BPP Illinois, LLC et al v. The Royal Bank of Scotland Group PLC et al

Filing 90

OPINION AND ORDER re: 61 MOTION for Leave to File Second Amended Complaint filed by Budget Portfolio Properties, LLC, FFC Partnership, L.P., BPP Iowa, LLC, BPP Minnesota, LLC, BPP Michigan, LLC, Fine Capital Associate s, L.P., BPP Texas, LLC, BPP Illinois, LLC, BPP Wisconsin, LLC, 55 MOTION to Transfer Case filed by Budget Portfolio Properties, LLC, FFC Partnership, L.P., BPP Iowa, LLC, BPP Minnesota, LLC, BPP Michigan, LLC, Fin e Capital Associates, L.P., BPP Texas, LLC, BPP Illinois, LLC, BPP Wisconsin, LLC: For the reasons stated above, Plaintiffs' motion for leave to amend and restore the claims of the FFC Plaintiffs and the Equity Plaintiff is DENIED. Defen dants' motion to dismiss is GRANTED insofar as the Court holds that the BPP Plaintiffs may not pursue their claims for lack of standing or based on judicial estoppel. But instead of dismissing the case outright, the Court stays the case to g ive an appropriate party the opportunity to move in the Bankruptcy Court to reopen the bankruptcy case and then pursue the claims against Defendants here. The Court sees no reason to keep the case open while the case is stayed. Accordingly, the Cl erk of Court is directed to administratively close the case without prejudice to the right of an appropriate party to reopen the case within six months of the date of this Opinion and Order in the event that there is a party with standing to pursue the claims against Defendants. In addition, the Clerk of Court is directed to terminate Docket Nos. 55 and 61. (Signed by Judge Jesse M. Furman on 10/19/2015) (tn)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
BPP ILLINOIS, LLC, et al.,
:
:
Plaintiffs,
:
:
-v:
:
THE ROYAL BANK OF SCOTLAND GROUP, PLC, et :
al.,
:
:
Defendants.
:
:
---------------------------------------------------------------------- X

10/19/2015

13-CV-638 (JMF)
OPINION AND ORDER

JESSE M. FURMAN, United States District Judge:
Plaintiffs, BPP Illinois, LLC, BPP Iowa, LLC, BPP Michigan, LLC, BPP Minnesota,
LLC, BPP Texas, LLC, and BPP Wisconsin, LLC (together, the “BPP Plaintiffs”); FFC
Partnership, L.P. and Fine Capital Associates, L.P. (together, the “FFC Plaintiffs”); and Budget
Portfolio Properties, LLC (the “Equity Plaintiff”) bring this action against Defendants the Royal
Bank of Scotland Group PLC (“RBS”), and two of its subsidiaries, RBS Citizens, N.A. (“RBS
Citizens”), and Citizens Bank of Pennsylvania (“Citizens Bank”). Plaintiffs allege fraud,
fraudulent inducement, negligent misrepresentation, and breach of fiduciary duty in connection
with Defendants’ alleged manipulation of the U.S. Dollar London Interbank Offered Rate
(“LIBOR”), an interest-rate benchmark. In an Opinion and Order entered November 13, 2013,
familiarity with which is assumed, the Court granted Defendants’ motion to dismiss, holding that
the claims of the FFC Plaintiffs and the Equity Plaintiff failed to satisfy Rule 9(b) of the Federal
Rules of Civil Procedure and that the BPP Plaintiffs’ claims were time barred. See BPP Ill., LLC
v. Royal Bank of Scotland Grp., PLC, 13-cv-638 (JMF), 2013 WL 6003701 (S.D.N.Y. Nov. 13,
2013) (“BPP I”). On appeal, the United States Court of Appeals for the Second Circuit vacated

the Court’s dismissal of the BPP Plaintiffs’ claims as time barred and remanded for further
proceedings, but otherwise affirmed. See BPP Ill., LLC v. Royal Bank of Scotland Grp., PLC,
603 F. App’x 57 (2d Cir. 2015) (summary order). Plaintiffs now move for leave to file an
amended complaint to address the Rule 9(b) deficiencies identified by the Court in its earlier
Opinion and Order, and Defendants move to dismiss on various grounds. For the reasons stated
below, Plaintiffs’ motion for leave to amend is DENIED and Defendants’ motion to dismiss is
GRANTED insofar as the Court concludes that the BPP Plaintiffs may not pursue their claims.
But instead of dismissing the case outright, the Court stays the action.
BACKGROUND
The facts underlying the parties’ dispute are summarized at length in the Court’s earlier
Opinion and Order — familiarity with which is assumed — and are largely irrelevant here, so
they will not be repeated except as necessary. For present purposes, it suffices to say that this
case is based on a $66 million loan, which Citizens Bank issued to the BPP Plaintiffs, and an
accompanying interest-rate swap agreement, which RBS Citizens structured, that Plaintiffs allege
Citizens Bank required the BPP Plaintiffs to enter into in order to gain approval for the loan.
(See Am. Compl. (Docket No. 27) ¶ 1). The interest rate on the loan was tied to LIBOR, an
interest-rate benchmark that the British Bankers Association (“BBA”) publishes daily. (Id.
¶¶ 26-30). Specifically, the loan required the BPP Plaintiffs to pay Citizens Bank an interest rate
equivalent to LIBOR plus 1.65%. (See Decl. David Sapir Lesser Supp. Defs.’ Mot. To Dismiss
Am. Compl. (Docket No. 30) (“Lesser Decl.”) Ex. A ¶¶ 1, 3.1). Under the swap agreement,
however, Citizens Bank agreed to pay the BPP Plaintiffs LIBOR, and the BPP Plaintiffs agreed
to pay Citizens Bank a fixed interest rate of 3.1625%. (Lesser Decl. Ex. C ¶ 2(c); Lesser Decl.
Ex. D, at 2-4). The net effect was that the LIBOR payments cancelled one another out, and the

2

BPP Plaintiffs were to pay a fixed rate to Citizens Bank of 3.1625% (the percentage due on the
swap agreement) plus 1.65% (the percentage above LIBOR due on the loan itself), or 4.1825%.
(See Am. Compl. ¶¶ 29-30; Lesser Decl. Ex. A ¶¶ 1, 3.1; Lesser Decl. Ex. C ¶ 2(c); Lesser Decl.
Ex. D, at 2-4). The FFC Plaintiffs, which are corporate affiliates of the BPP Plaintiffs, signed a
guaranty with respect to the loans at the time of the closing. (Am. Compl. ¶¶ 4, 70; see also
Lesser Decl. Ex. B). The Equity Plaintiff, another corporate affiliate of the BPP Plaintiffs,
allegedly invested $16.6 million in the BPP Plaintiffs’ business plan. (Am. Compl. ¶¶ 4, 71).
Plaintiffs allege that Defendants convinced them to participate in the transactions at issue
by representing that LIBOR was “an accurate and reliable rate” and that the BPP Plaintiffs would
not be able to pay the interest rate required by the loan without entering into the swap agreement.
(Id. ¶¶ 59, 70-71). Those representations, Plaintiffs contend, were false. At the same time that
Defendants were negotiating the loan, the Amended Complaint alleges, RBS was participating in
a scheme to manipulate LIBOR. (See, e.g., id. ¶¶ 1, 48). Specifically, Plaintiffs allege that RBS,
as a member of the panel of banks that set LIBOR, “manipulated [U.S. Dollar] LIBOR and other
currency LIBORs downward,” and then concealed that fraud, not only by misrepresenting the
accuracy of LIBOR to Plaintiffs, but also by deceiving regulators. (Id. ¶¶ 31, 51). Plaintiffs
allege that although the BPP Plaintiffs would have been able to pay the variable LIBOR-based
interest rate on the loan — because LIBOR was allegedly being held artificially low due, in part,
to the misconduct of RBS — they were unable to pay the higher fixed interest rate provided by
the swap agreement; were forced to liquidate their assets to pay their debts; and ultimately had to
file for bankruptcy, which they did in the United States Bankruptcy Court for the Eastern District
of Texas on December 21, 2010. (See id. ¶¶ 50, 68, 79). Thereafter, the BPP Plaintiffs
submitted a bankruptcy plan of reorganization, which was confirmed on October 4, 2011. (Id. ¶

3

85). The Bankruptcy Court oversaw the plan’s administration over the course of the next year,
and issued a final decree on November 15, 2012. (Lesser Decl. Ex. P).
Plaintiffs filed this lawsuit in state court a month later, on December 21, 2012, and
Defendants subsequently removed the case to this Court. (Docket No. 1). After an initial
pretrial conference in which Defendants indicated an intent to move to dismiss, the parties
submitted an agreed-upon proposed order setting a schedule for motion practice and a deadline
for amendment of the Complaint, which the Court so ordered without modification. (Docket No.
14). The order provided that Plaintiffs could amend the Complaint following any motion to
dismiss, and stated that “[n]o further amendments of the Complaint will be permitted.” (Id.).
Pursuant to the schedule, Defendants filed a motion to dismiss Plaintiffs’ Complaint (Docket No.
21) and Plaintiffs responded by filing the operative Amended Complaint. (Docket No. 27).
Defendants then filed a motion to dismiss the Amended Complaint (Docket No. 28), which the
Court granted, dismissing Plaintiffs’ claims with prejudice. More specifically, the Court held
first that the FCC Plaintiffs and Equity Plaintiff had failed to allege fraudulent conduct with the
specificity required by Rule 9(b). See BPP I, 2013 WL 6003701, at *3-4. Second, the Court
held that the BPP Plaintiffs’ claims were time barred because media coverage had put Plaintiffs
on notice of their potential claims no later than May 29, 2008. See id. at *4-11.
Plaintiffs appealed. On appeal, the Second Circuit affirmed the Court’s dismissal of the
claims brought by the FCC Plaintiffs and the Equity Plaintiffs, agreeing that they had failed to
satisfy the heightened pleading requirements of Rule 9(b). See BPP Ill., 603 F. App’x at 58.
The Court of Appeals noted that while Plaintiffs’ counsel had stated (presumably at oral
argument on appeal) that the defects “could be clarified,” Plaintiffs had “never actually sought
leave to replead to correct” the problem. Id. Concluding that this Court “surely did not abuse its

4

discretion in not sua sponte granting leave to replead,” the Circuit affirmed dismissal of the FFC
Plaintiffs’ and the Equity Plaintiff’s claims. Id. (internal quotation marks omitted). By contrast,
however, the Second Circuit vacated dismissal of the BPP Plaintiffs’ claims, holding that the
Court had acted “too hastily” in resolving the statute-of-limitations question on a motion to
dismiss. Id. at 59. The Court of Appeals declined to address Defendants’ alternative bases for
dismissal of the BPP Plaintiffs’ claims. Instead, the Circuit remanded to this Court “for further
proceedings consistent” with its decision, and directed the Court, “before conducting further
proceedings,” to “consider these other arguments for dismissal.” Id. On remand, the Court held
a conference, after which the parties filed the present motions. (See Docket Nos. 49, 51-52). 1
PLAINTIFFS’ MOTION FOR LEAVE TO AMEND
As an initial matter, Plaintiffs’ motion for leave to amend the Amended Complaint fails
for two independent reasons. First, leave to amend is foreclosed by the law of the case. One
strand of that doctrine — the “so-called ‘mandate rule’” — “requires a trial court to follow an
appellate court’s previous ruling on an issue in the same case.” United States v. Quintieri, 306
F.3d 1217, 1225 (2d Cir. 2002). More specifically, it requires a district court to “adhere to”
decisions on matters that are “expressly or implicitly part of the decision of the court of appeals.”
United States v. Cirami, 563 F.2d 26, 32-33 (2d Cir. 1977) (emphasis added). Here, application
of that doctrine compels denial of Plaintiffs’ motion, as the Court of Appeals affirmed this
Court’s dismissal of the FFC Plaintiffs’ and the Equity Plaintiff’s claims in its entirety, and
1

At the conference, defense counsel advised the Court that Defendant RBS Group
intended to move to dismiss for lack of personal jurisdiction. In anticipation of that motion —
which Defendant RBS Group later filed — Plaintiffs filed a motion to transfer this case to the
United States District Court for the District of Massachusetts. (Docket No. 55). On September
25, 2015, however, RBS Group withdrew any defense based on lack of personal jurisdiction, and
consented to personal jurisdiction in New York. (Docket No. 88). In response, Plaintiffs
withdrew their motion to transfer. (Docket No. 89).

5

remanded solely for further proceedings with respect to the claims against the BPP Plaintiffs.
See, e.g., NECA-IBEW Health & Welfare Fund v. Goldman, Sachs & Co., No. 08-CV-10783
(MGC), 2015 WL 72576, at *2 (S.D.N.Y. Jan. 6, 2015) (denying leave to revive dismissed
claims by amendment where the Second Circuit had “affirmed dismissal of [those claims], and,
by implication, decided that [those claims] should not be repled”). It goes without saying that,
had the FFC Plaintiffs and the Equity Plaintiff been the only parties to appeal, they would not
have been free to return to this Court after the Second Circuit’s decision for another bite at the
apple. The fact that they happened to appeal with other parties and the Second Circuit vacated
the Court’s dismissal of the other parties’ claims and remanded for further proceedings as to
those claims makes no difference to the analysis. In short, the claims of the FFC Plaintiffs and
the Equity Plaintiff died on appeal, and this Court is not free on remand to resurrect them.
Second, even if the law of the case did not call for denial of Plaintiffs’ motion, it is
without merit under the Federal Rules of Civil Procedure. Admittedly, Rule 15(a)(2) provides
that leave to amend should be given “freely . . . when justice so requires.” The Second Circuit
has made clear, however, that where, as here, the party or parties seeking amendment “waited
until after judgment before requesting leave, a court may exercise its discretion more
exactingly.” State Trading Corp. of India v. Assuranceforeningen Skuld, 921 F.2d 409, 418 (2d
Cir. 1990). Additionally, although not acknowledged by Plaintiffs, Rule 15 is not the only
applicable Rule in this case: Because the Court entered a scheduling order setting May 6, 2013,
as the deadline for the filing of an amended complaint (Docket No. 14), and Plaintiffs’ motion
comes long after that deadline, they must also show “good cause” under Rule 16(b)(4). See, e.g.,
Homes v. Grubman, 568 F.3d 329, 334-35 (2d Cir. 2009); see also, e.g., Oppenheimer & Co. Inc.
v. Metal Mgmt., Inc., No. 08-CV-3697 (LTS) (FM), 2009 WL 2432729, at *2 (S.D.N.Y. July 31,

6

2009) (citing cases). Significantly, the “primary consideration” in determining whether good
cause exists is “whether the moving party can demonstrate diligence.” Kassner v. 2nd Ave.
Delicatessen, Inc., 496 F.3d 229, 243-44 (2d Cir. 2007); see also Grochowski v. Phoenix Constr.,
318 F.3d 80, 86 (2d Cir. 2003) (holding that plaintiffs had failed to show “good cause” under
Rule 16(b)(4) where they had “delayed more than one year” after learning the basis for their
proposed amended complaint).
Plaintiffs cannot establish “good cause” for their delay in this case. Defendants first
raised the Rule 9(b) pleading defect that ultimately led to dismissal of the claims at issue in their
motion to dismiss the original complaint. (Mem. Law Supp. Mot. To Dismiss Compl. (Docket
No. 22) 18-29). Pursuant to the stipulated scheduling order (Docket No. 14), Plaintiffs opted to
amend their complaint in lieu of opposing Defendants’ motion (Docket No. 27), yet failed to
remedy the deficiencies identified by Defendants in their original motion and failed — even after
oral argument, when the Court pressed them on the Rule 9(b) issue (Sept. 10, 2013 Hr’g Tr.
(Docket No. 38) (“Tr.”) 4-5) — to request further leave to amend. Now, two years later,
Plaintiffs claim that they did possess additional facts to cure their Rule 9(b) problems, but did not
seek leave to amend because they believed that they were prohibited from doing so by the
Court’s Individual Practices (which indicated at the time that a plaintiff who amended a
complaint in response to a motion to dismiss would not be given “further opportunities to amend
to address the deficiencies identified by the motion”). (Pls.’ Mem. Law Supp. Mot. Leave To
File Second Am. Compl. (Docket No. 62) (“Pls.’ Mem.”) 3). 2 But that claim is disingenuous.
2

Plaintiffs note that the Court has since deleted from its Individual Practices the rule
limiting opportunities to amend in response to motions to dismiss. (Pls.’ Mem. 3-4). Although
technically true, the Court’s practices have not changed, as it now includes that same limitation
as a matter of course in an order issued after the filing of a motion to dismiss. (See, e.g., 15-CV5907, Docket No. 18).

7

At oral argument, counsel conceded that — for strategic reasons — he decided not to plead some
of the facts at issue in order to protect his clients’ privacy. (Tr. 36 (“I want to address the issue .
. . that I have not identified the representatives of the plaintiffs who were there. The reason for
that is we’re not looking for publicity here.”); see also Pls.’ Mem. 2). And although the
scheduling order — which Plaintiffs themselves jointly proposed — went further than the
Court’s Individual Practices by flatly prohibiting “further amendments of the Complaint” after
Plaintiffs filed the Amended Complaint, Plaintiffs did seek further leave to amend to address
Defendants’ arguments about timeliness. (Pls.’ Supp. Brief Statute Limitations Issues Further
Opp’n Defs.’ Mot. To Dismiss (Docket No. 41) 5 n.2). That request, despite the even more
restrictive language of the scheduling order, makes clear that Plaintiffs knew they could at least
ask for leave to amend a second time to address the Rule 9(b) issues. Having failed to do so, the
FFC Plaintiffs and the Equity Plaintiff elected to put all of their eggs in the Amended Complaint
basket and cannot now be heard to complain. Put simply, the Court will not give them yet
another bite at the proverbial apple.
DEFENDANTS’ MOTION TO DISMISS
The Court turns, then, to Defendants’ renewed motion to dismiss. Although Defendants
raise a number of potentially meritorious grounds for dismissal, the Court concludes that the BPP
Plaintiffs do not have standing to pursue the claims they raise in their Amended Complaint or, in
the alternative, that they are judicially estopped from bringing those claims. Because that
conclusion arguably deprives the Court of jurisdiction over the BPP Plaintiffs’ claims, see, e.g.,
Ibok v. Siac-Sector Inc., No. 05-CV-6584 (GBD) (GWG), 2011 WL 979307, at *2 (S.D.N.Y.
Mar. 14, 2011) (dismissing for lack of jurisdiction on the ground that the plaintiff lacked
standing to sue because he had failed to disclose his claims during his bankruptcy proceedings),

8

the Court declines to reach Defendants’ other arguments at this time, see Steel Co. v. Citizens for
a Better Env’t, 523 U.S. 83, 94 (1998) (“Without jurisdiction the court cannot proceed at all in
any cause.” (internal quotation marks omitted)).
When a debtor files for bankruptcy protection, all of its assets become property of the
bankruptcy estate. See 11 U.S.C. § 541(a)(1). Such assets include “every conceivable interest of
the debtor, future, nonpossessory, contingent, speculative, and derivative,” including “causes of
action owned by the debtor or arising from property of the estate.” Chartschlaa v. Nationwide
Mut. Ins. Co., 538 F.3d 116, 122 (2d Cir. 2008) (per curiam) (internal quotation marks and
alterations omitted); see also Seward v. Devine, 888 F.2d 957, 963 (2d Cir. 1989) (noting that all
pre-petition claims belonging to the debtor “became property of the estate when [the debtor]
sought protection under the bankruptcy laws”). To ensure that the trustee of the estate is able to
pursue any claims belonging to the estate, the Bankruptcy Code requires a debtor to disclose all
of its actual or potential assets. See 11 U.S.C. § 521(a)(1)(B)(i). The obligation to disclose is
“broad.” Chartschlaa, 538 F.3d at 122. Most relevant here, “a debtor is obligated to disclose
accrued causes of action even if the debtor does ‘not know all the facts or even the legal basis for
the cause of action; rather, if the debtor has enough information . . . prior to confirmation to
suggest that it may have a possible cause of action, then that is a “known” cause of action such
that it must be disclosed.’” Sea Trade Co. v. FleetBoston Fin. Corp., No. 03-CV-10254 (JFK),
2008 WL 4129620, at *12 (S.D.N.Y. Sept. 4, 2008) (quoting In re Coastal Plains, Inc., 179 F.3d
197, 208 (5th Cir. 1999)). Further, the debtor’s sweeping duty to disclose “does not end when
the debtor files schedules, but instead continues for the duration of the bankruptcy proceeding,”
up until the bankruptcy case is closed. Hamilton v. State Farm First & Cas. Co., 270 F.3d 778,
785 (9th Cir. 2001) (citing Costal Plains, 179 F.3d at 208); accord In re Arana, 456 B.R. 161,

9

169 (Bankr. E.D.N.Y. 2011); see also Fed. R. Bank. P. 1009(a) (allowing amendment of
schedules as a matter of course until the case is closed).
As the Second Circuit has explained, “[b]ecause full disclosure by debtors is essential to
the proper functioning of the bankruptcy system, the Bankruptcy Code severely penalizes
debtors who fail to disclose assets.” Chartschlaa, 538 F.3d at 122. Specifically, although
“properly scheduled estate property that has not been administered by the trustee normally
returns to the debtor when the bankruptcy court closes the case, undisclosed assets automatically
remain property of the estate after the case is closed. A debtor may not conceal assets and then,
upon termination of the bankruptcy case, utilize the assets for his own benefit.” Id.; see also 11
U.S.C. § 554(c)-(d). It follows that unscheduled claims that accrued before a bankruptcy
proceeding is terminated belong to the bankruptcy estate rather than the debtor, and the debtor
lacks standing to raise those claims. See Gache v. Hill Realty Assocs., LLC, No. 13-CV-1650
(CS), 2014 WL 5048336, at *5 (S.D.N.Y. Sept. 22, 2014) (“Because only the bankruptcy trustee
can bring a cause of action on behalf of a bankruptcy estate, a debtor does not have standing to
bring a claim that was property of the bankruptcy estate and was not abandoned or administered
by the bankruptcy trustee.” (citation omitted) (citing cases)). See generally Rajamin v. Deutsche
Bank Nat'l Trust Co., 757 F.3d 79, 86 (2d Cir. 2014) (noting that the prudential standing rule
“normally bars litigants from asserting the rights or legal interests of others in order to obtain
relief from injury to themselves” (internal quotation marks omitted)).
In light of the foregoing, the Court concludes that the BPP Plaintiffs lack standing to
pursue their claims. As the Amended Complaint makes clear, and Plaintiffs concede, the BPP
Plaintiffs did not disclose in their bankruptcy proceedings any claims relating to the alleged
manipulation of LIBOR (or any claims at all against RBS and RBS Citizens). (Am. Compl.

10

¶ 84). Instead, the BPP Plaintiffs make two principal arguments for why they nonetheless have
standing to sue: first, because the claims they raise were retained pursuant to a retention-ofrights provision in their bankruptcy plan and, second, because they were not sufficiently aware of
the claims during the pendency of the bankruptcy proceedings to trigger the disclosure
requirement (or relatedly, that the materials the Court may consider on this motion do not make
clear that they were sufficiently aware). (Pls.’ Mem. Law Opp’n Renewed Mot. To Dismiss Am.
Compl. and Further Supp. Mot. To Transfer Venue (Docket No. 78) (“Pls.’ Opp’n Mem.”) 2526). Neither argument is persuasive.
Plaintiffs’ first argument misses the mark because the bankruptcy plan contained only a
boilerplate reservation of rights. (Am. Compl. ¶ 90 (“[T]he Debtors and the Estates retain . . . all
rights, property, and interests [including] . . . (viii) claims and causes of action against any
Creditor or person whatsoever . . . .”)). As many courts have held, a debtor “may not . . . rely on
a general retention clause to preserve undisclosed causes of action known to him when he filed
for bankruptcy.” Rosenshein v. Kleban, 918 F. Supp. 98, 103 n.4 (S.D.N.Y. 1996); see also, e.g.,
D&K Props. Crystal Lake v. Mutual Life Ins. Co. of New York, 112 F.3d 257, 261 (7th Cir. 1997)
(“A blanket reservation that seeks to reserve all causes of action reserves nothing.”). That
conclusion makes good sense, and is consistent with the Second Circuit’s strong emphasis on the
importance of debtors truthfully and completely disclosing their assets in bankruptcy. Were it
otherwise, a debtor could safely conceal any number of known causes of action (or other assets,
for that matter) from creditors during bankruptcy proceedings so long as he included a generic
reservation of rights clause in the bankruptcy plan. That would not only be perverse, but would
run counter to the Second Circuit’s admonition that “the Bankruptcy Code severely penalizes

11

debtors who fail to disclose assets” because “full disclosure by debtors is essential to the proper
functioning of the bankruptcy system.” Chartschlaa, 538 F.3d at 122.
The cases from this Circuit that Plaintiffs cite in support of their argument to the contrary
do not suggest otherwise. (Pls. Opp’n Mem. 25). In re Perry Koplik & Sons, Inc., 357 B.R. 231
(Bankr. S.D.N.Y. 2006), involved a suit brought by the trustee of the estate on behalf of
creditors. It should go without saying that a debtor’s failure to disclose a cause of action does
not strip the trustee of the estate of standing to pursue that claim, but that says nothing about
what effect that failure might have on the debtor’s own rights. Nor is this case like In re I.
Appell Corp., 104 Fed. App’x 199 (2d Cir. 2004) (summary order). The debtor’s disclosure
statement in that case informed creditors that the debtor was “investigating certain pre-petition
acts or omissions of [the defendants] which may give rise to claims by the Debtor against
[them].” In re I. Appel Corp., 300 B.R. 564, 566 (S.D.N.Y. 2003). When read in conjunction
with that disclosure, the generic reservation of rights “adequately disclosed to the creditors” that
claims against the defendants “were being explored and that any such claims, if pursued, would
not be part of the bankruptcy estate.” 104 Fed. App’x at 200-01. Here, of course, there is no
dispute that the BPP Plaintiffs gave no indication at all that they were investigating or
considering bringing fraud claims against any parties, let alone Defendants, based on LIBOR
manipulation.
Plaintiffs’ second argument — that they were not sufficiently aware of their potential
claims against Defendants before the bankruptcy proceedings ended to trigger the disclosure
requirement — fails as well. According to Plaintiffs’ own submissions to this Court, they were
“sufficiently aware of facts that would have allowed them to have pled a fraud claim” against
Defendants on July 29, 2012 — when RBS’s Chief Executive Officer disclosed that “RBS is one

12

of the banks tied up in LIBOR.” (Pls.’ Mem. Law Opp’n Mot. To Dismiss (Docket No. 32)
(“Pls.’ Original Mem.”) 13; Decl. John Siegal Supp. Opp’n Defs.’ Mot. To Dismiss (Docket No.
31) (“Siegal Decl.”) Ex. A). In fact, Plaintiffs recognize that they “could conceivably have been
on notice of their claims” even earlier, on May 6, 2011, when RBS acknowledged in public
filings that it was cooperating with public investigations regarding LIBOR manipulation. (Pls.’
Original Mem. at 13; Siegal Decl. Ex. B). Taking the later of these two dates, the BPP Plaintiffs
had actual knowledge of their accrued claims almost four months before their bankruptcy
proceedings ended on November 15, 2012. Because the duty to disclose is a continuing one and
lasts as long as “the bankruptcy case remain[s] open,” the BPP Plaintiffs were under an
obligation, no later than July 2012, to “amend [their] filings to disclose” their claims against
Defendants. Thomas v. JP Morgan Chase, N.A., No. 11-CV-3656 (JG) (RML), 2012 WL
2872164, at *8 (E.D.N.Y. July 11, 2012); accord Moses v. Howard Univ. Hosp., 606 F.3d 789,
793 (D.C. Cir. 2010). Yet the BPP Plaintiffs never disclosed to the Bankruptcy Court, the trustee
of the bankruptcy estate, or their creditors that they had a possible cause of action based on
LIBOR manipulation — and, instead, waited until one month after the close of the bankruptcy
proceedings, when any judgment would presumably be beyond the reach of their pre-bankruptcy
creditors, to bring the claims in their own names. As a result, the claims remain property of the
estate, and the BPP Plaintiffs lack standing to pursue them.
The Court is, of course, mindful of the Second Circuit’s admonition that it acted “too
hastily” in concluding at the Rule 12(b)(6) stage that the BPP Plaintiffs’ claims were time barred.
BPP Ill., 603 F. App’x at 59. But that admonition has no application here for a few reasons.
First and foremost, because the lack of standing implicates jurisdiction, the Court may properly
consider evidence outside of the pleadings in resolving the issue. See Amidax Trading Grp. v.

13

S.W.I.F.T. SCRL, 671 F.3d 140, 145 (2d Cir. 2011) (per curiam). That is true whether the issue
is one of standing in the Article III sense or merely in a prudential sense: Under Second Circuit
precedent, “[t]he concept of standing — even its prudential dimension — is a limitation on
federal court jurisdiction.” Thompson v. Cty. of Franklin, 15 F.3d 245, 248 (2d Cir. 1994)
(quoting Canadian St. Regis Bank of Mohawk Indians v. State of New York, 573 F. Supp. 1530,
1538 (N.D.N.Y. 1983)); see also In re Sofer, 613 F. App’x 92, 92 (2d Cir. 2015) (summary
order) (“Prudential standing remains a jurisdictional requirement in our Circuit.”). Notably, the
Second Circuit itself has stated (albeit in an unpublished decision) that whether a debtor
“disclosed the underlying lawsuit in his bankruptcy proceedings” is a “jurisdictional fact[]” and,
thus, that “a district court may properly consider evidence outside of the pleadings” in resolving
whether standing exists. Ibok v. SIAC-Sector Inc., 470 F. App’x 27, 28 (2d Cir. 2012) (summary
order). Thus, the Court is not limited to the pleadings in determining whether the BPP Plaintiffs
have standing.
Second, and in any event, whether the BPP Plaintiffs’ claims were time barred (as the
Court had previously held) turned on whether they “should have been reasonably aware” of their
claims, which — according to the Second Circuit’s interpretation of Pennsylvania law, which
applies to the question of timeliness — raises an amorphous “factual issue best determined by
the collective judgment, wisdom, and experience of jurors.” BPP Ill., 603 F. App’x at 58
(quoting Crouse v. Cyclops Indus., 560 Pa. 394, 303 (2000)). Here, by contrast, the BPP
Plaintiffs have conceded that they had actual knowledge of their claims prior to the close of their
bankruptcy, leaving no need to rely on the “collective judgment” of a jury. Third, as the Court
noted in its prior Opinion and Order (and the Second Circuit did not question), it is well
established that a court “may take judicial notice of reports and newspaper articles ‘for the fact of

14

their publication without transforming the motion into one for summary judgment.’” BPP I,
2013 WL 6003701, at *7 n.5 (quoting In re Merrill Lynch & Co., Inc. Research Reports Sec.
Litig., 289 F. Supp. 2d 416, 425 n.15 (S.D.N.Y. 2003), and citing other cases). Thus, the Court
is on firm ground in relying on the articles that Plaintiffs themselves put into the record. Finally,
this Court is not the only one to reach the question of whether a plaintiff’s claims were barred by
the failure of the plaintiff to disclose the claims during bankruptcy on a motion to dismiss. See,
e.g., Ibok, 470 F. App’x at 28-29; Gache, 2014 WL 5048336 at *5.
In short, the Court concludes that the BPP Plaintiffs lack standing to pursue their claims
against Defendants. In the alternative, the Court holds that the BPP Plaintiffs are judicially
estopped from bringing their claims for essentially the same reasons. Judicial estoppel may be
invoked when “(1) the party against whom it is asserted . . . advanced an inconsistent position in
a prior proceeding, and (2) the inconsistent position [was] adopted by the court in some matter.”
Peralta v. Vasquez, 467 F.3d 98, 105 (2d Cir. 2006). The purpose of the doctrine “is not to look
for, or punish, outright lies, but to protect the integrity of the judicial process,” which is
threatened “not only when [a party] knowingly lies but when it takes a position in the short term
knowing that it may be on the verge of taking an inconsistent future action.” In re Adelphia
Recovery Trust, 634 F.3d 678, 696 (2d Cir. 2011) (internal quotation marks omitted). “In the
bankruptcy context, judicial estoppel is commonly invoked in order ‘to prevent a party who
failed to disclose a claim in bankruptcy proceedings from asserting that claim after emerging
from bankruptcy.’” Coffaro v. Crespo, 721 F. Supp. 2d 141, 145 (E.D.N.Y. 2010) (quoting
Negron v. Weiss, 06-CV-1288 (CBA), 2006 WL 2792769, at *3 (E.D.N.Y. Sept. 27, 2006). That
is, the doctrine is frequently invoked to bar a plaintiff from pursuing a claim that it failed to
disclose during bankruptcy proceedings. See, e.g., id.; Cannon-Stokes v. Potter, 453 F.3d 446,

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449 (7th Cir. 2006); In re Galerie Des Monnaies of Geneva, Ltd., 55 B.R. 253, 259-60 (Bankr.
S.D.N.Y. 1985).
The doctrine is applicable here. By failing to disclose any cause of action based on the
manipulation of LIBOR during bankruptcy, the BPP Plaintiffs implicitly represented that, to the
best of their knowledge, no such cause of action could possibly exist. See In re Residential
Capital, LLC, 12-12020 (MG), 2015 WL 2375979, at *8 (Bankr. S.D.N.Y. May 15, 2015). The
representations made in the BPP Plaintiffs’ bankruptcy schedules were, in turn, “accepted by the
bankruptcy court as true statements, and supported granting the discharge order [the BPP
Plaintiffs] ultimately received.” Id. And while a debtor’s failure to disclose assets in bankruptcy
is excused “when either the debtor has no knowledge of the claims or no motive to conceal the
claims,” Coffaro, 721 F. Supp. 2d at 146 (internal quotation marks omitted) (collecting cases),
this is not such a case. As discussed above, the BPP Plaintiffs knew of their claims against
Defendants while their bankruptcy was pending (indeed, they filed this lawsuit only one month
after the bankruptcy concluded), but never amended their asset schedules to include those claims.
See D’Antignac v. Deere & Co., 604 F. App’x 875, 879 (11th Cir. 2015) (per curiam) (“The
record shows that D’Antignac knew of her claims against Deere while her bankruptcy was
pending.”). Plaintiffs also had an obvious motive “to make the inconsistent statements —
namely, that if [they] did not disclose the claims to the bankruptcy court, [they] could keep all
the proceeds if [they] won [their] suit.” Id.
In sum, the Court concludes that the BPP Plaintiffs may not pursue their claims, either
because they lack standing or are judicially estopped from doing so. Although the Court would
be on firm ground in dismissing the case on that basis, see, e.g., Stein v. United Artists Corp.,
691 F.2d 885, 893-94 (9th Cir. 1982); Rosenshein, 918 F. Supp. at 103, it concludes that doing so

16

would potentially give a windfall to Defendants and that the better course is to stay the action to
allow the bankruptcy estate to decide whether to pursue the claims. After all, the claims asserted
by the BPP Plaintiffs “remain[] property of the bankruptcy estate” even though the bankruptcy is
now closed; “indeed, unless it is administered or abandoned by the trustee, the action remains
property of the estate forever.” In re Arana, 456 B.R. at 170 (internal quotation marks omitted).
Thus, the bankruptcy estate may be able to pursue the claims in order to “ensure that the
creditors,” not Plaintiffs, “receive the benefit from any recovery.” Rosenshein, 918 F. Supp. at
103; see also Arana, 456 B.R. at 170 (“[A] debtor’s failure to schedule a prepetition action may
only be a speedbump, not a roadblock, on the road to a recovery for the bankruptcy estate.”
(emphasis added)). Staying the case would give an appropriate party the opportunity to reopen
the bankruptcy case so that a “trustee can be appointed, investigate whether the [a]ction has
value, and then prosecute it, settle it, abandon it, or arrange for [the debtor] to prosecute it in
exchange for the estate receiving a share of the proceeds.” In re Lopez, 283 B.R. 22, 28 (B.A.P.
9th Cir. 2002); see also Greenhart Durawoods, Inc. v. PHF Int’l Corp., 91-CV-3731 (AGS),
1994 WL 652434, at *4-5 (S.D.N.Y. Nov. 18, 1994) (“[T]he ‘most sensible solution’ for cases
like [this one] would be to stay the action in the district court and reopen the bankruptcy case
since ‘[t]he only parties benefiting from the absence of a stay are those accused of violating the
antitrust laws.’” (quoting Stein, 691 F.2d at 893)).
CONCLUSION
For the reasons stated above, Plaintiffs’ motion for leave to amend and restore the claims
of the FFC Plaintiffs and the Equity Plaintiff is DENIED. Defendants’ motion to dismiss is
GRANTED insofar as the Court holds that the BPP Plaintiffs may not pursue their claims for
lack of standing or based on judicial estoppel. But instead of dismissing the case outright, the

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Court stays the case to give an appropriate party the opportunity to move in the Bankruptcy
Court to reopen the bankruptcy case and then pursue the claims against Defendants here. 3 The
Court sees no reason to keep the case open while the case is stayed. Accordingly, the Clerk of
Court is directed to administratively close the case without prejudice to the right of an
appropriate party to reopen the case within six months of the date of this Opinion and Order in
the event that there is a party with standing to pursue the claims against Defendants. In addition,
the Clerk of Court is directed to terminate Docket Nos. 55 and 61.

SO ORDERED.
Date: October 19, 2015
New York, New York

3

The Court intimates no view on whether the claims asserted by a proper party would be
time barred.

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