Drexion Shares, ETF Trust v. Leveraged Innovations L.L.C.
Filing
80
OPINION & ORDER re: 28 MOTION for Summary Judgment . filed by Direxion Shares ETF Trust. For the reasons set forth above, summary judgment is GRANTED. The Clerk of Court is directed to close the motion at ECF No. 28 and terminate this action. (Signed by Judge Katherine B. Forrest on 11/18/2014) (lmb)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
--------------------------------------------------------------X
DIREXION SHARES, ETF TRUST,
USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC#:
DATE FILED:
NOV 1 8 2014
Plaintiff,
14 Civ. 1777 (KBF)
-v-
OPINION & ORDER
LEVERAGED INNOVATIONS L.L.C,
Defendant.
------------------------------------------------------------- x
KATHERINE B. FORREST, District Judge:
Plaintiff and counterclaim-defendant Direxion Shares ETF Trust and
counterclaim-defendant Direxion Shares ETF Trust II (collectively "Direxion") move
for summary judgment against defendant and counterclaimant Leveraged
Innovations, LLC ("Leveraged") on the counterclaims and Direxion's own claim for a
declaration that Leveraged's infringement claims are barred by a prior settlement
agreement.
The instant dispute spawns from the settlement agreement reached in a
patent infringement case from 2000 wherein Mopex, a predecessor-in-interest of
Leveraged, agreed not to sue "any AMEX-Listed ETF Fund." Leveraged pushed the
boundaries of what constituted an "AMEX-Listed ETF Fund" as defined in the
Mopex Settlement Agreement by subsequently bringing a patent infringement suit
against exchange traded funds ("ETFs") listed by a company called ProShares on
the NYSE Arca exchange. On April 20, 2012, this Court entered summary
judgment dismissing Leveraged's claim against the ProShares ETFs because NYSE
Arca is a successor of AMEX, and the ETFs listed thereon are accordingly protected
under the covenant not to sue. Leveraged Innovations, LLC v. NASDAQ OMX
Group, Inc., et al., No. 11 Civ. 3203, 2012 WL 1506524 (S.D.N.Y. Apr. 20, 2012)
("ProShares").
Once again, Leveraged is asserting that another company's ETFs - this time,
Direxion - used technology covered by its patents and has demanded royalty
payments in return for a non-exclusive license. On March 14, 2014, Direxion filed
the instant action for declaratory judgment that Leveraged's patent claims against
them were released pursuant to the Mopex Settlement Agreement. (ECF No. 2.)
Like the ProShares ETFs, Direxion ETFs are listed on NYSE Arca; accordingly,
Direxion argues that this same case has already been litigated - and Leveraged has
already lost.
Leveraged, however, asserts a new argument which it says was not
previously before the Court. The covenant not to sue in the Mopex Settlement
Agreement extends only to ETFs that are "listed exclusively for trading on the
Amex." It now argues that "listed exclusively" requires an affirmative obligation to
list only on one exchange. And, while the Direxion ETFs are in fact only listed on
one exchange - NYSE Arca - Leveraged argues that because Direxion does not have
an exclusive listing agreement with NYSE Arca, it is outside the scope of the Mopex
Settlement Agreement.
2
Direxion moved for summary judgment on June 6, 2014; the motion was fully
submitted as of August 26, 2014. 1 The Court heard oral argument on the motion on
September 5, 2014.2
The motion presents two questions: (1) Does the phrase "listed exclusively" as
used in the Mopex Settlement Agreement require an affirmative obligation to list
only on one exchange? (2) If so, was the issue of interpreting the "listed exclusively"
language in the Mopex Settlement Agreement previously litigated in ProShares
such that collateral estoppel applies? As the Court finds no affirmative obligation to
list on only one exchange, it need not address the collateral estoppel question.
For the reasons set forth below, summary judgment is GRANTED.
I.
BACKGROUND
Leveraged asserts three patents - U.S. Patent No. 7,698, 192 (the '"192
patent"), U.S. Patent No. 7,917,422 (the "'422 patent"), and U.S. Patent No.
8,204,815 (the "'815 patent") (collectively, "the Patents") - against Direxion.
(Responsive Statements of Undisputed Fact, "RSUF",
il
1.) Each of the three
patents is a continuation of a previous application that became U.S. Patent No.
Direxion submitted its reply brief on August 26, 2014 rather than on August 21, 2014, as set out in
the Court's scheduling order. Leveraged filed a motion to strike the reply brief. (ECF No. 62.) The
Court denied the motion at oral argument.
2 On September 9, 2014, without prior permission from the Court, Leveraged submitted a
supplemental brief and supplemental expert declaration on two questions that came up at oral
argument: using custom and usage in construing an unambiguous contract, and transposing words
that have an accepted meaning as terms of art (ECF No. 67). On September 15, 2014, Direxion
requested that the Court disregard the "unauthorized, supplemental submission" and offered a brief
substantive response. (ECF No. 68.) The Court disregards Leveraged's submission. Leveraged
made it submission without permission and after all briefing had been submitted and oral argument
on the motion had occurred. However, even if the Court considered the submission, it would
nonetheless arrive at the same result.
1
3
6,088,685 (the "'685 patent"). (RSUF
ii 2.) Leveraged is an assignee of the patents,
which were previously owned by Mopex, Inc. ("Mopex"). (RSUF
A.
ii 3.)
The Mopex Settlement Agreement
The '685 patent was the subject of litigation between Mopex and the
American Stock Exchange LLC ("AMEX") in an action that commenced in 2000
before the Hon. Judge Scheindlin. See Am. Stock Exch., LLC v. Mopex, Inc., No. 00
Civ. 5943 (S.D.N.Y.). On February 4, 2003, Judge Scheindlin granted summary
judgment to AMEX, finding the '685 patent invalid as anticipated by a prior
publication. Am. Stock Exch., LLC v. Mopex, Inc., 250 F. Supp. 2d 323 (S.D.N.Y.
2003). Following that decision, the parties entered into a Settlement Agreement
and Release (the "Mopex Settlement Agreement") which avoided entry of a final
judgment of invalidity as to the '685 patent. (RSUF
ii 9.) The Mopex Settlement
Agreement, designed so that it "brought peace," included a covenant by Mopex not
to sue "any AMEX-Listed ETF Fund." The Settlement Agreement defines "AMEXListed ETF Fund" as follows:
AMEX-Listed ETF Fund shall mean an Exchange-Traded Fund (as defined
below) (i) listed exclusively for trading on the AMEX, (ii) listed exclusively for
trading in the United States on the AMEX and also listed on an exchange or
marketplace having its principal place of business located outside the United
States, or (iii) listed on an AMEX Foreign Joint Venture, as well as any entity
associated with the management of that Exchange Traded Fund, including,
but not necessarily limited to, the Exchange Traded Fund's sponsor,
administrator, auditor, transfer agent, custodian, distributor, investment
advisor, lending agent, trustee or board of trustees, trust fund, index
compilation agent, and clearing agent or firm.
(RSUF
ii 11.) The word "listing" is defined in the Agreement to mean "listed for
trading on an exchange or marketplace in accordance with the listing rules and
4
standards of such exchange or marketplace and shall not mean or extend to the
trading of a security on an exchange or marketplace pursuant to unlisted trading
privileges." (RSUF
~
14.)
The covenant not to sue in the Settlement Agreement provides as follows:
Mopex hereby covenants not to sue, or to otherwise require a royalty or other
compensation from, any AMEX-Listed ETF Fund for any alleged
infringement of any of Mopex's Patent Rights or alleged infringement of any
patent, trade secret, or other intellectual property related to Exchange
Traded Funds, provided that such alleged infringement resulted from
activities undertaken with respect to or in connection with an Exchange
Traded fund that is at the time of the alleged infringement listed for trading
on the AMEX or on an AMEX Foreign Joint Venture. This covenant does not
apply to (i) any alleged infringement resulting from any activity undertaken
with respect to or in connection with an Exchange-Traded Fund that was not
listed on the AMEX at the time of the allegedly infringing activity, except
with respect to an AMEX Foreign Joint Venture; or (ii) any trading of an
Exchange-Traded Fund occurring on an exchange or marketplace other than
the AMEX or an AMEX Foreign Joint Venture (the "Other Exchange") if such
Exchange-Traded Fund is dually listed not only on the AMEX but also on the
Other Exchange.
(emphasis added) (RSUF
(RSUF
~
~
12.) The release is substantially identical in scope.
13.)
AMEX is defined in the Settlement Agreement to include its successors and
this Court has previously held that NYSE Arca is a successor of AMEX. (RSUF
~
18.) Leveraged is similarly a successor to Mopex and falls within the definition of
"Mopex" in the Settlement Agreement. (RSUF
B.
ii 19.)
The ProShares Litigation
On May 5, 2011, Leveraged commenced an action against NASDAQ and its
affiliated entities, and ProShares Trust I and II, alleging claims for infringement of
the '192 patent and '422 patent. Leveraged Innovations, LLC v. NASDAQ OMX
5
Group, Inc., et al., No. 11 Civ. 3203 (S.D.N.Y.) ("ProShares"). ProShares had 127
ETFs that were listed on the NYSE Arca and traded on other exchanges such as
NASDAQ. (RSUF
~
21-22.) In the summary judgment decision on April 20, 2012,
this Court stated: "there is only one question the Court must answer in resolving
this motion: does the transfer of all of Amex's ETP and structured product listing
and of Amex's ETP business to NYSE Arca make Arca a 'successor' to Amex as
contemplated by paragraph 10 of the Settlement Agreement?" Leveraged
Innovations, LLC v. NASDAQ OMX Group, Inc., et al., No. 11 Civ. 3203, 2012 WL
1506524, at *5 (S.D.N.Y. Apr. 20, 2012). The Court answered in the affirmative and
granted summary judgment thereby dismissing Leveraged's infringement claims
with respect to the 127 ProShares ETFs listed on the NYSE Arca. Id. The Court
held that Leveraged's claims were barred because NYSE Arca was a successor to
AMEX and thus any ETF listed on NYSE Arca is protected by Mopex's covenant not
to sue "AMEX-Listed ETF Funds." Id. at 7.
The parties dispute whether the Court implicitly addressed the question of
whether the Pro Shares ETFs were "listed exclusively for trading" on NYSE Arca
when it was otherwise addressing whether the ProShares ETFs fit within the ambit
of the Mop ex Settlement Agreement. Leveraged argues that the Pro Shares decision
"does not interpret the legal meaning of the 'listed exclusively for trading' clause, or
the applicability of that provision to Direxion's ETFs." (Leveraged's Mem. in Opp'n
4, ECF No. 49.) Conversely, Direxion asserts that the Court necessarily found that
in order to find that the ProShares ETFs were "listed exclusively" on the NYSE
6
Arca it had to implicitly reach this question, and that, in fact, Leveraged implicitly
conceded the point. (Direxion's Mem. in. Supp. 8, ECF No. 37).
C.
Direxion's ETFs
Direxion is an investment company offering 58 ETFs, each of which is listed
on NYSE Arca. 3 (RSUF
~
28.) Direxion asserts that its ETFs are traded on other
exchanges, but are not listed on any exchange other than NYSE Arca. It further
argues that these ETFs are neither dually listed nor cross-listed on any other
exchange, making them "listed exclusively" on the NYSE Arca.
II.
STANDARD OF REVIEW
Summary judgment may not be granted unless a movant shows, based on
admissible evidence in the record, "that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter oflaw." Fed. R.
Civ. P. 56(a). The moving party bears the burden of demonstrating "the absence of
a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
On summary judgment, the Court must "construe all evidence in the light most
favorable to the nonmoving party, drawing all inferences and resolving all
ambiguities in its favor." Dickerson v. Napolitano, 604 F.3d 732, 7 40 (2d Cir. 2010).
Once the moving party has asserted facts showing that the nonmoving
party's claims cannot be sustained, the opposing party must set out specific facts
showing a genuine issue of material fact for trial. Price v. Cushman & Wakefield,
Inc., 808 F. Supp. 2d 670, 685 (S.D.N.Y. 2011); see also Wright v. Goord, 554 F.3d
As discussed infra, Leveraged asserts that Direxion Daily Gold Bull 3x Shares and Direxion Daily
Gold Bear 3x Shares are leveraged commodities pools and not ETFs.
3
7
255, 266 (2d Cir. 2009). "[A] party may not rely on mere speculation or conjecture
as to the true nature of the facts to overcome a motion for summary judgment,"
because "[m]ere conclusory allegations or denials ... cannot by themselves create a
genuine issue of material fact where none would otherwise exist." Hicks v. Baines,
593 F.3d 159, 166 (2d Cir. 2010) (citations omitted); see also Price, 808 F. Supp. 2d
at 685 ("In seeking to show that there is a genuine issue of material fact for trial,
the non-moving party cannot rely on mere allegations, denials, conjectures or
conclusory statements, but must present affirmative and specific evidence showing
that there is a genuine issue for trial.").
Only disputes relating to material facts-i.e., "facts that might affect the
outcome of the suit under the governing law"-will properly preclude the entry of
summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); see
also Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586
(1986) (stating that the nonmoving party "must do more than simply show that
there is some metaphysical doubt as to the material facts"). The Court should not
accept evidence presented by the nonmoving party that is so "blatantly contradicted
by the record ... that no reasonable jury could believe it." Scott v. Harris, 550 U.S.
372, 380 (2007); see also Zellner v. Summerlin, 494 F.3d 344, 371 (2d Cir. 2007)
("Incontrovertible evidence relied on by the moving party ... should be credited by
the court on [a summary judgment] motion if it so utterly discredits the opposing
party's version that no reasonable juror could fail to believe the version advanced by
the moving party.").
8
III.
LEGAL PRINCIPALS
New York law provides that courts should enforce the plain meaning of
contracts when that meaning is clear and unambiguous. Greenfield v. Philles
Records, Inc., 98 N.Y.2d 562 (2002). In examining a contract, the Court must "give
effect to the intent of the parties as revealed by the language of their agreement."
Compagnie Financiere de CIC et de L'Union Europeenne v. Merrill Lynch, Pierce,
Fenner & Smith Inc., 232 F.3d 153, 157 (2d Cir. 2000) (Sotomayor, J.). Intent is
first derived "from the plain meaning of the language employed in the agreements,
when the agreements are read as a whole." W.W.W. Assocs., Inc. v. Giancontieri,
566 N.E.2d 639, 642 (N.Y. 1990). "[I]f the contract is capable of only one reasonable
interpretation, i.e., is unambiguous, we are required to give effect to the contract as
written." K. Bell & Assocs., Inc. v. Lloyd's Underwriters, 97 F.3d 632, 637 (2d Cir.
1996) (internal quotation marks omitted); see also Fulton Cogeneration Assocs. v.
Niagara Mohawk Power Corp., 84 F.3d 91, 98 (2d Cir. 1996). Contractual language
is ambiguous when it "is capable of more than one meaning when viewed objectively
by a reasonably intelligent person who has examined the context of the entire
integrated agreement." See Lockheed Martin Corp. v. Retail Holdings, N.V., 639
F.3d 63, 69 (2d Cir. 2011). Contract disputes are resolvable on summary judgment
when the contractual language in question is wholly unambiguous. See id. at 68.
In evaluating whether there is ambiguity, the Court must determine the
extent to which it can look at extrinsic evidence. Extrinsic evidence cannot be
considered in order to create an ambiguity. See Garza v. Marine Transp. Lines,
9
Inc., 861 F.2d 23, 26-27 (2d Cir. 1988) ("In the absence of ambiguity, the effect of
admitting extrinsic evidence would be to allow one party to substitute his view of
his obligations for those clearly stated.") (internal quotation marks omitted);
W.W.W. Associates, 77 N.Y.2d at 163 ("It is well settled that extrinsic and parol
evidence is not admissible to create an ambiguity in a written agreement which is
complete and clear and unambiguous upon its face.") (internal quotation and
citation omitted). However, the Court need not ignore context. "[A] court should
accord that language its plain meaning giving due consideration to the surrounding
circumstances and apparent purpose which the parties sought to accomplish."
Thompson v. Gjivoie, 896 F.2d 716, 721 (2d Cir. 1990); see also Aetna Cas. and Sur.
Co. v. Aniero Concrete Co., 404 F.3d 566 (2d Cir. 2005) ("Contract language is
ambiguous if it is 'capable of more than one meaning when viewed objectively by a
reasonably intelligent person who has examined the context of the entire integrated
agreement and who is cognizant of the customs, practices, usages, and terminology
as generally understood in the particular trade or business."') (quoting Eskimo Pie
Corp. v. Whitelawn Dairies, Inc., 284 F. Supp. 987, 994 (S.D.N.Y. 1968)).
Evidence of trade practice and custom is appropriate for determining
ambiguity in the contract. See Sompo Japan Ins. Co. of America v. Norfolk
Southern Ry. Co., 762 F.3d 165, 180 (2d Cir. 2014) ("Evidence of trade practice and
custom may assist a court in determining whether a contract provision is
ambiguous in the first instance."); Kerin v. U.S. Postal Serv., 116 F.3d 988, 992 (2d
Cir. 1997) (considering evidence of trade usage to determine that contract's
10
reference to "sewerage service" was ambiguous). Indeed, "[t]erms that have an
apparently unambiguous meaning to lay persons may in fact have a specialized
meaning in a particular industry." Sompo, 762 F.3d at 180. Nonetheless, "the court
should not find the contract ambiguous where the interpretation urged by one party
would 'strain [] the contract language beyond its reasonable and ordinary meaning.'
"Law Debenture Trust Co. of N.Y. v. Maverick Tube Corp., 595 F.3d 458, 467 (2d
Cir. 2010) (quoting Bethlehem Steel Co. v. Turner Constr. Co., 2 N.Y.2d 456, 459
(1957)). Put differently, "[f]orm should not prevail over substance, and a sensible
meaning of words should be sought." William C. Atwater & Co. v. Panama R.R. Co.,
246 N.Y. 519, 524 (1927).
Only if the terms are deemed ambiguous, can the Court then turn to extrinsic
evidence to determine the parties' intent. State of New York v. Home Indem. Co.,
486 N.E.2d 827, 829 (N.Y. 1985) (per curium). While extrinsic evidence generally
may not vary or contradict the terms of a fully integrated document, it may be used
to interpret facially ambiguous language in the contract. Topps Co., Inc. v. Cadbury
Stani S.A.I.C., 526 F.3d 63, 69 (2d Cir. 2008).
IV.
DISCUSSION
ETFs that are "listed exclusively for trading" on the NYSE Arca exchange - a
successor-in-interest to AMEX - are protected under the Mopex Settlement
Agreement from certain patent infringement suits by Leveraged. Direxion believes
that its ETFs, which are listed only on NYSE Arca and not "listed" elsewhere, are
accordingly protected. Direxion concedes that its ETFs may be traded elsewhere,
11
but that there is no limitation on trading (vs. listing) in the Mopex Settlement
Agreement. Leveraged, however, argues that ETFs are only "listed exclusively"
when the listing party has affirmatively obligated itself to list there and nowhere
else - in other words, an "exclusive listing." Thus, according to Leveraged, while
the Direxion ETFs may be only listed on NYSE Arca, they are not subject to an
exclusive listing obligation and therefore are not covered under the agreement.
The key legal issue is, therefore, the meaning of the phrase "listed
exclusively." Is it ambiguous, thereby requiring resort to extrinsic evidence, or is it
unambiguous? And even if unambiguous, must the Court nonetheless refer to
extrinsic evidence as to what the phrase "listed exclusively" meant in the ETF
industry as of the date of the agreement, 2003? Leveraged says it must. 4
Leveraged's argument is creative but unavailing. The term "listed exclusively" is
unambiguous and does not require resort to any extrinsic source for interpretation.
The Mopex Settlement Agreement is governed by New York law, where that
question is a matter oflaw to be decided by the Court. Mellon Bank v. United Bank
Corp., 31F.3d113, 115 (2d Cir. 1994). If the language is unambiguous, the Court
should give the term its plain meaning and not consider extrinsic evidence. If there
is ambiguity, it must then look to extrinsic evidence about what the drafters meant
by those words.
Although the Court need not reach the collateral estoppel question, there is no reasonable basis for
Leveraged to have not made this argument in the ProShares case - where there were 127 ETFs at
stake - but then to make it here, had their interpretation been the understanding all along.
4
12
A.
Plain Meaning
To determine if ambiguity exists, the Court must decide if the "exclusively
listed" language is objectively capable of more than one meaning. The Mopex
Settlement Agreement does not explicitly define "exclusively listed." Both parties
put forward dictionary definitions for "exclusively" that essentially define the word
as meaning "only." See Klotz v. Xerox Corp., 519 F. Supp. 2d 430, 434 (S.D.N.Y.
2007) ("only" and "exclusively" were deemed equivalent in the context of a forum
selection clause); People ex rel. Melia v. Menachen, 222 N.Y.S.2d 550, 553 (N.Y.
City Ct. 1961) ("The word 'only' is defined by Webster's International Dictionary (2d
ed.) as being synonymous with 'exclusively' or 'solely.'") Leveraged focuses on the
1979 version of Black's Law Dictionary which first defines "exclusively" as "[a]part
from all others; only; solely" and secondarily defines it as "[t]o the exclusion of all
others." (Yang Deel., Ex. K.) None of these definitions is dispositive for either
party. That "exclusively" means "only" is consistent with Leveraged's position that
"only" includes a commitment to list nowhere else. That it means "[t]o the exclusion
of all others" is consistent with Direxion's position that "exclusion" is done by free
choice rather than by contractual prohibition.
Reading the agreements "as a whole," the Court further examines the
language elsewhere in the agreement. See Lockheed Martin, 639 F.3d at 69 ("If the
document as a whole makes clear the parties' over-all intention, courts examining
isolated provisions should then choose that construction which will carry out the
plain purpose and object of the [agreement]") (internal citation and quotation marks
13
omitted). The release and covenant not to sue in the Mopex Settlement Agreement
provide context for the meaning of "listed exclusively." Those provisions state that
the parties intended to release any ETF that is "listed on the AMEX at the time of
the allegedly infringing activity" and is not "dually listed" on another exchange.
(Settlement Agreement
iii! 6, 10.) Such language is incongruous with an
interpretation of "listed exclusively" requiring a contractual commitment not to list
on another domestic exchange. If the parties already understood the contract to
require a contractual prohibition, the provision that ETFs not be "dually listed"
would be redundant. See Katel Ltd. Liab. Co. v. AT&T Corp., 607 F.3d 60, 64 (2d
Cir. 2010) ("Divining the parties' intent requires a court to 'give full meaning and
effect to all of [the contract's] provisions.') (quotation marks omitted); Hartford Fire
Ins. Co. v. Orient Overseas Containers Lines (UK), Ltd., 230 F.3d 549, 558 (2d Cir.
2000) ("In a situation of potential contract ambiguity, an interpretation that gives a
reasonable and effective meaning to all terms of a contract is preferable to one that
leaves a portion of the writing useless or inexplicable."). These provisions instead
shed light on "listed exclusively" meaning only that ETFs be listed on AMEX at the
time of infringement and that they not be dually listed.
Reading the word "exclusively" - ultimately a descriptive and not proscriptive
word - to include a contractual prohibition is beyond the scope of normal usage of
the term.
14
B.
Circumstances Surrounding the Mopex Agreement
Leveraged argues that its reading of "exclusively listed" is made clear by the
circumstances under which the agreement was made. The parties disagree,
however, on the extent to which the Court can establish ambiguity using contextual
evidence. As described supra, the Court can consider context, but it would be
contrary to New York law to use extrinsic evidence to create facial ambiguity where
none otherwise exists. To do otherwise would violate principals of contractual
interpretation. See Garza, 861 F.2d at 26-27.
Leveraged refers to several pieces of evidence in an attempt to raise a triable
issue as to ambiguity. One such piece of evidence is a declaration from Ken Kiron,
who is the President and CEO of Leveraged and who was personally involved in the
execution of the Mopex Settlement Agreement. He claims to have understood that
"the 'exclusively' term imposed an obligation for the ETF to be listed only on Amex
in the United States." (Kiron
Deel.~
36.) This is classic extrinsic evidence,
unnecessary in the absence of ambiguity. In addition, the Court could not properly
consider "uncommunicated subjective intent." Nycal Corp. v. Inoco PLC, 988 F.
Supp. 296, 302 (S.D.N.Y. 1997), affd, 166 F.3d 1201 (2d Cir. 1998).
Leveraged also points to a separate, unrelated agreement executed in 2002
between AMEX and NASDAQ, which, like the Mopex Settlement Agreement, was
signed by Michael Ryan. In that agreement, the parties used the term "list
exclusively" and obligated listings to remain on AMEX. Leveraged argues that this
agreement, made shortly before the Mopex Settlement Agreement, demonstrates
15
that everybody understood "exclusivity" to mean a contractual obligation not to list
on another exchange. The Court disagrees. On its face, if anything, the
AMEX-NASDAQ agreement merely shows that if the parties in Mopex wanted to
require exclusive listings with contractual obligations, they knew how to do it.
Furthermore, the market considerations and negotiations (in a deal between two
exchanges) may be different than the market considerations and negotiations (in
the Mopex deal) such that different language was purposeful.
While that contextual evidence is fruitless, the Court does consider the
parties' intentions in making the deal as evidenced by the terms of the Mopex
Settlement Agreement itself. See Thompson, 896 F.2d at 721. From AMEX's point
of view, the distinction between an ETF choosing to list exclusively with AMEX or
being contractually bound to do so makes little difference. What Amex was looking
for in the settlement agreement was a way to incentivize ETFs to list with them.
(See Kiron Deel.
~il
17, 20; Yang Deel., Ex. M.) So long as they can offer the ETFs
protection from patent infringement, it does not matter if the ETFs are
contractually bound to list with them or simply choose to do so.
Leveraged argues that failing to contractually require the listing would lead
to an "absurd result." They claim that under Direxion's reading, an ETF could reap
the benefits of the Mopex Settlement Agreement by temporarily listing on AMEX.
The agreement, however, makes clear that the ETF is only entitled to protection if
it is "at the time of the alleged infringement listed for trading on the AMEX."
(Settlement Agreement
~if
6, 10.) Leveraged also argues that the contractual
16
obligation was implied because ETFs could list on AMEX to gain the protection
from the Mopex Settlement Agreement and then proceed to trade in other places.
An exclusive listing, however, would not affect the ETFs' ability to trade on unlisted
exchanges.
C.
Industry Custom and Usage
Leveraged next argues that industry custom and usage require that
"exclusively listed" include a contractual obligation. The Second Circuit recently
made clear that evidence of trade practice is only relevant when it pertains to a
particular contractual term; otherwise, the contract's unambiguous terms govern.
Sompo, 762 F.3d at 181. The Court noted:
Consideration of trade practice may be a useful interpretation aid where
there is a term in the contract that has an accepted industry meaning
different from its ordinary meaning or where there is a term with an accepted
industry meaning that was omitted from the contract. But [appellant] does
not claim that there is such a term of art included or omitted here. Trade
practice is therefore irrelevant in this case, and the contract's unambiguous
terms govern.
Id. at 181 (quoting Hunt Constr. Grp., Inc. v. United States, 281 F.3d 1369, 1373
(Fed. Cir. 2002)). In support of its argument, Leveraged submitted a declaration
from Roel Campos, a former SEC commissioner, in opposition to Direxion's motion.
(ECF No. 53.) In his first and only timely declaration, Campos states in his
declaration that "exclusive listing" agreements existed in 2003 when the Mopex
Settlement Agreement was constructed. He asserts that "exclusive listing"
agreements had a particular meaning at that time - one that included a contractual
obligation. He does not address the fact that the contract here does not use the
17
words "exclusive listing" - but uses an entirely different phrase "listed exclusively."
As the declaration consists of contextual information unrelated to the actual terms
of the Mop ex Settlement Agreement, it is therefore irrelevant. Campos says
nothing about the particular "listed exclusively" language, nor does he even refer
directly to the agreement. His opinion does not shed light on what the phrase
"listed exclusively" means in ordinary parlance. Even accepting that "exclusive
listing" agreements were a term of art, Leveraged cannot satisfactory explain why
the parties did not then refer to "exclusive listing" agreements in the Mopex
Settlement Agreement. 5
In its reply, Direxion remarked on the fact that the Mopex Settlement
Agreement uses a different term from that discussed by Campos. At oral argument,
the Court did as well. Only then did Leveraged attempt to rectify this obvious
deficiency by submitting yet another Campos declaration in which he said "listed
exclusively" would mean the same thing. This declaration was untimely and - in
light of its timing - clearly lawyer devised. The Court disregards it as untimely.
Leveraged ultimately lacks admissible evidence to demonstrate ambiguity in
the phrase "listed exclusively."6
5 Direxion further challenges the Campos declaration on the grounds that he discusses "exclusive
listings" where the Mopex Settlement Agreement discusses "listed exclusively." Leveraged argues
that these terms are one and the same. But this is not just a transposition issue; "exclusively" in
"listed exclusively" is an adverb whereas "exclusive" in "exclusive listing" is an adjective. These
words have different meanings in the context of terms of art. For example, there may be an
exclusive listing in the real estate context or an exclusive license in the patent context, but it is
unclear that changing "exclusive" into its adverb form has the same meaning in those contexts.
Leveraged simply failed to ask Campos whether "listed exclusively" was understood at the time to
mean the same thing as an "exclusive listing agreement."
6 Extrinsic evidence is inadmissible here as the language is unambiguous. The Court can stop its
inquiry there. But "even if extrinsic evidence of the contracting parties' intent were admissible,
18
D.
Direxion's Daily Gold Funds
Finally, Leveraged argues that Direxion's Daily Gold Bull 3x Shares and
Daily Gold Bear 3x Shares (the "Daily Gold Funds") do not fall within the scope of
the Mopex Settlement Agreement because they are not ETFs as defined in the
agreement. Leveraged asserts that these funds, which hold futures contracts linked
to the value of gold, are leveraged commodities pools that are taxed as partnerships.
The Mopex Settlement Agreement defines ETFs to mean,
an investment company- whether organized as a management company,
business trust, or unit investment trust - that (1) is structured in such a way
as to allow its shares to be traded on a securities exchange or marketplace
and (2) issues continuously redeemable securities that may be bought from
the fund at net asset value or sold to the fund at net asset value. For the
purpose of this Agreement only, the term "Exchange-Traded Fund" shall also
include funds organized as grantor trusts.
(Settlement Agreement
il 1.) The Mopex Settlement Agreement does not further
define "investment company."
The Daily Gold Funds are shares of the Direxion Shares ETF Trust II, which
is organized as a Delaware statutory trust and constitutes an "emerging growth
company" within the meaning of the Securities Act of 1933. (Yang Deel., Ex. H,
ECF No. 51.) A Delaware statutory trust is an association "including but not
limited to a trust of the type known at common law as a 'business trust."' Del. Code
Ann. tit. 12, § 3801(a)(l); Debussy LLC v. Deutsche Bank AG, 242 Fed.Appx. 735,
736 n.1 (2d Cir. 2007); France v. Thermo Funding Co., 989 F.Supp.2d 287, 298 n. 68
extrinsic evidence of intent would only be relevant insofar as it clarified what the contracting parties
intended" the language to mean. Sompo, 762 F.3d at 180. After examination of all of the evidence,
the Court does not find sufficient evidence demonstrating that the parties intended the language to
include a contractual obligation.
19
(S.D.N.Y. 2013) ("Delaware statutory trusts meet this Court's definition of a
business trust.") Accordingly, the Daily Gold Funds are "investment companies"
under the Mopex Settlement Agreement because they are organized under Direxion
Shares ETF Trust II which is a "business trust."
Leveraged nonetheless asserts that the Daily Gold Funds state in their own
prospectus that "neither the trust nor any fund is a mutual fund or any other type
of investment company as defined in the Investment Company Act of 1940."7
Leveraged accordingly asks the Court to define "investment company" solely based
on the Investment Company Act of 1940. The Act is an inappropriate basis for
defining "investment company" because it uses too narrow a definition of
"investment company," and nothing in the Mopex Settlement Agreement indicates
that the term should be so limited. The Act is not the sole method of defining the
term "investment company." For example, the U.S. Treasury Department found the
Act's definition of "investment company" too narrow to apply to money laundering
programs, and it instead recognized "unregistered investment companies" including
commodity pools similar to commodity ETFs. (Ledley Deel., Ex. 4., ECF No. 39.)
Here, the Daily Gold Funds are listed and traded on NYSE Arca like the other
ETFs. Leveraged admits that all of the Direxion ETFs - including the Daily Gold
Funds - offer shares that are traded on an exchange and are redeemable securities
that may be bought from and sold at net asset value. (RSUF
~
27 .) The Mopex
7 In ProShares, the Court protected commodity ETFs, with identical language about not being
"investment companies" as defined in the Act, under the Mopex Settlement Agreement. The parties
did not, however, directly litigate the question of whether the commodity ETFs were investment
companies as defined in the agreement.
20
I~~
!
I
Settlement Agreement does not mention the Act, but instead refers to "investment
company" with a more expansive lense, as indicated by incorporating grantor trusts.
To limit the term "investment company" in this context would be to go against the
purpose of the agreement, which was to "buy peace" between Mopex and AMEX.
Accordingly, the Mopex Settlement Agreement should not exclude the Daily Gold
Funds simply because they are commodities ETFs.
V.
CONCLUSION
For the reasons set forth above, summary judgment is GRANTED.
The Clerk of Court is directed to close the motion at ECF No. 28 and
terminate this action.
SO ORDERED.
Dated:
New York, New York
November {2£_, 2014
;c_l). ~
KATHERINE B. FORREST
United States District Judge
21
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