Anwar v. Fairfield Greenwich Ltd.
118 F. Supp. 3d 591
S.D.N.Y.2015Background
- Two consolidated sets of suits arising from investor losses in four Fairfield-Greenwich feeder funds that funneled money to Bernard Madoff’s Ponzi scheme: the Anwar action (certified class) and the Standard Chartered action (multiple consolidated individual cases/MDL).
- Plaintiffs asserted state-law claims (negligence, negligent misrepresentation, breach of fiduciary duty, fraud, gross negligence) against PwC (auditors), Citco (administrators/custodians), and Standard Chartered (advisors/recommenders).
- Defendants moved to dismiss remaining state-law claims under SLUSA, which precludes covered state-law class actions alleging misrepresentation "in connection with" purchases or sales of covered securities.
- Court revisited prior rulings in light of intervening Supreme Court and Second Circuit authority (notably Chadbourne, Herald I/II, and Kingate) and treated SLUSA as a jurisdictional inquiry (Rule 12(b)(1)).
- Rulings summarized: negligence claims vs. PwC survive SLUSA; negligent misrepresentation vs. PwC precluded. In the Standard Chartered matters, fiduciary-duty, negligence, and gross-negligence (due-diligence) claims survive; fraud and negligent-misrepresentation ("Madoff" claims) are precluded. A pro se motion to drop plaintiffs to evade SLUSA was denied without prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does SLUSA preclude state-law claims based on feeder-fund investments as "in connection with" covered securities? | Plaintiffs argued feeder-fund investors’ claims are attenuated from covered securities and thus not SLUSA-precluded. | Defendants argued plaintiffs invested expecting funds to buy covered securities, so claims are "in connection with" covered securities. | Held: Under Kingate/Herald, feeder-fund investments are sufficiently "in connection with" covered securities; SLUSA can apply. |
| Is SLUSA analysis one of subject-matter jurisdiction (12(b)(1)) or failure to state a claim (12(b)(6)/12(c))? | Plaintiffs preferred merits dismissal (12(c)/(b)(6)); argued SLUSA is procedural. | Defendants urged dismissal under jurisdictional standard; Kingate suggested jurisdictional framing. | Held: Court treats SLUSA as a jurisdictional inquiry (12(b)(1)), consistent with Kingate dictum and Dabit/Kircher principles. |
| Are negligence claims against PwC precluded by SLUSA? | Anwar: negligence is negligence (failure to follow GAAS) and does not necessarily require false statements tied to covered securities. | PwC: duty and Credit Alliance reliance link make negligence effectively a misrepresentation claim precluded by SLUSA. | Held: Negligence claims survive SLUSA (not predicated on false conduct required by SLUSA). |
| Are negligent-misrepresentation and fraud claims precluded for PwC and Standard Chartered? | Plaintiffs: some misrep claims concern auditors’/advisors’ own conduct independent of Madoff; others framed as duty-based. | Defendants: such claims rest on misrepresentations/omissions about funds’ investments (i.e., Madoff funnel) and thus fall squarely within SLUSA. | Held: Negligent-misrepresentation and fraud claims that rely on false statements/omissions re: funds’ investments with Madoff are precluded by SLUSA; fee/conflict allegations framed as implying complicity also precluded. |
| Do the multiple Standard Chartered cases constitute a SLUSA "group of lawsuits" (covered class action)? | Plaintiffs: grouping requires purposeful collusion; MDL consolidation/involuntary joinder shouldn't count. | Defendants: SLUSA covers any group of lawsuits proceeding as a single action for any purpose (MDL consolidation, common counsel, joint filings). | Held: The MDL cases form a "group of lawsuits" under SLUSA; over 50 plaintiffs are involved so the group is a covered class action. |
| May plaintiffs drop certain plaintiffs to reduce the number below 51 to evade SLUSA? | Curran movants sought dismissal/drop under Rules 21/41 to reduce plaintiff count and ease discovery. | Defendants argued the timing and sequence shows tactical attempt to evade SLUSA; oppose dismissal now. | Held: Denied without prejudice; court will not permit dismissals plausibly aimed at evading SLUSA, and even if granted SLUSA threshold would still be met. |
Key Cases Cited
- Dabit v. Merrill Lynch, 547 U.S. 71 (2006) (SLUSA limits state-law class actions that are basically federal securities claims)
- Chadbourne & Parke LLP v. Troice, 134 S. Ct. 1058 (2014) (clarifies "in connection with" requires materiality to purchase/sale of covered security)
- In re Herald, 730 F.3d 112 (2d Cir. 2013) (Herald I) (applies SLUSA to claims connected to Madoff feeder funds)
- In re Herald, 753 F.3d 110 (2d Cir. 2014) (Herald II) (post-Chadbourne affirmation distinguishing feeder-fund investor claims)
- In re Kingate Management Ltd. Litigation, 784 F.3d 128 (2d Cir. 2015) (directs claim-by-claim SLUSA analysis; distinguishes negligence claims from misrepresentation claims)
- Kircher v. Putnam Funds Trust, 547 U.S. 633 (2006) (removal under SLUSA confines jurisdiction to SLUSA preclusion question)
- Romano v. Kazacos, 609 F.3d 512 (2d Cir. 2010) (considers SLUSA removal and jurisdictional aspects)