Dusek v. JPMorgan Chase & Co.

Citation832 F.3d 1243
Decision Date10 August 2016
Docket NumberNo. 15-14463,15-14463
CourtU.S. Court of Appeals — Eleventh Circuit
Parties Russell Dusek, Marsha Peshkin, et al., Plaintiffs–Appellants, v. JPMorgan Chase & Co., JPMorgan Chase Bank N.A., et al., Defendants–Appellees.

Helen Davis Chaitman, Lance Gotthoffer, Becker & Poliakoff, LLP, New York, NY, Nicole Giuliano, Giuliano Law, P.A., Ft. Lauderdale, FL, John Kevin Miller, Becker & Poliakoff, PA, Fort Myers, FL, for PlaintiffsAppellants.

John Ford Savarese, Scott M. Danner, Stephen R. DiPrima, Emil A. Kleinhaus, Wachtell Lipton Rosen & Katz, New York, NY, Carlos Juan Canino, Grace Lee Mead, Eugene E. Stearns, Stearns Weaver Miller Weissler Alhadeff & Sitterson, PA, Miami, FL, for DefendantsAppellees.

Before ED CARNES, Chief Judge, TJOFLAT, Circuit Judge, and TITUS,* District Judge.

TITUS

, District Judge:

For twenty years, Bernard Madoff ran the largest known Ponzi scheme in history through his investment advisory business, Bernard L. Madoff Investment Securities LLC (“BLMIS”) and its predecessors and affiliates. Dusek v. JPMorgan Chase & Co. , 132 F.Supp.3d 1330, 1336 (M.D. Fla. 2015)

. The house of cards collapsed on December 11, 2008, when Madoff was arrested, and the Securities and Exchange Commission (“SEC”) filed a civil complaint against him and BLMIS.1

Id. at 1344–45. The U.S. District Court for the Southern District of New York appointed a trustee for the liquation of BLMIS. Id. at 1345. The trustee calculated customer claims using the “Net Investment Method,” which credited the amount of cash deposited into a customer's BLMIS account, less any amount withdrawn from it. Id. Customers who had deposited more than they had withdrawn, excluding appreciation, had a positive net investment and were deemed “net losers.” The trustee limited claims to these customers. Id.

In the wake of the SEC and bankruptcy proceedings, several class actions were filed against JPMorgan Chase & Co., JPMorgan Chase Bank, N.A., J.P. Morgan Securities LLC, and J.P. Morgan Securities, Ltd. (collectively JPMorgan) in the Southern District of New York by customers who directly had capital invested with BLMIS as of December 2008. BLMIS maintained a series of accounts at JPMorgan that received the majority of funds that Madoff's victims “invested.” Id. at 1346

. The cases were consolidated on December 5, 2011 as Shapiro v. JPMorgan Chase & Co. , Case No. 1:11–cv–8331–CM, 2014 WL 1224666 (S.D.N.Y. Mar. 24, 2014). The Consolidated Amended Class Complaint alleged nine common law claims against JPMorgan. Id. at *1. No federal claims were asserted. Id.

JPMorgan entered a global resolution on January 6, 2014, involving three settlements. See Dusek , 132 F.Supp.3d at 1346

. First, it entered into a Deferred Prosecution Agreement with the U.S. Attorney for the Southern District of New York. Id. Second, it paid the trustee $325 million in settlement of the bankruptcy claims. Id. Finally, JPMorgan paid $218 million in settlement of the Shapiro class action, for which the court certified a class whose definition was intended to include only “net losers,” thus excluding investors who withdrew more than they had invested (“net winners”) before the scheme collapsed. Id. ; see

Shapiro , 2014 WL 1224666, at *13.

The legal fallout then moved to the south2 when, on March 28, 2014, this putative class action was filed in the U.S. District Court for the Middle District of Florida. Dusek , 132 F.Supp.3d at 1334

. Appellants' Second Amended Complaint sought to hold liable JPMorgan and two JPMorgan employees: John Hogan, who served as Chief Risk Officer and later Chairman of Risk for JPMorgan, and Richard Cassa, who served as Client Relationship Manager for one of Madoff's accounts. Id. at 1335. Appellants argued that JPMorgan and the two employees were liable as control persons under federal securities laws given their banking relationship with Madoff and BLMIS and their access to BLMIS's bank accounts. Id. at 1347. Appellants also asserted a federal RICO claim for JPMorgan's investments in BLMIS feeder funds and failure to report suspicious banking activities to the SEC. Id. at 1353

. Appellants sought to recover the value of the securities listed on account statements issued by BLMIS on November 30, 2008—totaling nearly $64.8 billion in net investments and related fictitious gains. Id. at 1338.

On September 17, 2015, the district court granted Appellee/Defendants' Motion to Dismiss the Second Amended Complaint. Id. at 1354

. It dismissed Count One, alleging violations of Section 20(a) of the Securities Exchange Act of 1934, and Count Nine, the federal RICO claim, with prejudice, and declined supplementary jurisdiction for the remaining counts brought under state law, dismissing them without prejudice.3

Id.

Because this Court finds that Appellants' Section 20(a) claim was untimely and their federal RICO claim was barred by the Private Securities Litigation Reform Act, we affirm the judgment of the district court.

I.

Review of a district court's decision to grant a motion to dismiss is conducted de novo . Spain v. Brown & Williamson Tobacco Corp. , 363 F.3d 1183, 1187 (11th Cir. 2004)

. In deciding a Rule 12(b)(6) motion to dismiss, the court must accept all factual allegations in a complaint as true and take them in the light most favorable to plaintiff, Erickson v. Pardus , 551 U.S. 89, 94, 127 S.Ct. 2197, 2200, 167 L.Ed.2d 1081 (2007), but [l]egal conclusions without adequate factual support are entitled to no assumption of truth,” Mamani v. Berzain , 654 F.3d 1148, 1153 (11th Cir. 2011) (citations omitted). The motion is granted only when the movant demonstrates that the complaint has failed to include “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 1974, 167 L.Ed.2d 929 (2007).

II.
A. Tolling

A private action under Section 20(a) of the Exchange Act4 must be filed within the earlier of (1) 2 years after the discovery of the facts constituting the violation; or (2) 5 years after such violation.” 28 U.S.C. § 1658(b) (2014)

. 28 U.S.C. § 1658(b) is construed by courts as having a two-year statute of limitations and a five-year period of repose. See Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilberston , 501 U.S. 350, 363, 111 S.Ct. 2773, 2782, 115 L.Ed.2d 321 (1991)

(construing the previous version of the statute that had a one- and three-year structure). See also

Dekalb Cty. Pension Fund v. Transocean Ltd. , 817 F.3d 393, 398 (2d Cir. 2016), as amended (Apr. 29, 2016); McCann v. Hy

Vee, Inc. , 663 F.3d 926, 930–32 (7th Cir. 2011).

The Supreme Court in CTS Corp. v. Waldburger

discussed at length the difference between statutes of limitation and statutes of repose, both of which “seek to attain different purposes and objectives.” 573 U.S. ––––, ––––, 134 S.Ct. 2175, 2182, 189 L.Ed.2d 62 (2014). While a statute of limitations is intended to “require plaintiffs to pursue ‘diligent prosecution of known claims' by limiting the time to bring suit based on the date when the cause of action accrued, id. (quoting Black's Law Dictionary 1546 (9th ed. 2009)), a statute of repose “puts an outer limit on the right to bring a civil action” based on the “date of the last culpable act or omission of the defendant,” whether or not an injury even occurred or was discovered, id. “The repose provision is therefore equivalent to a cutoff, in essence an absolute bar on a defendant's temporal liability.” Id. at 2183 (internal citation and quotation marks omitted).

The Court went on to state that statutes of repose are distinct from statutes of limitation in that they are not subject to equitable tolling, “even in cases of extraordinary circumstances beyond a plaintiff's control.” Id.

(citing Lampf , 501 U.S. at 363, 111 S.Ct. at 2782 ([A] period of repose [is] inconsistent with tolling”); 4 C. Wright & A. Miller, Federal Practice and Procedure § 1056 (3d ed. 2002) ([A] critical distinction is that a repose period is fixed and its expiration will not be delayed by estoppel or tolling”)). See also

Tello v. Dean Witter Reynolds, Inc. , 410 F.3d 1275, 1279 n.5 (11th Cir. 2005).

Appellants contend that under American Pipe & Construction Co. v. Utah , 414 U.S. 538, 94 S.Ct. 756, 38 L.Ed.2d 713 (1974)

, the statute of repose was nevertheless tolled by the pendency of the Shapiro class action. They argue that American Pipe involved “legal”—not equitable—tolling, and tolling is therefore not foreclosed by CTS. Appellants rely on the Tenth Circuit's decision in Joseph v. Wiles , 223 F.3d 1155 (10th Cir. 2000), to support their contention that their claims are timely because of the pendency of the Shapiro class action.

In American Pipe

, the Supreme Court held 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 continue as a class action.” American Pipe , 414 U.S. at 554, 94 S.Ct. at 766. In Crown, Cork & Seal Co., Inc. v. Parker , 462 U.S. 345, 353–54, 103 S.Ct. 2392, 2397–98, 76 L.Ed.2d 628 (1983), the Supreme Court extended American Pipe tolling to would-be class members who filed separate actions after the denial of class certification.

Courts have disagreed over the basis for the Supreme Court's decision in American Pipe —whether it relied mainly on (a) Fed. R. Civ. P. 23

in allowing tolling because otherwise it would “frustrate the principal function of a class suit” and create a “multiplicity of activity which Rule 23 was designed to avoid,” American Pipe , 414 U.S. at 551, 94 S.Ct. at 765, or (b) the equitable power of courts to toll statutes of limitations, id. at 557–59, 94 S.Ct. at 768–69.5 In Joseph

, the Tenth Circuit held that American Pipe tolling applied to the statute of repose in Section 13 of the Securities Act because it was a rule of legal tolling derived from Rule 23. 223 F.3d at 1166–68.

Appellees argue that the decision in Po...

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