Dusek v. JPMorgan Chase & Co.
132 F. Supp. 3d 1330
M.D. Fla.2015Background
- Plaintiffs are 38 former BLMIS investors (all “net winners”) who sued JPMC and two executives to recover the fictitious securities balances shown on November 30, 2008 account statements after Madoff’s arrest. The Second Amended Complaint asserted ten claims, including §20(a) control-person and RICO claims.
- JPMC maintained long‑running banking and structured‑product relationships with BLMIS, handled the central 703 concentration account (received ~ $150 billion deposits), and issued/hedged notes tied to Madoff feeder funds; JPMC later redeemed most feeder‑fund positions and filed a UK SAR in October 2008.
- JPMC entered a January 6, 2014 global resolution (including a Deferred Prosecution Agreement admitting facts, a $1.7B forfeiture, and settlements with the SIPC Trustee and class plaintiffs) that left net winners (like these plaintiffs) excluded from the class settlement.
- Plaintiffs allege JPMC violated securities laws by controlling Madoff/BLMIS (§20(a)) and violated RICO by participating in the racketeering enterprise; they rely largely on the DPA/Statement of Facts and internal JPMC documents (e.g., Palmer memo, October 16, 2008).
- The district court dismissed federal claims: Count One (§20(a)) with prejudice (untimely under the 5‑year statute of repose, failure to allege control, and lack of actual damages for net winners) and Count Nine (RICO) with prejudice (barred by PSLRA §107). State claims were dismissed without prejudice for lack of supplemental jurisdiction.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Timeliness of §20(a) claim (statute of repose under 28 U.S.C. §1658(b)) | American Pipe tolling of class actions suspended the 5‑year repose and plaintiffs’ claim (filed Mar 28, 2014) is timely because class proceedings were pending | The five‑year statute of repose is not tolled by American Pipe; repose is absolute and expired Dec 11, 2013 | Court: American Pipe (equitable tolling) does not apply to statute of repose; §20(a) claim untimely and dismissed with prejudice |
| Control‑person liability under §20(a) | JPMC’s banking relationship, ability to terminate accounts, obligations under BSA, and transactional involvement meant JPMC controlled BLMIS | JPMC lacked power to direct BLMIS operations; allegations show Madoff blocked due diligence and JPMC’s conduct was ordinary banking/market risk management | Court: allegations insufficient to show power to control general affairs or specific policy; §20(a) not plausibly alleged |
| Actual damages for securities‑fraud predicate (standing to recover fictitious profits) | Plaintiffs seek value of securities shown on fictitious statements | Plaintiffs are net winners (with withdrawals exceeding investments); under out‑of‑pocket rule they suffered no pecuniary loss; benefit‑of‑the‑bargain not available because no enforceable contract or real securities existed | Court: net winners suffered no actual damages; cannot recover fictitious profits; securities‑fraud predicate fails, dooms §20(a) claim |
| RICO claim (18 U.S.C. §1962(c)) | JPMC knowingly participated in Madoff racketeering enterprise; predicate acts include mail/wire fraud | PSLRA §107 bars using conduct actionable as securities fraud to support RICO; plaintiff cannot evade bar by framing predicate acts as mail/wire fraud | Court: RICO claim barred by PSLRA §107 because the conduct alleged is securities‑fraud related; Count Nine dismissed with prejudice |
Key Cases Cited
- American Pipe & Constr. Co. v. Utah, 414 U.S. 538 (1974) (class‑action tolling principle for statutes of limitations under Rule 23)
- CTS Corp. v. Waldburger, 134 S. Ct. 2175 (2014) (distinguishes statutes of limitations from statutes of repose; repose not subject to equitable tolling)
- Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350 (1991) (statutes of repose in securities context; equitable tolling inconsistent with repose)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (pleading must state plausible claim beyond labels and conclusions)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (legal conclusions unsupported by facts are not entitled to assume truth)
- MLSMK Inv. Co. v. JP Morgan Chase & Co., 651 F.3d 268 (2d Cir. 2011) (PSLRA §107 bars RICO claims premised on conduct that is securities fraud)