Allen v. Credit Suisse Securities (USA) LLC, 071018 FED2, 16-3327-cv

Docket Nº:16-3327-cv, 16-3571-cv
Opinion Judge:Reena Raggi, Circuit Judge.
Party Name:Doris Sue Allen, Donna S. Lucas, Jonathan G. Axelrod, Dana Kellen, Hedy L. Anselman, Timothy R. Garrett, Warren J. Pepicelli, John A. Boardman, Plaintiffs-Appellants, v. Credit Suisse Securities (USA) LLC, Deutsche Bank AG, Morgan Stanley, Morgan Stanley & Co. LLC, Morgan Stanley Capital Services LLC, Credit Suisse AG, Bank of America ...
Attorney:Regina M. Markey (J. Brian McTigue, on the brief), McTigue Law LLP, Washington, D.C., for Plaintiffs-Appellants. David G. Januszewski (Herbert S. Washer, Elai Katz, Jason M. Hall, Sheila C. Ramesh, on the brief), Cahill Gordon & Reindel LLP, New York, New York, for Defendants- Appellees Credit Su...
Judge Panel:Before: Jacobs, Leval, Raggi, Circuit Judges.
Case Date:July 10, 2018
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit
 
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Doris Sue Allen, Donna S. Lucas, Jonathan G. Axelrod, Dana Kellen, Hedy L. Anselman, Timothy R. Garrett, Warren J. Pepicelli, John A. Boardman, Plaintiffs-Appellants,

v.

Credit Suisse Securities (USA) LLC, Deutsche Bank AG, Morgan Stanley, Morgan Stanley & Co. LLC, Morgan Stanley Capital Services LLC, Credit Suisse AG, Bank of America Corporation, Bank of America, N.A., Barclays PLC, Barclays Bank PLC, Barclays Capital Inc., Citibank, N.A., Citigroup Inc., The Goldman Sachs Group, Inc., Goldman, Sachs & Co., HSBC Holdings PLC, HSBC Bank PLC, HSBC North America Holdings Inc., HSBC Bank USA, N.A., JPMorgan Chase Bank, N.A., JPMorgan Chase & Co., The Royal Bank of Scotland PLC, The Royal Bank of Scotland Group PLC, RBS Securities Inc., UBS AG, UBS Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, BNP Paribas Group, BNP Paribas North America, Inc., UBS Investment Bank, UBS Investment Bank, Americas, UBS Group AG, Merrill Lynch Capital Services, Inc., Barclays Group U.S. Inc., Defendants-Appellees,

Credit Suisse Group AG, Credit Suisse Securities (Europe) Limited, Does, 1-30, Does, 1-40, BNP Paribas Securities Corp., Citicorp, Citigroup Global Markets Inc., BNP Prime Brokerage Inc., Defendants.

Nos. 16-3327-cv, 16-3571-cv

United States Court of Appeals, Second Circuit

July 10, 2018

Argued: June 22, 2017

On Appeal from the United States District Court for the Southern District of New York

On appeal from a judgment entered in the United States District Court for the Southern District of New York (Schofield, J.), dismissing plaintiffs' ERISA complaint for failure to state claims for which relief can be granted, see Fed. R. Civ. P. 12(b)(6), plaintiffs fault the district court for failing to recognize that the defendant banks acted as ERISA functional fiduciaries in conducting the foreign currency exchange transactions here at issue and, thus, that their alleged manipulation of the foreign exchange market breached ERISA fiduciary duties owed to plaintiffs' employee benefit plans. Plaintiffs further fault the district court's denial of their request for a 60-day adjournment and leave to file a fourth amended complaint.

Regina M. Markey (J. Brian McTigue, on the brief), McTigue Law LLP, Washington, D.C., for Plaintiffs-Appellants.

David G. Januszewski (Herbert S. Washer, Elai Katz, Jason M. Hall, Sheila C. Ramesh, on the brief), Cahill Gordon & Reindel LLP, New York, New York, for Defendants- Appellees Credit Suisse AG and Credit Suisse Securities (USA) LLC.

Matthew A. Schwartz (Yvonne S. Quinn, David H. Braff, on the brief), Sullivan & Cromwell LLP, New York, New York, for Defendants-Appellees Barclays PLC, Barclays Bank PLC, Barclays Capital Inc., and Barclays Group U.S. Inc.

Adam S. Hakki, Richard F. Schwed, Jeffrey J. Resetarits, Shearman & Sterling LLP, New York, New York, for Defendants- Appellees Bank of America Corporation, Bank of America, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Merrill Lynch Capital Services, Inc.

David C. Esseks, Laura R. Hall, Rebecca Delfiner, Allen & Overy LLP, New York, New York; John Terzaken, Allen & Overy LLP, Washington, D.C., for Defendants- Appellees BNP Paribas Group and BNP Paribas North America, Inc., and Defendants BNP Paribas Securities Corp. and BNP Prime Brokerage, Inc.

Andrew A. Ruffino, Covington & Burling LLP, New York, New York; Alan M. Wiseman, Thomas A. Isaacson, Andrew D. Lazerow, Julie M. Edmond, Jamie A. Heine, Covington & Burling LLP, Washington, D.C., for Defendants-Appellees Citibank, N.A. and Citigroup Inc.

Joseph Serino, Jr., Eric F. Leon, Latham & Watkins LLP, New York, New York, for Defendant-Appellee Deutsche Bank AG.

Thomas J. Moloney, George S. Cary, Sue S. Guan, Cleary Gottlieb Steen & Hamilton LLP, New York, New York, for Defendants- Appellees The Goldman Sachs Group, Inc. and Goldman, Sachs & Co.

Gregory T. Casamento, Locke Lord LLP, New York, New York; Roger B. Cowie, Locke Lord LLP, Dallas, Texas; J. Matthew Goodin, Julia C. Webb, Locke Lord LLP, Chicago, Illinois, for Defendants-Appellees HSBC Holdings PLC, HSBC Bank PLC, HSBC North America Holdings Inc., and HSBC Bank USA, N.A.

Peter E. Greene, Boris Bershteyn, Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York; Stephen L. Ratner, Russell L. Hirschhorn, Proskauer Rose LLP, New York, New York, for Defendants- Appellees JPMorgan Chase & Co. and JPMorgan Chase Bank, N.A.

Jonathan M. Moses, Bradley R. Wilson, Wachtell, Lipton, Rosen & Katz, New York, New York, for Defendants-Appellees Morgan Stanley, Morgan Stanley & Co. LLC, and Morgan Stanley Capital Services LLC.

Joel M. Cohen, Melissa C. King, Davis Polk & Wardwell LLP, New York, New York, for Defendants-Appellees The Royal Bank of Scotland PLC, The Royal Bank of Scotland Group PLC, and RBS Securities Inc.

D. Jarrett Arp, Melanie L. Katsur, Gibson Dunn & Crutcher LLP, Washington, D.C.; Mark A. Kirsch, Indraneel Sur, Gibson Dunn & Crutcher LLP, New York, New York, for Defendants-Appellees UBS AG, UBS Group AG, UBS Securities LLC, UBS Investment Bank, and UBS Investment Bank, Americas.

Before: Jacobs, Leval, Raggi, Circuit Judges.

Reena Raggi, Circuit Judge.

In this civil action under the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1132(a)(2) and (a)(3), the named plaintiffs, acting on behalf of a putative class of trustees, beneficiaries, and participants of various ERISA Employee Benefit Plans ("Plans"), 1 sue twelve banks and their affiliates for breach of ERISA fiduciary duties owed to the Plans or, in the alternative, for defendants' knowing participation in prohibited transactions as non- fiduciary parties-in-interest. Plaintiffs here appeal from judgments entered in the United States District Court for the Southern District of New York (Lorna G. Schofield, Judge) on August 24, 2016, and on September 20, 2016, dismissing the complaint for failure to state a claim for which relief can be granted. See Fed. R. Civ. P. 12(b)(6). Both judgments were based on the same reasoning. First, the district court determined that defendants' alleged fraudulent conduct in conducting foreign currency exchange ("FX") market transactions for plaintiffs' Plans was insufficient to plead the banks' ERISA functional fiduciary status. See Allen v. Bank of Am. Corp., No. 15 Civ. 4285 (LGS), 2016 WL 4446373, at *6-8 (S.D.N.Y. Aug. 23, 2016). Second, the district court ruled that the alternative party-in-interest claim failed in the absence of any allegation that non-party Plan fiduciaries (i.e., the investment managers who arranged the transactions with the defendant banks) had actual or constructive knowledge of the banks' fraud. Id. at *9-10.

In challenging dismissal, plaintiffs argue that defendants acquired functional fiduciary status under ERISA by exercising control over the disposition of Plan assets. Specifically, plaintiffs contend that defendants manipulated the benchmark rates to which the subject FX transactions were tied, effectively allowing them to determine their own compensation for each transaction. Moreover, on appeal, plaintiffs recast their alternative party-in-interest claim, urging that it, too, is supported by defendants' acquisition of ERISA functional fiduciary status with regard to the subject transactions. Defendants respond that the subject transactions were ordinary FX transactions between arms' length counterparties and, as such, did not give rise to functional fiduciary status. Defendants emphasize that they had no influence over the Plans' decisions to enter into the transactions, which were executed pursuant to written instructions negotiated between defendants and the Plans' investment managers. Defendants submit that these instructions, which dictated their compensation and the terms of the transactions' execution, could not confer sufficient control over the disposition of Plan assets to make them fiduciaries, regardless of their alleged misconduct.

In appealing dismissal, as well as the district court's denial of their request for adjournment and leave to amend, plaintiffs fault the district court for imposing a novel contract-evidence requirement for identifying ERISA functional fiduciary status. On de novo review of the challenged dismissal, we reject plaintiffs' argument and reach the same conclusion as the district court, i.e., that plaintiffs fail to state plausible ERISA claims because the facts alleged do not show that defendants exercised the control over Plan assets necessary to establish ERISA functional fiduciary status. Because we further identify no abuse of discretion in the district court's denial of adjournment or leave to file a fourth amended complaint, we affirm the challenged judgments in all respects.

BACKGROUND

I. Factual Background

This ERISA action challenges the conduct of twelve banks and their affiliates in the FX...

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