17 F. Supp. 3d 270
S.D.N.Y.2014Background
- MF Global, led by Corzine, made large proprietary investments in European sovereign debt, producing severe liquidity strains in 2011.
- To cover proprietary needs, MF Global transferred funds among subsidiaries and ultimately used segregated and secured customer funds at MFGI in violation of CFTC rules; about $1.6 billion of customer funds disappeared after MF Global's collapse.
- Sapere CTA Fund, L.P. (Sapere), a former MFGI customer, sued multiple individuals (Customer Class Defendants, Independent Directors, Sapere-only defendants) and J.C. Flowers & Co. LLC (JCF) for claims including aiding-and-abetting CEA violations, state torts (negligence, conversion, trespass to chattels, fraud, tortious interference), and sought punitive damages.
- Defendants moved to dismiss under Rule 12(b)(6); the court considered prior related MF Global rulings (notably the Commodities Customer Action) in assessing overlapping claims and pleading standards.
- The court dismissed many claims against Independent Directors, Sapere-only defendants, and JCF, while denying dismissal as to several Customer Class Defendants on negligence, aiding-and-abetting CEA violations, conversion/trespass, tortious interference, and punitive damages. Sapere was granted limited leave to replead on dismissed claims within 21 days upon showing of plausible corrective allegations.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Negligence / duty of care | Sapere alleges Individual Defendants owed and breached duty causing loss of segregated funds. | Independent Directors & Sapere-only: no day-to-day involvement or affirmative participation. | Denied as to Customer Class Defendants; granted as to Independent Directors and Sapere-only defendants. |
| Aiding & abetting violations of the CEA | Defendants knowingly participated in or facilitated misuse of customer funds. | Some defendants lacked knowledge/intent or participation. | Denied as to Customer Class Defendants; granted as to Independent Directors and Sapere-only defendants. |
| Fraud & constructive fraud | Misrepresentations/omissions by defendants and fiduciary relationship justify fraud claims. | Pleading fails Rule 9(b): group-pleading improper; scienter not alleged for each defendant; no fiduciary relationship with non-company actors. | Fraud and constructive fraud dismissed as to Individual Defendants for failure to plead particulars and scienter. |
| Conversion & Trespass to chattels | Customer funds were segregated/identifiable; defendants exercised unauthorized dominion. | Defendants argue funds are fungible and/or lacked participation/control. | Denied as to Customer Class Defendants; granted as to Independent Directors and Sapere-only defendants. |
| Tortious interference with contract | Defendants intentionally procured breaches harming Sapere. | Independent Directors & Sapere-only lacked facts showing intentional interference. | Denied as to Customer Class Defendants; granted as to Independent Directors and Sapere-only defendants. |
| N.Y. Gen. Bus. Law § 349 | Deceptive business practices harmed Sapere and public/consumers. | § 349 inapplicable because securities/commodities investments are not consumer goods and are federally regulated. | Claim under § 349 dismissed. |
| Liability of J.C. Flowers (JCF) — direct and vicarious/agency | JCF exercised control over Corzine or had agency relationship making it liable. | JCF lacked control, manifestations of authority, or premises/chattel connection; compensation alone insufficient. | All claims against JCF dismissed. |
| Punitive damages | Sapere seeks punitive damages for wanton/reckless conduct in misuse of customer funds. | Defendants argue punitive damages improper or require public harm for contract-related claims. | Plaintiff may seek punitive damages against Customer Class Defendants at this stage; claims arise from independent regulatory violations so public-harm requirement inapplicable. |
Key Cases Cited
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading must state a plausible claim)
- Bell Atlantic v. Twombly, 550 U.S. 544 (2007) (complaint must raise right to relief above speculative level)
- In re Amaranth Natural Gas Commodities Litig., 730 F.3d 170 (2d Cir. 2013) (aiding-and-abetting scienter evaluated in light of the whole complaint)
- Nakahata v. New York–Presbyterian Healthcare Sys., Inc., 723 F.3d 192 (2d Cir. 2013) (Rule 9(b) particularity and strong inference of fraudulent intent)
- MF Global II, In re MF Global Holdings Ltd. Inv. Litig., 998 F. Supp. 2d 157 (S.D.N.Y. 2014) (prior related decision relied on for similar claims)
- In re Methyl Tertiary Butyl Ether (MTBE) Prods. Liab. Litig., 725 F.3d 65 (2d Cir. 2013) (standards for punitive damages and evaluating public policy/culpability)