional tolling. Absent clear
guidance, the Court will not expand Puerto Rico’s class action tolling doctrine.”)
(citations omitted); In re Enron Corp. Secs., 465 F. Supp. 2d 687, 722 (S.D. Tex.
2006) (refusing to toll Texas statute of limitation due to a pending federal class
action; however, tolling Ohio statute of limitations due to Ohio’s recognition of
cross-jurisdictional tolling) (“In contrast to Texas, Ohio has recognized crossjurisdictional tolling by a federal class action of state statute of limitations for Ohio
state-law claims.”) (citations omitted).
17
jurisdiction has ruled on the issue. Moreover, Primavera’s reliance on federal
interests in reaching such a decision has recently been rejected by the Second
Circuit.65 In the face of these overwhelming precedents, I cannot say that New
York would adopt cross-jurisdictional tolling and decline to import the doctrine
into New York’s law. This Court will therefore not toll New York’s statute of
limitations for the period when the Becnel and Kottler class certification status was
pending. Without the benefit of cross-jurisdictional tolling, even if the statute of
limitations did not begin to run until the Voltaire and Alverstone accounts closed
on May 15, 2000, Soward’s fraud-based and fiduciary duty claims are time barred
under the accrual prong.
2.
Discovery Prong
Soward argues that even if his claims are untimely under the accrual
prong, they are timely under the second prong of section 213 – the discovery prong
– because he could not have reasonably discovered the fraud until November 18,
2003, when the Senate Permanent Subcommittee on Government Affairs issued its
report after an investigation into the tax shelter industry.66 However, without the
benefit of cross-jurisdictional tolling, even if the discovery rule applies, Soward’s
65
See Casey, 2011 WL 3375104, at *5.
66
See Soward Mem. at 27.
18
fraud claims were filed well after the two-year statute of limitations expired.
Soward’s fraud claims are untimely under both prongs of section 213 and therefore
time-barred under New York law. Pursuant to the borrowing statute, this Court
will apply the shorter of either New York’s or California’s statute of limitations.67
Because Soward’s fraud claims are time-barred under New York law, they are
time-barred regardless of their status under California law.
B.
Becnel’s Fraud-Based and Fiduciary Duty-Based Claims
1.
Accrual Prong
As with Soward, Becnel claims that, due to the doctrine of continuous
representation, the statute of limitations on his fraud-based and fiduciary-duty
based claims did not begin to run under the accrual prong until May 15, 2000,
when Deutsche Bank closed the Jardine and Hubbard accounts.68 However,
without the benefit of cross-jurisdictional tolling, even accepting Becnel’s
67
Under California law, the statute of limitations is three years from the
date of discovery for Soward’s fraud-based claims and four years for Soward’s
fiduciary duty-based claims. See Cal. Proc. Code §§ 338(d), 434. Soward argues
that his claims are timely under California law because California’s doctrine of
equitable tolling applies and tolls the statute of limitations during the pendency of
the Becnel and Kottler class actions. See Soward Mem. at 22. However, in light of
the fact that this Court has already found Soward’s fraud-based and fiduciary dutybased claims time-barred under New York law, analysis of this California equitable
doctrine will not change the outcome and is unnecessary because the borrowing
statute bars a claim that is untimely under either New York or California law.
68
See Becnel Mem. at 17-18.
19
argument that the statute did not begin to run until the closing of the accounts,
Becnel filed his individual action on March 9, 2011 well after New York’s six-year
statute of limitations expired. Therefore, Becnel’s fraud-based and fiduciary duty
claims are time barred under the accrual prong.
2.
Discovery Prong
Unlike Soward, who claims that he could not have reasonably
discovered the fraud until the Senate Subcommittee issued its report in 2003,69
Becnel claims that inquiry notice was not triggered until December 21, 2010 when
Deutsche Bank entered into the NPA.70 In support of this argument, Becnel points
to the Kottler class action71 and argues that the Kottler court found that the loans
were legitimate and therefore “[a]t the very least, there are disputed factual
questions about when Plaintiffs were put on notice that the banks charged fees for a
69
See Soward Mem. at 27.
70
See Becnel Mem. at 12-15. Becnel makes this allegation despite the
fact that the Kottler class action was filed on September 2, 2005 and the Becnel
class action, in which Becnel himself was the lead plaintiff, was filed on January
28, 2005.
71
The Kottler plaintiffs sued Deutsche Bank on the ground that
Deutsche Bank “knew that the tax strategies were fraudulent and yet participated in
a scheme to reap millions of dollars in fees from clients like the members of the
Class.” See Kottler v. Deutsche Bank AG, 607 F. Supp. 2d 447, 455 (S.D.N.Y.
2009).
20
loan premium which did not exist.”72
The Kottler decision does not support Becnel’s contention that “even
reasonable diligence could not have led Plaintiffs to discover that the DB loan
72
Becnel Mem. at 15. For example, Becnel points to the Kottler court’s
“Summary of Facts,” which – based on the Kottler plaintiffs’ amended complaint –
recounts the Kottler defendants’ roles in the tax shelter. See Kottler, 607 F. Supp.
2d at 454 (“The facts summarized below are taken from the Amended Complaint,
the allegations of which must be assumed true for purposes of these motions to
dismiss.”). The “Summary of Facts” mentions that while KPMG marketed the
strategies and the law firm of Brown & Wood gave legal advice, Deutsche Bank
“provided funds that facilitated the financials so that the tax strategies could be
implemented.” Id.
Becnel also cites to a footnote in which the Kottler court explains why
the Private Securities Litigation Reform Act of 1995 (“PSLR”) did not bar the
Kottler plaintiffs’ resort to their RICO claims. See Becnel Mem. at 12 (citing
Kottler, 607 F. Supp. 2d at 457 n. 9). The Kottler court explained that the PSLRA
was inapplicable because “the alleged fraud here involved a tax scheme, with the
securities transaction only incidental to any underlying fraud.” Kottler, 607 F.
Supp. 2d at 457 n. 9. Becnel argues that, with this statement, the Kottler court
“held that there was nothing fraudulent about the financial mechanisms used to
generate the tax losses.” Becnel Mem. at 13-14. Finally, Becnel interprets the
Kottler court’s finding that the plaintiffs’ fraud allegations did not meet the
heightened pleading standard for Rule 9(b) to mean that “Judge Crotty’s decision
to dismiss the fraud claims against the banks based upon his finding that there was
nothing fraudulent about the financial mechanism used to generate the tax losses
demonstrates that even reasonable diligence could not have led Plaintiffs to
discover that the DB loan premium was not legitimate.” Id.
Becnel does not explain, however, how his own filing of a class action
in 2005 failed to put him on notice of the alleged fraud or trigger inquiry notice.
Becnel also fails to discuss how the Senate Subcommittee’s report issued in 2003,
which specifically looked at the BLIPS Strategy, did not trigger inquiry notice.
21
premium was not legitimate.”73 Becnel’s interpretation of and reliance on Kottler
are inaccurate on multiple levels. First, the Kottler court never found that
Deutsche Bank provided the loans. Becnel mistakenly believes that the Kottler
court’s statement of facts, which was taken from the plaintiffs’ complaint, is
equivalent to the court finding those facts to be true.74 This, of course, is incorrect.
Second, the Kottler court dismissed the fraud claims because the pleadings were
insufficient to meet Rule 9(b)’s particularity requirement and not because the court
found that “there was nothing fraudulent about the financial mechanism used to
generate the tax losses.” Moreover, the “financial mechanism used to generate the
tax losses” refers to the securities transactions the parties used to implement the tax
shelters and not the loans at issue in this case.
For these reasons, Becnel’s reliance on Kottler provides no support
for his argument regarding notice. Other than Kottler, Becnel does not provide any
further reasons as to why the discovery rule saves his Complaint from being
73
Becnel Mem. at 14.
74
See id. at 12 (“After the Court found that the banks provided the funds
. . . .”). See also id. at 13 (“After finding that there was nothing fraudulent about
the financial mechanism used to generate the tax losses, the Court in Kottler
dismissed the fraud claims against the banks.”).
22
untimely.75 Without the benefit of cross-jurisdictional tolling, Becnel’s fraud
claims are untimely under both prongs of section 213 and therefore time-barred
under New York law. Pursuant to the borrowing statute, this Court will apply the
shorter of either New York’s or Florida’s statute of limitations.76 Because Becnel’s
fraud claims are time-barred under New York law, they are time-barred regardless
of their status under Florida law.
C.
Soward’s Claims for Breach of Contract and Breach of Implied
Duty of Good Faith and Fair Dealing
Soward claims that Deutsche Bank breached Section 2.01 of the
Soward Credit Agreement wherein Deutsche Bank agreed to make available to the
borrower on the borrowing date an amount equal to $10.4 million when in fact the
75
For example, when addressing New York’s section 213, Becnel only
analyzes dates under the accrual prong and not the discovery prong. See id. at 24.
However, when Becnel turns his attention to Florida law, he uses November 18,
2003 as the date when “the fraud was discovered or should have been discovered.”
Id. at 25. Even if that date is used, Becnel’s Complaint was still filed well after the
two-year state of limitations expired.
76
Under Florida law, the statute of limitations is four years for both
Becnel’s fraud-based and fiduciary duty-based claims. See Fla. Stat. § 95.11(3)(j).
See also Fla. Stat. § 95.11(3)(p). However, in light of the fact that this Court has
already found Becnel’s fraud-based and fiduciary duty-based claims time-barred
under New York law, analysis of Florida’s statutes of limitations will not change
the outcome and is unnecessary because the borrowing statute bars a claim that is
untimely under either New York or Florida law.
23
loan was a sham and never occurred.77 For similar reasons, Soward also claims
that Deutsche Bank breached the Assignment Agreement between Soward and
Presidio.78 New York’s statute of limitations for a breach of contract is six years
and is measured from the time of the breach.79 Soward argues that the New York
statute of limitations began to run on May 15, 2000, upon the closing of his
accounts at Deutsche Bank.80 However, because I have declined to toll the statute
of limitations during the pendency of the Kottler and Becnel class actions,
Soward’s contract claims are also time-barred under New York’s six-year statute
of limitations. As with his fraud-based claims, Soward’s contract claims are timebarred regardless of their status under California law because the borrowing statute
looks to the shorter of New York or California’s statute of limitations, including
tolling periods.81
D.
Becnel’s Claims for Breach of Contract and Breach of Implied
Duty of Good Faith and Fair Dealing
77
See Soward Am. Compl. ¶¶ 19, 30.
78
See id. ¶ 19.
79
See N.Y. C.P.L.R. § 213(2).
80
See Soward Mem. at 20.
81
California’s statute of limitations for Soward’s contract-based claims
is four years. See Cal. Civ. Proc. Code § 337.
24
Similar to Soward, Becnel claims that Deutsche Bank breached
Section 2.01 of the Becnel Credit Agreement and its implied duty of good faith and
fair dealing by representing the purported eighty million dollar loan was a real
loan, by making withdrawals from the Jardine and Hubbard accounts for the sham
loan and by entering into the Becnel Assignment Agreement.82 As mentioned
above, New York’s statute of limitations for breach of contract is six years from
the time of the breach. Becnel has not provided the Court with a date when he
believes the contract was breached.83 However, in arguing that his Complaint was
timely filed, Becnel does state that “under the continuing representation doctrine,
the New York statute of limitations began to run on May 15, 2000.”84 Even if the
Court uses this date, without cross-jurisdictional tolling, Becnel’s contract claims
were filed well after the six year statute of limitations expired. As with Becnel’s
other claims, his contract claims are time-barred regardless of their status under
Florida law because the borrowing statute will use the shorter of New York or
82
See Becnel Compl. ¶¶ 78-80.
83
Becnel’s brief, in a section entitled “Application of Tolling
Doctrines,” only mentions his fraud-based and fiduciary duty-based claims and not
his breach of contract claims. See Becnel Mem. at 24-25.
84
See id. at 18.
25
Florida’s statute of limitations, including tolling periods.85
E.
Leave to Amend Standard
Rule 15(a)(2) of the Federal Rules of Civil Procedure provides that
other than amendments as a matter of right, “a party may amend its pleading only
with the opposing party’s written consent or with the court’s leave.”86 Although
“[t]he Court should freely give leave when justice so requires,”87 it is “within the
sound discretion of the district court to grant or deny leave to amend.”88 “When a
motion to dismiss is granted, the usual practice is to grant leave to amend the
complaint.”89 However, “it is well established that leave to amend a complaint
need not be granted when amendment would be futile.”90
In response to Deutsche Bank’s allegation that Soward has removed
from his Amended Complaint all references to the BLIPS tax shelter as a “strategic
85
Florida’s statute of limitations for Becnel’s contract-based claims is
five years. See Fla. Stat. § 95.11 (2)(b).
86
Slayton v. American Express Co., 460 F.3d 215, 226 n.10 (2d Cir.
2006) (quotation marks omitted).
87
Fed. R. Civ. P. 15(a)(2).
88
McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 200 (2d Cir.
2007).
89
Hayden v. County of Nassau, 180 F.3d 42, 53 (2d Cir. 1999).
90
Ellis v. Chao, 336 F.3d 114, 127 (2d Cir. 2003).
26
slight of hand," Soward asks the Court for leave to file a second amended
complaint in order to incorporate the original complaint, which does refer to the
BLIPS Strategy.91 This request is denied. Because Soward's claims must be
dismissed as time-barred, amending the Amended Complaint would be futile and is
therefore denied.
v.
CONCLUSION
For the foregoing reasons, Deutsche Bank's motions to dismiss are
granted. The Clerk of the Court is directed to close these motions (10 Civ. 9248,
docket no. 11; 11 Civ. 01615, docket no. 7) and these cases.
SO ORDERED:
U.S.DJ.
Dated: New York, New York
September 1, 2011
91
See Soward Mem. at 9.
27
- Appearances For Plaintiffs Soward and Becnel:
Brian G. Isaacson, Esq.
Mark J. Wilson, Esq.
Isaacson & Wilson, P.S.
1200 Fifth Avenue, Suite 1900
Seattle, Washington 98101
(206) 448-1011
For Defendants:
Allan Noel Taffel, Esq.
Keith Evan Blackman, Esq.
Duval & Stachenfeld LLP
101 Park Avenue, 11th Floor
New York, New York 10178
(212) 883-8883
28
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?