In re Optimal U.S. Litigation
837 F. Supp. 2d 244
S.D.N.Y.2011Background
- Putative class action arising from investments in Optimal U.S. Equity Fund, which wholly invested with Bernard L. Madoff and BMIS.
- Plaintiffs allege inadequate due diligence, ignored red flags, and misstatements/omissions relating to sale of shares to cause losses and improper management fees.
- Court granted in part motion to dismiss SAC on May 2, 2011 for forum, standing, and state-law claims; Santander Plaintiffs dismissed; several common-law claims dismissed as derivative.
- On Aug. 26, 2011, reconsideration reinstated Santander claims against OIS, Clark, and Banco Santander (but not against Santander U.S.); Wagoner standing issue addressed
- On Oct. 13, 2011, federal securities claims against OIS, Clark, and Banco Santander narrowed under Janus Capital; outstanding claims remained under the Fourth Amended Complaint.
- This opinion addresses motions to dismiss for forum non conveniens, fraud against Banco Santander, and Pioneer claims; motion granted in part and denied in part.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Forum non conveniens dismissal | Plaintiffs contend forum deference favors New York; Switzerland/Ireland inadequate or less convenient. | Defendants argue foreign forum is adequate and more convenient; private/public factors favor dismissal. | Motion denied; forum non conveniens dismissal not warranted. |
| Common-law fraud against Banco Santander | Group pleading doctrine applies; Santander participated in fraud via control of OIS and EMs. | Santander cannot be liable for Clark's statements; need for direct involvement or substantial aiding. | Fraud claims against Banco Santander sustain under group pleading; scienter adequately pled through Courvoisier memoranda. |
| Pioneer’s fraud and negligent misrepresentation claims | Pioneer seeks recovery for lost business/fees caused by fraud. | Out-of-pocket rule bars recovery for profits not actually lost by Pioneer; no compensable injury. | Counts XVI-XVII dismissed; no standing for those damages; Counts I-IV remain as asserted. |
| Pioneer’s gross negligence claim | Gross negligence is derivative but relates to Fund management; standing questions unresolved. | Derivative claim belongs to Fund; Pioneer lacks standing. | Count XVIII dismissed as derivative. |
Key Cases Cited
- Gulf Oil Corp. v. Gilbert, 330 U.S. 501 (1947) (three-step Iragorri framework for forum non conveniens)
- Iragorri v. United Technologies Corp., 274 F.3d 65 (2d Cir. 2001) (deference to forum choice; balancing private/public interests)
- Janus Capital Group v. First Derivative Traders, 131 S. Ct. 2296 (2011) (limits on implied rights of action; impact on group pleading vitality)
- DiRienzo v. Philip Servs. Corp., 294 F.3d 21 (2d Cir. 2002) (group pleading; corporate insider/affiliates engaging in offers)
- Kulas v. Adachi, No. 96 Civ. 6674, 1997 WL 256957 (S.D.N.Y. 1997) (no recovery for lost customers or injury to business reputation)
- Cole v. Kobs & Draft Advertising, Inc., 921 F. Supp. 2d 220 (S.D.N.Y. 1996) (reputational damages and career path in fraudulent inducement context)