342 F. Supp. 3d 404
S.D. Ill.2018Background
- Plaintiffs (one individual and four funds) sued banks and broker-dealers alleging manipulation of the Bank Bill Swap Reference Rate (BBSW); amended complaint filed Dec. 19, 2016.
- Four named plaintiff funds (Sonterra and three FrontPoint entities) were dissolved before this suit was filed; plaintiffs say Fund Liquidation Holdings, LLC (FLH) acquired their claims via asset purchase agreements (APAs).
- Defendants moved to dismiss under Rules 12(b)(1) and 12(b)(6), arguing the dissolved entities lack standing and capacity to sue because they assigned claims to FLH and ceased to exist.
- Plaintiffs contend (1) FLH validly received assignments and powers of attorney, so it is the real party in interest and may sue in the assignors’ names, and (2) alternatively, FLH should be substituted under Rule 17(a)(3).
- The Court concluded the dissolved entities lack capacity under governing formation law (Cayman Islands law for Sonterra and two FrontPoint funds; Delaware law for one FrontPoint fund) and that FLH, if it holds the claims, is the real party in interest and should have sued in its own name.
- The Court dismissed the claims brought by the four dissolved entities (all defendants except JPMorgan entities stayed on request); one named plaintiff (Dennis) remains in the case.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether assignor-plaintiffs retained standing after assigning all claims to FLH | Assignments & APAs made FLH the assignee; assignors effectively transferred rights so FLH can enforce them | Complete assignment extinguishes assignors’ interest, leaving them without standing | Assignors lack standing if they assigned all rights; Court assumed standing issue but resolved on capacity grounds |
| Whether dissolved entities have capacity to sue under Rule 17(b) | No direct response contesting capacity; plaintiffs rely on FLH’s role and APAs | Dissolution under Cayman/Delaware law ends legal personality; dissolved entities lack capacity to sue | Court applied relevant formation law and held dissolved entities lack capacity to sue |
| Whether FLH could properly sue in the assignors’ names via power of attorney in APAs | APAs granted irrevocable, interest-coupled powers of attorney permitting FLH to act in sellers’ names even after dissolution | Power of attorney alone does not confer ownership or standing; if power is coupled with an interest, the holder becomes real party in interest and must sue in its own name | Power coupled with an interest makes holder the real party in interest; FLH should have sued in its own name, so suing in assignors’ names was improper |
| Whether Rule 17(a)(3) substitution should be allowed to replace dissolved plaintiffs with FLH | Substitution should be permitted (plaintiffs requested it in opposition brief); amendment would be formal (caption change + assignment recitation) | Substitution is improper where underlying standing/capacity defects would require altering factual allegations (and may be futile) | Rule 17(a)(3) does not permit substitution here because curing standing would alter the complaint’s factual allegations; substitution denied and claims dismissed as to dissolved entities |
Key Cases Cited
- Valdin Invs. Corp. v. Oxbridge Cap. Mgmt., LLC, [citation="651 F. App'x 5"] (2d Cir. 2016) (assignor who assigned its claims lacks standing to sue)
- Cortlandt St. Recovery Corp. v. Hellas Telecomms., S.à.r.l., 790 F.3d 411 (2d Cir. 2015) (limits on using Rule 17(a)(3) to cure standing defects where new assignment would alter complaint)
- Klein ex rel. Qlik Techs., Inc. v. Qlik Techs., Inc., 906 F.3d 215 (2d Cir. 2018) (Rule 17(a)(3) substitution permitted in some contexts; distinguishes mootness from standing)
- W.R. Huff Asset Mgmt. Co., LLC v. Deloitte & Touche LLP, 549 F.3d 100 (2d Cir. 2008) (power of attorney is not equivalent to assignment; grantee lacks standing absent proprietary interest)
- Advanced Magnetics, Inc. v. Bayfront Partners Inc., 106 F.3d 11 (2d Cir. 1997) (power of attorney does not, by itself, confer standing; real party in interest requires title or proprietary interest)
- Hunt v. Rousmanier's Administrators, 21 U.S. (8 Wheat.) 174 (U.S. 1823) (power of attorney generally terminates with grantor unless coupled with an interest)