Anwar v. Fairfield Greenwich Ltd.

Citation118 F.Supp.3d 591
Decision Date29 July 2015
Docket NumberNo. 09 Civ. 118(VM).,09 Civ. 118(VM).
Parties Pasha S. ANWAR, et al., Plaintiffs, v. FAIRFIELD GREENWICH LIMITED, et al., Defendants.
CourtU.S. District Court — Southern District of New York

Christopher Lovell, Victor E. Stewart, Jody Krisiloff, Lovell Stewart Halebian Jacobson LLP, David A. Barrett, Howard L. Vickery, II, Boies, Schiller & Flexner LLP, New York, NY, Adam S. Deckinger, Eli Justin Glasser, Jonathan Edgar Pollard, Sashi Bach Boruchow, Stuart Harold Singer, Susan E. Klock, Boies, Schiller & Flexner LLP, Fort Lauderdale, FL, for Plaintiffs.

Mark Geoffrey Cunha, Simpson Thatcher & Bartlett LLP, Allan J. Arffa, Andrew Garry Gordon, Brad Scott Karp, Leslie Gordon Fagen, Patrick James Somers, Paul, Weiss, Rifkind, Wharton & Garrison LLP, Sarah Loomis Cave, Gabrielle Sean Marshall, William R. MaGuire, Hughes Hubbard & Reed LLP, Stephen Lee Weinstein, Eiseman, Levine, Lehrhaupt & Kakoyiannis, P.C., New York, NY, Amanda McGovern, Gilbride Heller & Brown P.A, Anisley Tarragona, Annette Urena, John T. Houchin, Joshua Daniel Clark, Brown

and Heller P.A., Ricardo Alejandro Gonzalez, Greenberg Traurig, P.A., Miami, FL, Catherine Whitfield, Brown and Heller, P.A., Miami–Dade, FL, Joseph Clay Coates, III, Jon Andrew Jacobson, Lauren Whetstone, Greenberg Traurig, West Palm Beach, FL, for Defendants.


VICTOR MARRERO, District Judge.

Before this Court are two sets of lawsuits by plaintiffs asserting claims related to their investments in four feeder funds (the "Funds") founded and operated by the Fairfield Greenwich Group ("FGG").1 The Funds, in turn, invested heavily in Bernard L. Madoff Investment Securities LLC ("BMIS"), which, as is now well known, was a Ponzi scheme operated by Bernard Madoff ("Madoff").

In the first of these actions, the "Anwar Action," a certified class of plaintiffs (the "Anwar Plaintiffs") representing shareholders and limited partners in the Funds, assert various state and federal law claims against the Funds' administrators and custodians2 (collectively, the "Citco Defendants"), as well as state law claims against the Funds' auditors3 (collectively, the "PwC Defendants"). The second action, the "Standard Chartered Action," involves a number of plaintiffs (collectively, the "Standard Chartered Plaintiffs") who brought state law claims against Standard Chartered Bank International (Americas) Ltd. ("SCBI") and some of its corporate affiliates4 (collectively, "Standard Chartered Defendants") concerning their investment advice and recommendations regarding the Funds.

At issue in this proceeding is whether the Court should dismiss any or all of these remaining state law claims in both the Anwar and Standard Chartered Actions under the Securities Litigation Uniform Standards Act of 1998 ("SLUSA"), Pub.L. No. 105–353, § 101, 112 Stat. 3227 (1998), 15 U.S.C. §§ 77p(b), 78bb(f)(1). Most relevantly, SLUSA bars the maintenance of certain state-law based class actions alleging falsity "in connection with" transactions in "covered securities." Id.

The Court construes the May 29, 2015 letter briefs of the PwC Defendants and the Standard Chartered Defendants (Dkt. Nos. 1383, 1384) as motions to dismiss the remaining state law claims under SLUSA.5

For the reasons discussed below, the Court GRANTS the PwC and Standard Chartered Defendants' motions in part and DENIES the motions in part.


The Court has addressed SLUSA on prior occasions, with respect to the two related actions still pending. In Anwar v. Fairfield Greenwich Ltd., 728 F.Supp.2d 372 (S.D.N.Y.2010) ("Anwar II "), the Court held that SLUSA did not preclude the state law claims asserted in the Anwar Action for two primary reasons: (1) the connection between the Anwar Plaintiffs' investments in the Funds, which were not "covered securities," was too attenuated with BMIS's purported investments in covered securities; and (2) because the Anwar Plaintiffs had successfully pleaded federal securities claims against the Citco Defendants, the policy objectives of SLUSA were not implicated. See 728 F.Supp.2d at 397–99. However, the Court has declined up until now to rule on the application of SLUSA to the Standard Chartered Action, although the Court has indicated that SLUSA preemption could be raised later in these proceedings. Anwar v. Fairfield Greenwich Ltd., No. 09–CV–118, 2010 WL 1948566, at *1 (S.D.N.Y. May 5, 2010).

In the five years following Anwar II, the Supreme Court and the Second Circuit have clarified the contours of SLUSA preemption. As a result, the Court sought submissions by the parties in both the Anwar and Standard Chartered Actions on SLUSA preemption in light of these developments in the case law-most significantly the Second Circuit decision in In re Kingate Management Ltd. Litig., 784 F.3d 128 (2d Cir.2015). Having reviewed these submissions, the Court believes it is appropriate and necessary to revisit its view of the application of SLUSA to both actions.


At the outset, this Court must decide whether to construe the Anwar and Standard Chartered Defendants' correspondence as a motion for judgment on the pleadings for failure to state a claim under Federal Rule of Civil Procedure 12(c) (" Rule 12(c)"), or, alternatively, for lack of subject matter jurisdiction pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(h)(3) (" Rule 12(b)(1)" and " Rule 12(h)(3)," respectively). In Kingate, the Second Circuit questioned whether the district court's dismissal for failure to state a claim was the more appropriate standard of review, but the court declined to decide the issue:

Although the issue is not presented to us, we question whether a motion to dismiss pursuant to SLUSA is best considered under Rule 12(b)(6), as a motion to dismiss for failure to state a claim, or under Rule 12(b)(1) (and/or 12(h)(3)), as a motion to dismiss for lack of subject matter jurisdiction. A dismissal under SLUSA simply means that lawsuit "may not be maintained" as a covered class action, 15 U.S.C. §§ 77p(b), 78bb(f)(1). It does not adjudicate against any plaintiff the right to recover on the claim. A dismissal under SLUSA would not be with prejudice, barring a plaintiff from filing a new, non-covered action asserting the same claims against the same defendants.

Kingate, 784 F.3d at 135 n. 9 (emphasis in original).

Typically, courts in the Southern District of New York have followed the first option described above, considering dismissal of claims under SLUSA as failing to state a claim in a pleading under Rule 12(b)(6) or judgment on the pleadings under Rule 12(c). See, e.g., In re Adelphia Commc'ns Corp. Sec. and Derivative Litig., No. 03–MDL–1529, 2010 WL 3528872 (S.D.N.Y. Aug. 30, 2010) ; In re Tremont Sec. Law, State Law, & Ins. Litig., No. 08–CV–11117, 2014 WL 1465713 (S.D.N.Y. Apr. 14, 2014). See also Instituto De Prevision Militar v. Merrill Lynch, 546 F.3d 1340 (11th Cir.2008).

However, dismissing claims under SLUSA for failure to state a claim raises significant doctrinal complications. First, such an approach is inconsistent with the Second Circuit's indication that a dismissal under SLUSA should never be with prejudice. Generally, when deciding a Rule 12(b)(6) or Rule 12(c) motion, courts have discretion whether to dismiss with or without prejudice. When deciding a motion under Rules 12(b)(6) or 12(c), courts often grant plaintiffs leave to re-plead when dismissing without prejudice; but if an amended complaint could not correct fundamental defects that led to dismissal and thus the exercise would be futile, courts often dismiss with prejudice. Here, re-pleading would not save a claim that would otherwise be precluded by SLUSA. Under SLUSA, a properly pleaded claim is precluded not because of some deficiency in the pleading, but rather because of procedural mechanisms by which the particular claim was brought that conflict with the purposes of the statute.

Dismissing claims under SLUSA for lack of subject matter jurisdiction, on the other hand, comports with the statutory text and the Kingate dictum, while also avoiding some of the difficulties that arise under application of a Rule 12(b)(6) or Rule 12(c) approach. The text of SLUSA does not directly address this issue, except for indicating that a precluded claim may not be "maintained" as part of a covered class action. 15 U.S.C. §§ 77p(b), 78bb(f)(1). This language itself suggests that preclusion involves subject matter: a traditional state law claim could survive dismissal before a state or federal court—as long as that claim is not part of a "covered class action." If, however, that claim is brought, whether in state or federal court, through a particular procedural mechanism (e.g., a class action lawsuit on behalf of more than 50 plaintiffs, or a group of such lawsuits), then no court has jurisdiction to decide that claim on the merits as long as it remains part of a covered class action. See Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71, 87, 126 S.Ct. 1503, 164 L.Ed.2d 179 (2006) ( "[SLUSA] simply denies plaintiffs the right to use the class-action device to vindicate certain claims. The Act does not deny any individual plaintiff, or indeed any group of fewer than 51 plaintiffs, the right to enforce any state-law cause of action that may exist."). Thus, courts can decide state law claims that turn on allegations of falsity, and would otherwise fall within the ambit of federal securities law claims, only when those state law claims are not covered class actions.

Dismissal under SLUSA applying the lack of subject matter jurisdiction approach is also in line with the Kingate footnote explaining that "[a] dismissal under SLUSA would not be with prejudice." 784 F.3d at 135 n. 9. Dismissals for lack of subject matter jurisdiction are necessarily without prejudice, because the alternative—dismissal with prejudice—would have "the effect of a final adjudication on the merits" with res judicata effect in both state and ...

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