409 F.Supp.3d 261
S.D.N.Y.2019Background
- In Feb. 2015 Sonterra (Cayman company claiming New York principal place) filed a putative class action alleging CHF LIBOR manipulation by major banks and later amended complaints added FrontPoint and Hunter funds and additional defendants.
- The Second Amended Complaint (SAC) revealed that Sonterra and many other named plaintiff entities had been wound up/dissolved pre-suit and had executed Asset Purchase Agreements assigning purported rights to Fund Liquidation Holdings, LLC (FLH).
- Defendants moved under Rule 12(b)(1) arguing the dissolved plaintiffs lacked Article III standing and therefore the federal court never acquired subject-matter jurisdiction.
- Plaintiffs argued FLH had effectively sued in the dissolved entities’ names and sought substitution under Rule 17 and cures via amended pleadings adding live plaintiffs (individuals and CalSTRS).
- The Court held Sonterra lacked Article III standing at filing (it did not exist), the suit was a legal nullity ab initio, Rule 17 substitution and Rule 15 amendments cannot create jurisdiction where none existed, and any refiling would be time-barred because tolling (including American Pipe) does not apply here.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Article III standing at commencement | FLH effectively commenced suit in the dissolved entities’ names; assignee has standing | Sonterra and other named plaintiffs had dissolved and assigned away claims before filing, so no plaintiff had an injury-in-fact at filing | No standing; Sonterra did not exist at filing and the suit was a nullity |
| Substitution under Rule 17(a) of FLH as real party in interest | If assignments effective, FLH is the real party and should be substituted to proceed | Rule 17 cannot confer subject-matter jurisdiction where none existed at the outset | Denied as a jurisdictional fix; Rule 17 cannot resurrect a suit that never had Article III jurisdiction |
| Cure by later amendments adding live plaintiffs (Rule 15) | Adding Dennis/Divitto/CalSTRS cures jurisdictional defect | Amending cannot create subject-matter jurisdiction retroactively | Denied; procedural amendments cannot create jurisdiction when none existed at commencement |
| Tolling / timeliness of any new action (American Pipe) | Plaintiffs argue they may rely on tolling from the original filing | Defendants: original suit was a nullity; plaintiffs knew or should have known representatives were dissolved; tolling inapplicable | Tolling does not apply here; a new filing would be time-barred |
Key Cases Cited
- Sonterra Capital Master Fund, Ltd. v. Credit Suisse Grp. AG, 277 F. Supp. 3d 521 (S.D.N.Y. 2017) (prior opinion addressing standing and merits defects and granting leave to replead)
- Cortlandt St. Recovery Corp. v. Hellas Telecomms., S.A.R.L., 790 F.3d 411 (2d Cir. 2015) (assignment to assignee can satisfy standing but Rule 17 cannot create jurisdiction where none existed)
- W.R. Huff Asset Mgmt. Co. v. Deloitte & Touche LLP, 549 F.3d 100 (2d Cir. 2008) (assignment of claims transfers legal title and can fulfill injury-in-fact requirement)
- Lunney v. United States, 319 F.3d 550 (2d Cir. 2003) (Rule 17 cannot be used to confer subject-matter jurisdiction)
- Carter v. HealthPort Techs., LLC, 822 F.3d 47 (2d Cir. 2016) (standing must exist at commencement of litigation)
- Sprint Commc'ns Co. v. APCC Servs., Inc., 554 U.S. 269 (U.S. 2008) (assignees may bring lawsuits as real parties in interest)
- China Agritech, Inc. v. Resh, 138 S. Ct. 1800 (U.S. 2018) (limits on American Pipe tolling following denial of class certification)
- Advanced Magnetics, Inc. v. Bayfront Partners, Inc., 106 F.3d 11 (2d Cir. 1997) (standards for Rule 17(a) substitution)