In re Optimal U.S. Litig.

Decision Date26 August 2011
Docket NumberNo. 10 Civ. 4095(SAS).,10 Civ. 4095(SAS).
Citation813 F.Supp.2d 383
PartiesIn re OPTIMAL U.S. LITIGATION.
CourtU.S. District Court — Southern District of New York

OPINION TEXT STARTS HERE

Edward W. Miller, Esq., New York, NY, Alan Ian Ellman, Esq., Javier Bleichmar, Esq., Joel H. Bernstein, Esq., Labaton Sucharow, LLP, New York, NY, for Plaintiffs.

Gustavo J. Membiela, Esq., Samuel A. Danon, Esq., Hunton & Williams, Miami, FL, Paulo Roberto Lima, Esq., Shawn Patrick Regan, Esq., Hunton & Williams, LLP, New York, NY, for Defendants.

OPINION AND ORDER

SHIRA A. SCHEINDLIN, District Judge.I. INTRODUCTION

This putative class action arises out of Plaintiffs' investment in the Optimal Strategic U.S. Equity fund (“Optimal U.S.” or the “Fund”), which in turn invested one-hundred percent of its assets with Bernard L. Madoff (“Madoff”) and his firm, Bernard L. Madoff Investment Securities LLC (“BMIS”). Plaintiffs allege that Defendants failed to conduct adequate diligence regarding Madoff, ignored “red flags” that should have alerted them to Madoff's fraud, and made misstatements and omissions in connection with the sale of Optimal U.S. shares, causing Plaintiffs to lose their investments and allowing Defendants wrongfully to collect management fees.1

On May 2, 2011, I granted in part Defendants' motion to dismiss Plaintiffs' Second Amended Complaint (“SAC”) for improper forum, lack of standing, and failure to state certain claims.2 First, and of relevance to this Opinion, I dismissed the Santander Plaintiffs from this action on the grounds that a forum selection clause contained in the Terms and Conditions governing their accounts with SBT (“SBT Terms & Conditions”) required them to litigate all of their claims, against all Defendants, in the Bahamas. Second, I dismissed the common law claims for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, gross negligence, third party breach of contract, and unjust enrichment brought by the Pioneer Plaintiffs and Santander Plaintiffs against OIS, Clark, and Banco Santander (Counts V–VII and IX–X) because any harm arising from such conduct was sustained by Optimal U.S., the only entity that could bring suit directly. However, I deferred ruling on whether the “Wagoner Rule” nevertheless imbues Plaintiffs with standing, 3 invited additional briefing on the issue, and indicated that I would accept renewed motions to dismiss those claims in the event they were sustained.4

This Opinion addresses (1) Plaintiffs' motion for reconsideration of my holding that the Santander Plaintiffs' claims are subject to the forum selection clause contained in the SBT Terms & Conditions and (2) the parties' supplemental briefing on the Wagoner Rule. For the following reasons, Plaintiffs' motion for reconsideration is granted in part and denied in part. I also now hold that the Wagoner Rule does not imbue Plaintiffs with standing to bring Counts V–VII and IX–X, thereby again dismissing those Counts.

II. DISCUSSIONA. Motion for Reconsideration

The Santander Plaintiffs move for reconsideration of my holding that Defendants —who are non-signatories to the Santander Plaintiffs' Account Agreements with SBT—“are sufficiently ‘closely related’ to SBT such that enforcement of the forum selection clause [contained in the SBT Terms & Conditions] by those entities was foreseeable to the Santander Plaintiffs.” 5 Although I deny the Santander Plaintiffs' motion as to Santander U.S., who may invoke the forum selection clause as to the Santander Plaintiffs' claims, I grant the Santander Plaintiffs' motion with respect to OIS, Clark, and Banco Santander.

1. Legal Standard

Motions for reconsideration are governed by Local Rule 6.3 and are committed to the sound discretion of the district court.6 A motion for reconsideration is appropriate where ‘the moving party can point to controlling decisions or data that the court overlooked—matters, in other words, that might reasonably be expected to alter the conclusion reached by the court.’ 7 A motion for reconsideration may also be granted to ‘correct a clear error or prevent manifest injustice.’ 8

The purpose of Local Rule 6.3 is to ‘ensure the finality of decisions and to prevent the practice of a losing party examining a decision and then plugging the gaps of a lost motion with additional matters.’ 9 Local Rule 6.3 must be “narrowly construed and strictly applied so as to avoid repetitive arguments on issues that have been considered fully by the Court.” 10 Courts have repeatedly been forced to warn counsel that such motions should not be made reflexively to reargue ‘those issues already considered when a party does not like the way the original motion was resolved.’ 11 A motion for reconsideration is not an “opportunity for making new arguments that could have been previously advanced,” 12 nor is it a substitute for appeal.13

2. Applicable Law

It is well established that a range of transaction participants, parties and non-parties, should benefit from and be subject to forum selection clauses. In order to bind a non-party to a forum selection clause, the party must be closely related to the dispute such that it becomes foreseeable that it will be bound. A non-party is closely related to a dispute if its interests are completely derivative of and directly related to, if not predicated upon the signatory party's interests or conduct.14

3. OIS, Clark, and Banco Santander Cannot Invoke the Forum Selection Clause

The Santander Plaintiffs move for reconsideration of my holding that Defendants are “closely related” to SBT such that they may enforce the forum selection clause contained in the SBT Terms & Conditions,15 on the grounds that I relied on an incomplete version of the Account Agreement. 16 They argue that my reliance on section 21L of the Account Agreement was in error, and that section 34—which was not before this Court on Defendants' original motion—makes clear that “the Account Agreement explicitly excluded the Santander Plaintiffs' claims against Defendants.” 17

Section 21L provides that SBT “may engage other agents or subagents (that may be [SBT's] affiliates) to provide investment advisory, brokerage, and other services to [SBT] for the Advisory Accounts.” 18 In the May 2 Opinion, I reasoned that

the Santander Plaintiffs' claims against Santander U.S., Banco Santander, and OIS—all SBT affiliates—are based on those Defendants' provision, albeit indirectly, of such “investment advisory ... services to SBT.” Thus, section 21L indicates that “the signatories [to the SBT account agreements incorporating the SBT Terms & Conditions] intended the contract to benefit related [Santander] companies” and “gave [the Santander Plaintiffs] reason to know that one of the reasons motivating [SBT] to enter the contract was a desire to confer a pecuniary benefit on related [Santander] companies.” 19

“But here,” the Santander Plaintiffs argue,

SBT did not engage Defendants Banco Santander, OIS, nor Clark. Optimal U.S. engaged OIS to provide investment advisory services to Optimal U.S. Not even Plaintiffs engaged OIS and certainly not SBT. OIS also did not provide any services to SBT. OIS provided investment advisory services to Optimal U.S., from which Plaintiffs, at best, were supposed to benefit indirectly. Accordingly, neither Banco Santander, OIS, nor Clark are subject to section 21L.20

Instead, the Santander Plaintiffs contend, section 34 describes “exactly what happened here”: 21

[§ 34] ... [Y]ou understand and agree that [SBT] and its ... employees, agents, and affiliates have no liability or responsibility for the failure or inability of an issuer [such as Optimal U.S.] to repay or perform .... If an issuer of any Property purchased by [SBT] for you defaults either totally or partially in the payment or performance of its obligation, or is prevented for any reason from transferring funds owed, [SBT's] only obligation will be to assign to you the claim against the issuer that [SBT] holds on your behalf .... 22

The Santander Plaintiffs argue that, because “the Account Agreement is clear that SBT had no obligation whatsoever other than to assign [any] claim [against an issuer] ..., even assuming that Defendants here were ‘closely related’ to SBT the Account Agreement does not contemplate the Santander Plaintiffs' claims” which are “wholly outside the purview of this agreement, negating the application of any of its clauses, much less the forum selection clause ....” 23

However, just because the Account Agreement does not delineate the scope of liability of SBT's affiliates for the failure of an issuer to repay or perform does not mean the Agreement does not “contemplate” such claims against those affiliates. To the contrary, section 34 expressly contemplates such claims, but disclaims any liability by SBT's affiliates for them.

The Santander Plaintiffs' better argument is that, even if the Account Agreement purports to insulate SBT's affiliates from such claims, according to section 78 of the Agreement, such claims must still “aris[e] out of or relat[e] to the Account or [the] Account Agreement” in order to be governed by the forum selection clause.24 While the language of this clause is broad—and would apply to almost any claim against SBT and its affiliates that derives in any way from their interaction with the Santander Plaintiffs in the Santander Plaintiffs' capacity as private banking clients 25—none of the actions or omissions for which the Santander Plaintiffs are suing OIS, Clark, and Banco Santander are predicated or depend upon their private banking relationships with SBT and its affiliates. As the Santander Plaintiffs rightly note, SBT did not engage these defendants to provide investment advisory services to the Santander Plaintiffs; Optimal U.S. did. My holding to the contrary in the May 2 Opinion—which was based solely upon my analysis of section 21L—was clear error.

The Santander Plaintiffs, like all other Plaintiffs in this action, are suing OIS, Clark, and...

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