SPV Osus Ltd. v. UBS AG

Citation114 F.Supp.3d 161
Decision Date20 July 2015
Docket Number14–cv–9744 (JSR).,Nos. 15–cv–619 (JSR),s. 15–cv–619 (JSR)
Parties SPV OSUS LTD., Plaintiff, v. UBS AG, UBS (Luxembourg) S.A., UBS Fund Services (Luxembourg) S.A., UBS Third Party Management Company S.A., AIA LLC, Access International Advisors Europe Limited, Access International Advisors Ltd., Access Partners (Suisse) S.A., Access Management Luxembourg S.A.; Access Partners S.A. (Luxembourg), Patrick Littaye, Claudine Magon De La Villehuchet a/k/a Claudine De La Villehuchet, Executrix, Claudine Magon De La Villehuchet a/k/a Claudine De La Villehuchet, Individually, Pierre Delandmeter, and Theodore Dumbauld, Defendants. Stephen Hill, Leyla Hill, and Paul Shapiro, Plaintiffs, v. UBS AG, UBS (Luxembourg) S.A., UBS Fund Services (Luxembourg) S.A., and UBS Third Party Management Company S.A., Defendants.
CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York

Collin Joe Cox, James E. Zucker, R. Paul Yetter, Yetter Coleman LLP, Houston, TX, Matthew Charles Heerde, New York, NY, for Plaintiff.

Gabriel Herrmann, Marshall Ross King, Zern–Shun Chen, Gibson, Dunn & Crutcher, LLP, New York, NY, for Defendant.


JED S. RAKOFF, District Judge.

Plaintiffs in these two actions allege that they were customers of the notorious Bernard L. Madoff Investment Securities ("BLMIS"). On December 10, 2014, plaintiffs Stephen Hill, Leyla Hill, and Paul Shapiro filed a putative class action (the "Hill Action") asserting on behalf of themselves and other BLMIS customers various state law claims against defendants UBS AG, UBS (Luxembourg) S.A. ("UBS SA"), UBS Fund Services (Luxembourg) S.A. ("UBS FSL"), and UBS Third Party Management Company, S.A. ("UBS TPM").1 See Class Action Complaint dated December 10, 2014, No. 14–cv–9744, ECF No. 1 ("Hill Compl.") ¶¶ 102–70. They allege, broadly speaking, that the UBS Defendants acted as accomplices to BLMIS and its eponymous founder by sponsoring international "feeder funds"—in particular, Luxalpha SICAV ("Luxalpha") and Groupement Financier Ltd. ("Groupement Financier")2 —that funneled billions of dollars' worth of new investments into BLMIS's Ponzi scheme. Id. ¶ ¶ 2–4.

On December 11, 2014, plaintiff SPV OSUS Ltd. ("SPV"), a Bahamian corporation that claims to be the assignee of BLMIS investor Optimal Strategic U.S. Equity Ltd., filed a complaint in New York Supreme Court in Manhattan asserting substantially similar factual and legal claims against the UBS Defendants (the "SPV Action"). See Complaint dated December 11, 2014, No. 15–cv–619, ECF No. 1, Ex. A ("SPV Compl."). In addition, SPV named as co-defendants Access International Advisors Ltd. and affiliated entities that they allege played various roles with respect to the Feeder Funds, such as portfolio advisor, administrative agent, and investment manager, as well as various individuals whom they allege served, inter alia, as the Feeder Funds' partners, directors, and officers.3 Id. ¶¶ 20–30. On February 1, 2015, the UBS Defendants removed the SPV Action to this Court, which accepted it as related to the Hill Action. See SPV Action, No. 15–cv–619, ECF No. 1. By Order dated March 27, 2015, the Court denied SPV's motion to remand to state court. See ECF Nos. 41–42. Currently pending before the Court is the UBS Defendants' motion to dismiss both actions.4

The pertinent allegations of the two complaints are substantially similar, and may be summarized as follows. Plaintiffs allege that Madoff pretended to invest his customers' funds in a basket of common stocks within the S & P 100 Index pursuant to his so-called "split strike conversion" strategy, and to hedge his stock purchases with S & P 100 Index option contracts. Hill Compl. ¶ 22; SPV Compl. ¶¶ 33–34. BLMIS further issued fabricated statements showing that securities were held in or had been traded through customer accounts. Hill Compl. ¶ 23; SPV Compl. ¶¶ 35–37. In reality, BLMIS never purchased a single security and instead used the principal from later customers to pay earlier customers. Hill Compl. ¶¶ 25–26; SPV Compl. ¶¶ 39–42. Madoff was arrested on December 11, 2008 and subsequently pled guilty to an eleven-count criminal information. Hill Compl. ¶ 27; SPV Compl. ¶¶ 45–46.

Plaintiffs further allege that the UBS Defendants, through their due diligence efforts, discovered numerous indicia of Madoff's fraud, and consequently declined to assume any material exposure to BLMIS or to recommend BLMIS-related funds to their private clients. Hill Compl. ¶¶ 30–52; SPV Compl. ¶¶ 75–99, 181–223. Nonetheless, plaintiffs allege, the UBS Defendants enthusiastically helped to create, promote, and manage the Feeder Funds in exchange for over $80 million in fees. Hill Compl. ¶ 4; SPV Compl. ¶¶ 1–3.

Specifically, plaintiffs allege that the UBS Defendants undertook the following roles vis-à-vis the Feeder Funds:

UBS AG. Plaintiffs allege that UBS AG served as "promoter" of Luxalpha, which touted UBS AG's role in its prospectuses, leading the public to believe that one of the world's largest financial institutions stood behind the fund. Hill Compl. 53; SPV Compl. ¶¶ 102–03. Furthermore, UBS AG's role as promoter allowed Luxalpha to receive regulatory approval in Luxembourg. Hill ¶ 54.

UBS SA. Plaintiffs allege that UBS SA also helped Luxalpha to obtain regulatory approval in Luxembourg by serving as its outward sponsor.Hill Compl. ¶ 57; SPV Compl. ¶ 105. UBS SA also served as the fund's custodian, distributor, and portfolio manager, functions which it allegedly delegated entirely to BLMIS, while continuing to collect fees. Hill Compl. ¶ 58; SPV Compl. ¶¶ 17, 106–07. Plaintiffs allege that Luxalpha's funds were held in a BLMIS account in the name of UBS SA, and that the account opening papers and agreements were completed and executed by UBS SA employees and delivered to BLMIS in New York. Id. All redemption requests from UBS SA were processed through UBS AG's Stamford branch. Id.

UBS SA also allegedly served as Prime Bank for Groupement Financier and custodian of a related fund. Hill Compl. ¶ 61; SPV Compl. ¶¶ 17, 109. In that role, it received the fund's subscription monies and transferred them to the Bank of Bermuda, BLMIS's beneficiary bank, through HSBC Bank USA in New York as a correspondent bank. Hill Compl. ¶ 61. UBS SA was also responsible for mirror book-keeping of all transactions reported by Groupement Financier so that UBS FSL could calculate that fund's net asset value ("NAV"). SPV Compl. ¶ 110.

UBS FSL. Plaintiffs allege that UBS FSL served as administrator for both Luxalpha and Groupement Financier, a role which required it to handle accounting, calculation of the funds' NAV, and preparation of financial statements. Hill Compl. ¶ 63; SPV Compl. ¶¶ 18, 111. UBS FSL allegedly calculated the funds' NAV based on information provided by BLMIS, without any independent verification. Id.

UBS TPM. Plaintiffs allege that UBS TPM served as manager of Luxalpha from August 2006 to November 2008, in which capacity it was responsible for management and administration of the fund and monitoring of investment policies. Hill Compl. ¶ 64; SPV Compl. ¶¶ 19, 112. In reality, plaintiffs allege, it delegated all these functions to BLMIS. Id.

Plaintiffs allege that the above-described conduct of the UBS Defendants provided the Feeder Funds with a public "façade of legitimacy," which in turn "enabled and perpetuated the Madoff fraud." Hill Compl. ¶¶ 55, 66; SPV Compl. ¶¶ 103, 114. Moreover, plaintiffs allege, the failure of the UBS Defendants to exercise meaningful oversight of Luxalpha and Groupement Financier's operations enabled Madoff's fraud to go undetected. Hill Compl. ¶ 92; SPV Compl. ¶ 144.

On the basis of these allegations, the plaintiffs in both actions assert state law claims for aiding and abetting fraud, aiding and abetting breach of fiduciary duty, aiding and abetting conversion, and knowing participation in a breach of trust. The Hill Plaintiffs additionally assert claims for unjust enrichment and aiding and abetting embezzlement.

The UBS Defendants have moved to dismiss on four grounds: that plaintiffs' claims are precluded by the Securities Litigation Uniform Standards Act ("SLUSA"), 15 U.S.C. § 78bb(f)(1) ; that the Court lacks personal jurisdiction over the UBS Defendants; that plaintiffs fail to state a claim upon which relief may be granted; and that plaintiffs' claims are barred by the applicable statutes of limitations.

The Court first considers the UBS Defendants' challenge to personal jurisdiction.5 On a pre-discovery motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(2), the plaintiff bears the burden to make a prima facie showing that the Court has personal jurisdiction over a defendant. King Cnty., Wash. v. IKB Deutsche Industriebank, AG, 769 F.Supp.2d 309, 313 (S.D.N.Y.2011). Although ambiguities in the pleadings should be resolved in the plaintiff's favor, "conclusory non-fact-specific jurisdictional allegations or a legal conclusion couched as a factual allegation will not establish a prima facie showing of jurisdiction." Tamam v. Fransabank Sal, 677 F.Supp.2d 720, 725 (S.D.N.Y.2010) (citation and internal quotation marks omitted). Moreover, "resolving all doubts in the plaintiff's favor is not the same as blindly crediting all allegations regardless of their factual support." Melnick v. Adelson–Melnick, 346 F.Supp.2d 499, 502 n. 17 (S.D.N.Y.2004). However, in reviewing a Rule 12(b)(2) motion, "a court may consider documents beyond the pleadings in determining whether personal jurisdiction exists." Greatship (India) Ltd. v. Marine Logistics Solutions (Marsol) LLC, No. 11–cv–420, 2012 WL 204102, at *2 (S.D.N.Y. Jan. 24, 2012).

"Since International Shoe Co. v. Washington, the touchstone due process principle has been that, before a court may exercise jurisdiction over a person or an organization ... that person or entity must have sufficient ‘minimum contacts' with the forum ‘such that the maintenance of the suit does not offend "traditional notions of fair play and...

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