689 F. App'x 39
2d Cir.2017Background
- Plaintiffs are former BLMIS customers who withdrew more from Madoff’s Ponzi scheme than they invested (“net winners”).
- Plaintiffs filed a Second Amended Complaint against JPMorgan entities and two employees asserting: (1) control-person liability under Section 20(a) of the Exchange Act for BLMIS/Madoff’s alleged Section 10(b)/Rule 10b-5 violations; and (2) a Federal RICO claim, plus state-law theories.
- The District Court dismissed the SAC in full, ruling the Section 20(a) claim failed as time-barred under the Exchange Act’s five-year statute of repose (and not subject to American Pipe tolling under controlling precedent), and for failure to plead control or JPMorgan employees’ knowing/culpable participation.
- The District Court also dismissed the Federal RICO claim as time-barred by the four-year limitations period and, alternatively, barred by the PSLRA’s restriction on using securities-fraud allegations to support civil RICO liability.
- Plaintiffs appealed; the Second Circuit affirmed dismissal, holding Plaintiffs failed to plead the control element of Section 20(a) and rejecting Plaintiffs’ arguments on the RICO claim as meritless.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Timeliness of Section 20(a) claim under Exchange Act repose | Tolling applies via American Pipe because class action paused limitations | Section 20(a) claim is time-barred by the 5-year repose and American Pipe tolling does not apply under controlling precedent | Court did not reach tolling because it affirmed on failure to plead control; District Court had ruled repose/time-bar barred when applicable |
| Control element for Section 20(a) | JPMorgan, as BLMIS’s primary banker, exercised control over BLMIS/Madoff sufficient for 20(a) liability | Plaintiffs fail to plead facts showing JPMorgan exercised the requisite control over BLMIS or the Ponzi scheme | Plaintiffs failed to adequately plead control; Section 20(a) claim dismissed and affirmation of that dismissal dispositive |
| Knowledge / culpable participation | JPMorgan employees were aware of or participated in the Ponzi scheme | No plausible allegations that JPMorgan employees knew of or culpably participated in the fraud | No plausible allegations of knowing or culpable participation; supports dismissal of 20(a) claim |
| Federal RICO claim viability and timeliness | RICO claim is timely and not precluded by PSLRA | RICO claim is barred by the 4-year statute of limitations and, alternatively, by PSLRA restrictions on securities-fraud–based RICO | RICO claim dismissed as time-barred and barred by PSLRA; appellate arguments rejected |
Key Cases Cited
- American Pipe & Construction Co. v. Utah, 414 U.S. 538 (tolling class-action limitations under certain circumstances)
- Police & Fire Ret. Sys. of City of Detroit v. IndyMac MBS, Inc., 721 F.3d 95 (2d Cir. 2013) (holding statutes of repose not tolled by American Pipe under Second Circuit precedent)
- ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) (elements required to plead control-person liability under Section 20(a))