SONTERRA CAPITAL MASTER FUND LTD., et al., Plaintiffs, v. CREDIT SUISSE GROUP AG, et al., Defendants.
15-
UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK
September 16, 2019
SIDNEY H. STEIN, U.S. District Judge.
USDCSDNY DOCUMENT ELECTRONICALLY FILED DOC #: DATE FILED: 9/16/19
SIDNEY H. STEIN, U.S. District Judge.
This action is but one in a series of cases in which investment funds, financial services companies, and individuals accuse major financial institutions of colluding to artificially impact benchmark interest rates for a variety of currencies. Here, plaintiffs bring a putative class action against large banks and interdealer brokers for purportedly working together to manipulate the prices of derivatives based on the Swiss franc London InterBank Offered Rate (“CHF LIBOR“)—a daily interest rate benchmark designed to reflect the cost at which banks can borrow Swiss francs.
This Court previously granted defendants’ motion to dismiss the action but granted plaintiffs leave to replead. Sonterra Capital Master Fund Ltd. v. Credit Suisse Grp. AG, 277 F. Supp. 3d 521, 599–600 (S.D.N.Y. 2017) (”Sonterra I“). The Second Amended Complaint (SAC) revealed that many of the plaintiff entities had actually dissolved and no longer existed at the time the original complaint was filed. On this basis, defendants seek dismissal. Because the Court agrees that it indeed lacked subject matter jurisdiction over this action since the case‘s initial filing, defendants’ motions to dismiss are granted.
I. BACKGROUND
For the purpose of resolving defendants’ motions to dismiss the SAC for lack of subject matter jurisdiction, a brief overview of the suit‘s allegations and procedural history will suffice. A comprehensive—perhaps fulsome—summary of the allegations in this action can be found in the Court‘s earlier decision. Sonterra I, 277 F. Supp. 3d at 537–43.
In February 2015, Sonterra Capital Master Fund Ltd. (“Sonterra“), an investment fund, initiated this putative class action against multiple major banks, alleging manipulation and price-fixing of the CHF LIBOR and CHF LIBOR-based derivatives. Sonterra was a Cayman exempted company with its principal place of business in New York. (SAC ¶ 23; Compl. ¶ 24.)
In September 2017, the Court dismissed the FAC in this action for lack of constitutional standing (Count One) and for failing to state viable federal claims (Counts Two through Seven). Sonterra I, 277 F. Supp. 3d at 599. The Court declined to exercise its supplemental jurisdiction over the remaining state-law claims (Counts Eight and Nine). Id. at 599–600. Nevertheless, the Court signaled that plaintiffs were entitled to attempt to cure many of the identified deficiencies in a second amended filing. Id. at 599.
Plaintiffs seized this opportunity to re-plead, and plaintiffs—now joined by an additional individual—Richard Dennis—and a teachers’ retirement fund—California State Teachers’ Retirement System (“CalSTRS“)—filed the SAC. That complaint repeated its claims for violations of antitrust law, the Commodity Exchange Act (CEA), and the Racketeer Influenced and Corrupt Organizations Act (RICO), as well as two alternative common law claims for unjust enrichment and breach of the implied covenant of good faith and fair dealing. It added, however, a new set of defendants: twelve interdealer brokers.3 The SAC also incorporated new allegations, including chat messages and other documents given to plaintiffs as a result of their settlement with JPMorgan.
In addition, the SAC revealed for the very first time that the majority of plaintiffs do not exist. Sonterra, FrontPoint plaintiffs, and Hunter plaintiffs (collectively, “dissolved plaintiffs“) allege that prior to winding up and dissolving, they assigned through Asset Purchase Agreements (“APAs“) certain rights, title, and interests in assets and powers of attorney to Fund Liquidation Holdings, LLC (“FLH“) in 2011 and 2012. (SAC ¶¶ 24, 33, 40.) Because of dissolved plaintiffs’ purported lack of Article III standing, defendants now seek dismissal pursuant to
II. LEGAL STANDARD
Pursuant to
When evaluating a
III. DISCUSSION
Defendants argue that dissolved plaintiffs lack both Article III standing and capacity to sue. The APAs, according to defendants, did not effectively transfer interests in this litigation‘s claims to FLH, the real party in interest. Regardless of whether the assignments were effective, defendants urge, Sonterra‘s lack of Article III standing when it initially filed suit rendered this action a legal nullity ab initio. Plaintiffs offer opposing arguments at every step of defendants’ analysis. While the Court does not opine on the validity of the assignments or plaintiffs’ capacity to sue, the Court concurs that the original plaintiffs’ lack of constitutional standing constitutes a jurisdictional defect that procedural devices cannot cure.
A. As Nonexistent Entities that Purportedly Assigned Away Their Interests in this Litigation, Dissolved Plaintiffs Lack Article III Standing.
To have Article III standing, each plaintiff must have suffered a concrete and particularized, actual or imminent injury-in-fact that would likely be redressed by the relief requested. Cayuga Nation, 824 F.3d at 331; Sonterra I, 277 F. Supp. 3d at 544. Initially, this Court determined that plaintiffs had adequately pled standing with regard to the purported CHF LIBOR manipulation. Id. at 546–48. But that conclusion was reached on the premise that Sonterra, FrontPoint plaintiffs, and Hunter plaintiffs were live entities that retained their interests in this litigation.
Dissolved plaintiffs now reveal in the SAC that they assigned all relevant interests and rights to FLH. (SAC ¶¶ 24, 33,
Dissolved plaintiffs’ response does not focus on refuting the accusation that they lost, pre-suit, their potential to have standing. Rather, dissolved plaintiffs maintain that FLH had sued in their names in the original, first amended, and second amended complaints. (See, e.g., Doc. #327 at 6 (“This action was not commenced by Sonterra, but rather by FLH in Sonterra‘s name.“); Doc. #355 at 1 (“FLH . . . commenced this action on February 5, 2015 in Sonterra‘s name . . . .“).) Such a qualification may be a crucial life raft for plaintiffs’ case, because an assignee may have standing in its assignor‘s stead. See Valdin, 651 F. App‘x at 7 (“It is possible, of course, that Valdin‘s assignee would have standing as the real party in interest.“); see also Sprint Commc‘ns Co., L.P. v. APCC Servs., Inc., 554 U.S. 269, 285 (2008) (“Lawsuits by assignees . . . are ‘cases and controversies of the sort traditionally amenable to, and resolved by, the judicial process.‘” (citation omitted)).
The SAC alleges that FLH had “the right, power, and authority” to sue in dissolved plaintiffs’ names. (SAC ¶¶ 24, 33, 40.) Yet at no point in the complaint, FAC, or SAC do plaintiffs give any indication that FLH is suing in the name of a dissolved entity. Each of those pleadings is bereft of any such statement. In fact, FLH is not even mentioned a single time in the first two pleadings. The original complaint and the FAC describe dissolved plaintiffs in the present tense, manifestly attempting to give the impression that they existed. See Sonterra Capital Master Fund, Ltd. v. Barclays Bank PLC, No. 15-CV-3538, 2019 WL 3858620, at *2 (S.D.N.Y. Aug. 16, 2019) (“Sterling II“). Moreover, plaintiffs attempt to have it both ways. If the APAs effectively assigned interests in the claims at issue, as plaintiffs contend, then FLH became the “real party in interest.”
Plaintiffs’ reliance on QS Holdco Inc. v. Bank of America Corp., No. 18-cv-824, 2019 WL 3716443 (S.D.N.Y. Aug. 6, 2019), does not alter this analysis. In QS Holdco, the court noted that a full assignment of claims may deprive the assignor of its capacity, but not necessarily its standing, to bring suit. Id. at *2–*3. Because the assignment in that case impacted the plaintiff‘s capacity alone, the court‘s subject matter jurisdiction was never in doubt. Id. Yet plaintiffs elide an important distinction between QS Holdco and this action: while the plaintiff in that case assigned
In sum, the Court concludes that dissolved plaintiffs—not FLH—brought this action, and that they lack standing. Next, the Court considers whether FLH, as the assumed assignee, may be substituted into this action to pursue the claims deriving from dissolved plaintiffs’ injuries.
B. Substitution of FLH Is Constitutionally Impermissible Because Procedural Means Cannot Confer Jurisdiction Upon the Court.
The parties dispute whether dissolved plaintiffs completely assigned the claims asserted in the SAC to FLH. Such a transfer of ownership of the claims would be essential for FLH to have standing to bring suit in dissolved plaintiffs’ stead. Cortlandt St. Recovery Corp. v. Hellas Telecomms., S.A.R.L., 790 F.3d 411, 418 (2d Cir. 2015) (“The defendants, for their part, do not dispute that an assignment of claims from the noteholders to Cortlandt would allow Cortlandt to ‘stand in the place of the injured party’ and satisfy constitutional standing requirements.” (citation omitted)); W.R. Huff Asset Mgmt. Co., LLC v. Deloitte & Touche LLP, 549 F.3d 100, 108 (2d Cir. 2008) (“[A]n assignment of claims transfers legal title or ownership of those claims and thus fulfills the constitutional requirement of an ‘injury-in-fact.‘“). Yet assuming arguendo that these claims were effectively assigned to FLH5—an assumption that is in considerable doubt6—FLH still may not be substituted into this action.
Pursuant to
A plaintiff‘s Article III standing must be secure at the outset of litigation to confer jurisdiction on a federal court. Carter, 822 F.3d at 55. Where a court lacks jurisdiction over an action at any stage in the litigation, the case must be dismissed.
Courts’ general rule of thumb has been to allow
Thus, at the start of this litigation, no plaintiff had Article III standing and therefore this Court is unable to exercise its adjudicatory authority. Accordingly, FLH cannot now invoke
Furthermore, contrary to plaintiffs’ assertions, the Court could not have gained subject matter jurisdiction when Divitto—and later Dennis and CalSTRS—joined the suit. Those plaintiffs—two natural persons and a live entity—would have Article III standing to maintain this action had they originally sued. Fatally for plaintiffs, however, they only joined the action by means of a procedural mechanism: amended complaints. See
In conclusion, because Sonterra wound up and dissolved—and was not in existence—when it brought this action in 2015, this suit was, and remains, a legal nullity. No amendment or substitution can cure this threshold jurisdictional defect, and thus dismissal is mandatory.
C. A New Complaint Filed by Plaintiffs Would Be Time-Barred.
With this action dismissed for lack of subject matter jurisdiction, the Court need not reach the many alternative avenues for dismissal set forth by defendants. An important observation, however, is that any putative class action newly filed by Divitto, Dennis, CalSTRS, or FLH would be futile on timeliness grounds.9 The relation back doctrine would be unavailable to any new action since this litigation was dismissed as a legal nullity. See SIBOR III, 2019 WL 3388172, at *6 (noting that a complaint brought by a proper assignee “would be a new filing, not capable of relating back in time to Frontpoint‘s and Sonterra‘s filing“); cf. Aponte v. Liggett Grp., No. 13 Civ. 569, 2014 WL 1087977, at *1 (S.D.N.Y. Mar. 18, 2014). And the statutes of limitations for all claims in the SAC have long-since expired.10
Contrary to defendants’ position, the reason for American Pipe‘s inapplicability does not stem from the Supreme Court‘s recent decision in China Agritech. That decision held that ”American Pipe does not permit the maintenance of a follow-on class action past expiration of the statute of limitations“—specifically “[u]pon denial of class certification.” Id. Defendants loosely read this decision to preclude all American Pipe tolling where a putative class action was dismissed, even if the dismissal occurred prior to a court rendering a class certification decision. Yet courts in this district have more faithfully understood China Agritech to “only appl[y] when class action status previously ha[d] been denied.” Betances v. Fischer, No. 11-cv-3200, 2019 WL 1213146, at *6 (S.D.N.Y. Feb. 21, 2019); see also Hart v. BHH, LLC, No. 15cv4804, 2018 WL 5729294, at *2 (S.D.N.Y. Nov. 2, 2018) (“The linchpin of the China Agritech decision was that plaintiffs there brought the action after the denial of class certification in the prior action.“).
Rather, plaintiffs’ claims were not tolled during the pendency of this action because it has been a legal nullity. The Court recognizes that there exists “a split in this District” on the question whether American Pipe tolling may apply to claims where the original putative class plaintiff was dismissed for lack of standing.11 Pac. Life Ins., 2018 WL 1382105, at *8; Leber v. Citigroup 401(K) Plan Inv. Comm., 129 F. Supp. 3d 4, 22 n.8 (S.D.N.Y. 2015); Police & Fire Ret. Sys. of City of Detroit, 2014 WL 1257782, at *8; Direxion Shares ETF Trust, 279 F.R.D. at 237 n.9. And the Second Circuit has yet to “directly address[] or decide[]” this question. Monroe Cty. Emps.’ Ret. Sys., 980 F. Supp. 2d at 488–89; accord Lighthouse Fin. Grp. v. Royal Bank of Scotland Grp., PLC, 902 F. Supp. 2d 329, 348 n.14 (S.D.N.Y. 2012).
The courts that have applied American Pipe tolling to circumstances such as this
American Pipe‘s efficiency concern: that without tolling, would-be class members would file a multiplicity of protective filings if tasked with investigating the sufficiency of putative class representatives. See, e.g., Pac. Life Ins., 2018 WL 1382105, at *8; Monroe Cty. Emps.’ Ret. Sys., 980 F. Supp. 2d at 490. These courts have determined that “the better policy is to allow tolling where the original plaintiff lacked standing, unless the procedural defect was so clear that no reasonable plaintiff could have relied on the class representative under the circumstances.” Id.
Yet, allowing tolling would incentivize plaintiffs to “effectively hold their place in line by initiating lawsuits in disregard” of standing requirements. Puda Coal, 2013 WL 5493007, at *15; see also N.J. Carpenters Health Fund, 2010 WL 6508190, at *2 n.1. A hesitance to create such perverse incentives outweighs any competing policy concerns here, where plaintiffs knew—and perhaps purposely concealed—that most of the named entities ceased to exist. See Sterling II, 2019 WL 3858620, at *2 (describing how defendants first contacted plaintiffs about perceived “inaccuracies” in the amended complaint regarding FrontPoint and Sonterra‘s existence). At the very least, the parties involved here—FLH, Divitto, Dennis, and CalSTRS—would not be able to claim that they reasonably relied on Sonterra, FrontPoint plaintiffs, and Hunter plaintiffs to serve as class representatives when their co-plaintiffs did not exist all along. Cf. Direxion Shares ETF Trust, 279 F.R.D. at 237 (rejecting the suggestion that the Supreme Court would have “intended the rule of tolling to allow” the insertion of jurisdiction where intervenors were on notice that their interests were not being protected). These plaintiffs may not benefit from Sonterra‘s placeholder litigation when they could have filed their own actions at any time. See Testa v. Becker, 910 F.3d 677, 684 (2d Cir. 2018) (“Litigants may benefit from equitable tolling only if they were ‘diligent in pursuit of their claims.‘” (citing China Agritech, 138 S. Ct. at 1808)).
As SIBOR III noted, American Pipe tolling cannot be employed to “revive an otherwise infirm action.” 2019 WL 3388172, at *7; cf. Police & Fire Ret. Sys. of City of Detroit v. IndyMac MBS, Inc., 721 F.3d 95, 111 n.21 (2d Cir. 2013) (“Where the named plaintiff‘s claim is one over which ‘federal jurisdiction never attached,’ there can be no class action.” (citation omitted)). Where there has been no class action over which a court has jurisdiction, there are no claims that can be tolled. See N.J. Carpenters Health Fund, 2010 WL 6508190, at *2 (“[W]here a Plaintiff lacks standing—there is no case. And if there is no case, there can be no tolling.” (citations omitted)). Therefore, a refiling of these same claims would be futile on timeliness grounds.
IV. CONCLUSION
Because Sonterra did not exist at the time of the original complaint‘s filing, Sonterra lacked Article III standing to initiate this litigation. Thus, the Court has never had subject matter jurisdiction over this action—a legal nullity. Even assuming dissolved plaintiffs had properly assigned the claims in this suit to FLH, the invocation of the procedural mechanisms of amendments and substitutions may not generate jurisdiction from nothing. The Court grants defendants’ motions to dismiss pursuant to
Dated: New York, New York
September 16, 2019
SO ORDERED:
Sidney H. Stein, U.S.D.J.