3:13-cv-00373
M.D. La.Jan 14, 2019Background
- Plaintiffs (Firefighters’ Retirement System and MERS) invested in Leveraged/Arbitrage funds and later alleged negligent misrepresentation by Citco defendants concerning fund valuations, liquidity, and undisclosed conflicts/financial benefits.
- On January 20 and 24, 2011, Plaintiffs received an SEC subpoena and restated audited financials showing significant overstatement of net worth, and on June 15, 2011 their redemption requests were met with promissory notes rather than cash.
- Plaintiffs issued a public joint statement on July 11, 2011 expressing concern that the promissory notes raised questions about liquidity and accuracy of financial statements.
- Plaintiffs filed their Petition for Damages on March 1, 2013 asserting negligent misrepresentation claims against Citco Banking and related Citco entities.
- Citco moved for summary judgment arguing the negligent misrepresentation claim is time-barred under Louisiana Civil Code art. 3492 (one-year prescription) because Plaintiffs had notice of the claim before March 1, 2012.
- The district court granted summary judgment for Citco, finding Plaintiffs had constructive/actual notice more than one year before suit based on the SEC subpoena, restated financials, the failed redemptions, and Plaintiffs’ own public statement.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether negligent misrepresentation claim is prescribed | Plaintiffs concede one-year prescription but contend they lacked awareness of factual elements more than one year before filing | Citco: Plaintiffs received multiple "storm warnings" (SEC subpoena, restatements, failed redemptions, public statement) that triggered prescription before March 1, 2012 | Court: Claim prescribed; summary judgment for Citco granted |
| When prescription commenced (constructive knowledge) | Plaintiffs claim they did not know the specific facts (financial benefits/conflicts) within the year before filing | Citco: Prescription begins when facts would prompt reasonable inquiry, not when plaintiff has full detail | Court: Prescription began upon events that should have excited inquiry (Jan–June 2011 events) |
| Sufficiency of Plaintiffs’ opposition to summary judgment | Plaintiffs submitted a brief, conclusory denial of prior knowledge | Citco: Plaintiffs offered no specific evidence raising a factual dispute on notice/prescription | Court: Conclusory statements insufficient; no genuine fact issue identified |
| Causation/merits of negligent misrepresentation (incidental) | Plaintiffs alleged Citco owed duty and breached it causing damages | Citco: Also argued merits fail, but primary basis was prescription | Court: Did not reach merits; dismissed claim as prescribed |
Key Cases Cited
- Devore v. Hobart Mfg. Co., 367 So.2d 836 (La. 1979) (recognizing negligent misrepresentation action)
- Campo v. Correa, 828 So.2d 502 (La. 2002) (defining constructive knowledge that triggers prescription)
- Jensen v. Snellings, 841 F.2d 600 (5th Cir. 1988) (investors must heed "storm warnings")
- Luckett v. Delta Airlines, Inc., 171 F.3d 295 (5th Cir. 1999) (prescription begins when inquiry notice exists)
- Beal v. Lomas and Nettleton Co., 410 So.2d 318 (La. App. 4th Cir. 1982) (elements of negligent misrepresentation)