222 F. Supp. 3d 358
S.D.N.Y.2016Background
- Puerto Rico debt crisis provides backdrop for a putative class action over 23 Puerto Rico–focused closed-end mutual funds (the Funds) managed by UBS and Popular entities from 2008–2014.
- Funds were exempt from the 1940 Act, highly leveraged (~50% debt), and heavily invested in Puerto Rico government bonds.
- Plaintiffs, Puerto Rico residents, invested in 12 Funds and seek to represent a class of all UBS Puerto Rico/Popular Securities clients invested in any of the Funds.
- Defendants include UBS AG group entities and Banco Popular/Popular Securities, plus individual UBS Puerto Rico executives Ubiñas and Ferrer.
- Alleged misconduct centers on fiduciary breaches, conflicts of interest, lack of suitability analyses, and alleged misrepresentations about risk and safety of the Funds.
- Court proceedings addressed motions to dismiss under Rule 12(b)(1) and 12(b)(6), with rulings on standing, SLUSA, PRUSA, and Rule 9(b) sufficiency.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to claim for absent Fund members | Plaintiffs have class standing; same misconduct affects all Funds. | Named plaintiffs lack injury for funds they didn’t invest in. | Named plaintiffs have standing to represent absent members. |
| SLUSA preclusion applicability | SLUSA does not apply as misrepresentations were not in connection with selling covered securities. | Claims precluded if related to covered securities. | SLUSA does not preclude the action. |
| Timeliness under Puerto Rico law (statute of limitations and repose) | Injuries and accrual tied to discovery of injuries; timely. | Claims time-barred for many plaintiffs due to accrual before 2013/2012. | Tort claims time-barred for UBS Defendants and Ferrer; some PRUSA-related claims timely, others barred. |
| Sufficiency of pleadings under Rule 9(b) and contract claims | Fiduciary and implied covenant claims pled with sufficient particularity. | Fiduciary/implied covenant claims lack Rule 9(b) specificity and some contract claims fail. | Fiduciary/implied covenant claims plead with insufficient particularity; some contract claims survive where express suitability provisions exist. |
| PRUSA applicability to remaining claims | Not all claims sound in fraud; PRUSA does not bar non-fraud claims. | PRUSA two-year repose applies to fraud-based claims. | PRUSA applies to certain fraud-based claims; some non-fraud breach claims not barred. |
Key Cases Cited
- NECA-IBEW Health & Welfare Fund v. Goldman Sachs & Co., 693 F.3d 145 (2d Cir. 2012) (class standing requires personal injury and same set of concerns as absent class members)
- Retirement Board of the Policemen’s Annuity & Benefit Fund v. Bank of New York Mellon, 775 F.3d 154 (2d Cir. 2014) (class standing vs. Rule 23 adequacy; distinctions for loan-by-loan claims)
- S. Ct. v. Chadbourne & Parke LLP v. Troice, 134 S. Ct. 1058 (U.S. 2014) (SLUSA focus on ‘in connection with’ covered securities; feeder fund logic)
- In re Herald, Herald II, 753 F.3d 110 (2d Cir. 2014) (extension of SLUSA to feeder funds and purchase intent)
- In re Kingate Mgmt. Ltd. Litig., 784 F.3d 128 (2d Cir. 2015) (feeder fund theory; misrepresentations tied to covered securities)
- Staehr v. Hartford Fin. Servs. Grp., Inc., 547 F.3d 406 (2d Cir. 2008) (inquiry notice and publicizing lawsuits can trigger accrual)
- Shah v. Meeker, 435 F.3d 244 (2d Cir. 2006) (inquiry notice and public information duties in fraud context)
- Rombach v. Chang, 355 F.3d 164 (2d Cir. 2004) (Rule 9(b) particularity and averment of fraud against multiple defendants)