Deangelis v. Corzine (In re MF Global Holdings Ltd.)

Citation998 F.Supp.2d 157
Decision Date11 February 2014
Docket NumberNo. 11 Civ. 7866(VM).,11 Civ. 7866(VM).
PartiesIn re MF GLOBAL HOLDINGS LIMITED INVESTMENT LITIGATION. Joseph Deangelis, et al., Plaintiffs, v. Jon S. Corzine, et al., Defendants. This document relates to the Commodities Customer Class Actions.
CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York

OPINION TEXT STARTS HERE

Brian C. Kerr, Brower Piven, A Professional Corporation, David A.P. Brower, Brower Piven, Jeffrey Craig Block, Whitney Erin Street, Block & Leviton LLP, New York, NY, Jason Mathew Leviton, Scott A. Mays, pro hac vice, Berman DeValerio, Boston, MA, Amanda Marjorie Steiner, Girard Gibbs LLP, Christina H. C. Sharp, Daniel Charles Girard, pro hac vice, Girard Gibbs LLP, San Francisco, CA, Christopher J. Lovrien, Michael S. McCauley, Peter E. Davids, pro hac vice, Jones Day, Los Angeles, CA, Jeff I. Ross, pro hac vice, John B. Orenstein, Ross & Orenstein LLC, Minneapolis, MN, for Plaintiffs.

City of Philadelphia Board of Pensions and Retirement and Palisade Strategic Master Fund (Cayman) Limited, pro se.

Andrew J. Levander, Matthew Lester Mazur, Rebecca Sarah Kahan, Dechert, LLP, Jonathan R. Streeter, U.S. Attorney's Office, Schuyler G. Carroll, Shan A. Haider, Perkins Coie LLP, David Michael Rosenfield, Lisamarie Frances Collins, Therese Marie Doherty, Herrick, Feinstein LLP, Christopher Michael Joralemon, Mark Adam Kirsch, Goutam Umesh Jois, Ladan Fazlollahi Stewart, Lisa Heather Rubin, Gibson, Dunn & Crutcher, LLP, Arthur Harlod Aufses, III, Craig Louis Siegel, Paul Henry Schoeman, Kramer Levin Naftalis & Frankel, LLP, Ethan Yu Lee, Justin Anthony Alfano, Sean Miles Murphy, Milbank, Tweed, Hadley & McCloy LLP, Stuart Jay Baskin, Adam Selim Hakki, H. Miriam Farber, Shearman & Sterling LLP, Dean Lindsay Chapman, Estela Diaz, Joseph Lee Sorkin, Robert Henry Hotz, Jr., Akin Gump Strauss Hauer & Feld, Edmund Polubinski, III, David Brendan Toscano, Davis Polk & Wardwell L.L.P., David A. Barrett, Marilyn C. Kunstler, Boies, Schiller & Flexner, LLP, Neil Stephen Binder, Binder & Schwartz LLP, Julia Nestor, Davis Polk & Wardwell L.L.P., G. Robert Gage, Jr., Gage, Spencer & Fleming, LLP, Daniel E. Reynolds, Frank H. Wohl, Michael Dayton Longyear, Lankler Siffert & Wohl LLP, Brett Gerald Canna, Jayne S. Robinson, Kathryn Ann McDonald, Robinson McDonald & Canna LLP, Gregory John O'Connell, Philip Canning Patterson, Vera Marie Kachnowski, De Feis O'Connell & Rose, P.C., John F Savarese, John F. Lynch, Ralph M. Levene, Steven Peter Winter, Wachtell, Lipton, Rosen & Katz, Cohen Milstein Sellers & Toll P.L.L.C., New York, NY, James N. Benedict, Thomas A. Arena, Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, CA, Laura Steinberg, Sullivan & Worcester LLP, Boston, MA, David A. Geier, Geier Homar & Roy, LLP, Madison, WI, Darren Bernens Kinkead, Christopher James Barber, Steptoe & Johnson LLP, Chicago, IL, Daniel A. Nathan, Morrison & Foerster L.L.P., Washington, DC, James J. Capra, Jr., James P. Cusick, David M. Fine, King & Spalding LLP, New York, NY, for Defendants.

DECISION AND ORDER

VICTOR MARRERO, District Judge.

TABLE OF CONTENTS
I.

INTRODUCTION

166

II.

BACKGROUND

168

A.

THE PARTIES

168
1.

Plaintiffs and the Trustee

168

2.

D & O Defendants

169 3.

Defendant PwC

169

B.

LEGAL BACKGROUND

169

C.

FACTUAL ALLEGATIONS

170

1.

Allegations Against the D & O Defendants

171

2.

Allegations Against PwC

174

D.

PROCEDURAL HISTORY

174
III.

LEGAL STANDARD

174

IV.

DISCUSSION

175

A.

CLAIMS AGAINST D & O DEFENDANTS

175
1.

CEA Claims

175
a.

Direct Violations

175

b.

Aiding and Abetting

177

2.

Common Law Claims

179
a.

Choice of Law

179

b.

Breach of Fiduciary Duty

180 c.

Aiding and Abetting Breach of Fiduciary Duty

182 d.

Conversion and Aiding and Abetting Conversion

183 e.

Negligence

184 f.

Tortious Interference with Contract and Business Advantage

186 g.

Aiding and Abetting Breach of Bailment

187

B.

CLAIMS AGAINST PwC

187
1.

Customers' Professional Negligence Claim

187

2.

Trustee's Professional Negligence and Fiduciary Duty Claims

189

C.

LEAVE TO REPLEAD

191

D.

CONCLUSION

191

V.
ORDER 191

APPENDIX

192

* * *

Several former commodities customers of MF Global, Inc. (collectively, Plaintiffs or the “Customers”), individually and on behalf of all others similarly situated (the “Class” or the “Customer Class”), and as assignees of James W. Giddens, the trustee appointed in the liquidation of MF Global, Inc. (the Trustee), filed a Consolidated Amended Class Action Complaint for Violations of the Commodity Exchange Act and Common Law (the “CAC”) (Dkt. No. 382) against defendants Jon S. Corzine (Corzine), Henri J. Steenkamp (“Steenkamp”), Bradley I. Abelow (“Abelow”), Laurie R. Ferber (“Ferber”), Edith O'Brien (“O'Brien”), Christine A. Serwinski (“Serwinski”), David Dunne (“Dunne”), Vinay Mahajan (“Mahajan”),1 and PricewaterhouseCoopers LLP (“PwC”; collectively,Defendants).2 The CAC alleges direct violations of the Commodity Exchange Act of 1936, as amended (the “CEA”), and the regulations promulgated thereunder (the “CFTC Regulations”), in violation of Section 22 of the CEA, 7 U.S.C. § 25 (Section 22); aiding and abetting violations of the CEA and the CFTC Regulations, in violation of Section 13 of the CEA, 7 U.S.C. § 13c (Section 13), and Section 22 of the CEA; and various claims under the common law. Defendants moved to dismiss all counts of the CAC under Federal Rule of Civil Procedure 12(b)(6) (“ Rule 12(b)(6)”) ( see Dkt. Nos. 422, 426), and the parties have fully briefed the motions. 3

I. INTRODUCTION

This case is one of many in the vast litigation that arose out of the catastrophic collapse of MF Global Holdings Limited (“MF Global”). The Court has previously compared this matter to a “massive train wreck” that caused injuries to thousands of unknowing and unsuspecting victims. See In re MF Global Holdings Ltd. Sec. Litig. ( MF Global I ), 982 F.Supp.2d 277, 287–89, No. 11 Civ. 7866, 2013 WL 5996426, at *1 (S.D.N.Y. Nov. 12, 2013). MF Global's demise naturally spawned lawsuits from the many people who suffered harm from those events. But it was the Court's hope, as expressed at the initial conference on this matter, that the parties could avoid burdening each other, the judicial system, and the public with costly and time-consuming motion practice.

Unfortunately, the Court's aspiration was not to be realized. In view of the significance of the issues, the magnitude of the stakes, and the multitude of vital interests involved, the Court's earlier message bears repeating. If the Court's central point was not hearkened, perhaps it was not heard by these parties on either occasion. Instead of coming together to resolve this matter in a just and efficient way, the parties continue to file lengthy motions and oppositions—as the list itemized in the appendix attests, almost two dozen submissions—failing to concede any ground to each other even in the light of clear, controlling case law that should generate agreement and consensus among people moved by reason, good faith, and common sense. While this wasteful and rancorous litigation unfolds, investment customers harmed by these unfortunate events must wait for any compensation due them, without knowing how much they will recover or when they will receive any assets they wrongfully lost because of the violations of law claimed in this litigation. Surely, the parties' conduct here does not exemplify the goal of the Federal Rules of Civil Procedure: “to secure the just, speedy, and inexpensive determination of every action and proceeding.” Fed.R.Civ.P. 1 (emphasis added).

The Court previously denied motions to dismiss complaints filed by purchasers of MF Global securities, see MF Global I, 982 F.Supp.2d 277, No. 11 Civ. 7866, 2013 WL 5996426, and by the United States Commodity Futures Trading Commission (“CFTC”), see Deangelis v. Corzine, No. 11 Civ. 7866, 2014 WL 216474 (S.D.N.Y. Jan. 17, 2014). In so doing, the Court has repeatedly emphasized that, at this stage of the litigation, the standard is lenient and a plaintiff's burden is not onerous. The Court must accept Plaintiffs' factual allegations to be true and draw reasonable inferences and resolve doubts about the cause of MF Global's collapse in Plaintiffs' favor. To survive a motion to dismiss, Plaintiffs need only show that, assuming the truth of the facts they plead, it is plausible that Defendants are liable for the alleged misconduct. In a spectacular financial collapse of the magnitude that Plaintiffs exhaustively detail in their amended complaint, an account that draws from and is supported by reports issued by legislative and regulatory bodies on the public record, it is reasonable to infer that someone, somewhere, at some time did something wrong to set in motion such an extraordinary chain of events causing such extensive harm to so many people and interests.

Plaintiffs' CAC meets that minimal threshold in many respects. The CAC is a comprehensive, 198–page, 576–paragraph account of MF Global's collapse. Specifically, Plaintiffs focus on how MF Global, Inc. (“MFGI”), a wholly-owned subsidiary of MF Global, illegally transferred funds belonging to its customers in order to finance MF Global's other proprietary operations. The customer funds at issue were, under the CEA and the CFTC Regulations, untouchable. MF Global and MFGI were not permitted to use them as liquidity; to the contrary, the law required the MF Global companies to keep those customer funds segregated and secured. But when MF Global faced a liquidity crisis, it steadily reached into the excess amounts stored in those customer accounts. Eventually, as MF Global was on the brink of collapse, MFGI ignored the regulations that prohibited use of segregated funds and transferred those funds to MF Global. The end result was that approximately $1.6 billion of assets that were supposed to be off-limits went missing. Customers who had been assured that their deposits were secured instead learned that those deposits had vanished.

Plaintiffs' account of the events is compelling. Their allegations are not merely based on...

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