SPV OSUS Ltd. v. UBS AGSPV OSUS Ltd. v. UBS AG
SPV sued UBS AG and its affiliated entities (collectively, “UBS”) and AIA LLC and its affiliated entities and individuals (collectively, “Access”) in New York state court. In broad strokes, SPV alleges that UBS and Access aided and abetted BLMIS and Madoff by sponsoring, and providing support for, two European-based feeder funds. SPV alleges that the feeder funds channeled billions of dollars to Madoff and BLMIS, allowing them to further their fraud. SPV alleges UBS and Access chose to work with the feeder funds despite being aware of fraudulent activity on the part of Madoff and BLMIS. Absent assistance from UBS and Access, SPV allege, Madoff and BLMIS could not have continued to operate their Ponzi scheme.
UBS removed the New York state action to the United States District Court for the Southern District of New York (Rakoff, J.) SPV moved to remand. The district court denied the motion, finding federal jurisdiction proper pursuant to
On appeal, SPV primarily argues that (1) this litigation is not “related to” the Madoff/BLMIS bankruptcies, such that the federal courts lack jurisdiction; (2) the district court erred in finding it lacked personal jurisdiction over UBS; and (3) it adequately pled proximate cause. For the reasons detailed below, we affirm the district court in all respects.
Affirmed.
Judge Calabresi concurs in the judgment and opinion of the Court, except for Part II, and files a concurring opinion.
This case presents yet another chapter in the Bernie Madoff saga. SPV Osus Ltd. is the putative assignee of Optimal Strategic U.S. Equity Ltd (collectively, “SPV”). Optimal invested money directly with Bernard L. Madoff Investment Securities LLC (“BLMIS”). When BLMIS turned out to be a massive Ponzi scheme, see In re Bernard L. Madoff Inv. Sec. LLC, 654 F.3d 229, 231-33 (2d Cir. 2011), Optimal suffered losses it alleges totaled roughly $2.9 billion.
UBS removed the state court action to the United States District Court for the Southern District of New York. SPV moved to remand. The district court denied the motion, finding federal jurisdiction proper pursuant to
On appeal, SPV primarily argues that the district court erred in (1) not granting SPV’s motion to remand, as the instant litigation is not “related to” the Madoff/BLMIS bankruptcies and the federal courts lack jurisdiction; (2) finding it lacked personal jurisdiction over UBS; and (3) finding it failed to adequately plead proximate cause. For the reasons detailed below, we affirm the district court’s decisions in all respects.
BACKGROUND
SPV is a Bahamian corporation that alleges is it the assignee of Optimal. Optimal invested directly with BLMIS, and its last statement from BLMIS in November 2008 reported roughly $2.9 billion in its accounts. Madoff was
In December 2014, SPV filed suit in New York state court against UBS and AIA. SPV’s suit set forth claims for aiding and abetting fraud, breach of fiduciary duty, conversion, and knowing participation in a breach of trust. In essence, SPV alleges that the defendants facilitated BLMIS’s fraud by moving billions of dollars from European investors to BLMIS by providing support to the Luxalpha and Groupement feeder funds. SPV alleges that by supporting the feeder funds, UBS and Access provided Madoff and BLMIS with a veneer of credibility that gave investors confidence in their decision to invest with Madoff and BLMIS, allowing the fraud to continue. SPV also alleges that UBS ignored certain “red
UBS AG is a Swiss entity with its principal place of business in Switzerland. The remaining UBS entities were, at all times relevant, Luxembourg entities with their principal places of business in Luxembourg. Luxalpha was organized and located in Luxembourg; Groupement was organized and located in the British Virgin Islands. SPV alleges that it pleaded sufficient contacts to allow the exercise of personal jurisdiction by virtue of the UBS entities’ contacts with New York related to their interactions with the Luxalpha and Groupement feeder funds. SPV also sued AIA LLC; Access International Advisors Ltd.; Access Partners (Suisse) S.A.; Access Management Luxembourg S.A.; Access Partners S.A. (Luxembourg); and Patrick Littaye (together, the “Access Defendants”).
As described above, the district court denied SPV’s motion to remand the matter to state court, then granted separate motions to dismiss the complaint. This appeal followed.
I. Appellate Jurisdiction.
SPV’s notice of appeal designates its appeal as both from the judgment and from orders entered on July 21, 2015, July 24, 2015, May 26, 2016 and May 27, 2016. This list does not include the order and opinion denying the motion to remand. UBS argues that the failure to specify the remand order in the notice of appeal strips this Court of jurisdiction to consider an appeal from that order. We need not linger long over the issue, because even assuming arguendo that SVG waived its right to appeal, the denial of a motion to remand goes to this Court’s subject matter jurisdiction, which may be raised at any time. See In re Methyl Tertiary Butyl Ether (“MTBE”) Prod. Liability Litig., 488 F.3d 112, 123 (2d Cir. 2007). “Indeed, we have often taken it upon ourselves to determine whether removal jurisdiction existed even where that issue was not itself appealed.” Id. at 121. Satisfied that the appeal from the district court’s denial of the motion to remand is properly before us, we turn to the merits.
II. “Related to” jurisdiction
“On appeal from the denial of a motion to remand for lack of subject matter jurisdiction, we review the court‘s legal conclusions de novo and its
In this Circuit, “a civil proceeding is related to a title 11 case if the action‘s outcome might have any conceivable effect on the bankrupt estate.“ Parmalat Capital Fin. Ltd. v. Bank of Am. Corp., 639 F.3d 572, 579 (2d Cir. 2011) (internal quotation marks omitted). “If that question is answered affirmatively, the litigation falls within the ‘related to’ jurisdiction of the bankruptcy court.” In re Cuyahoga Equip. Corp., 980 F.2d 110, 114 (2d Cir. 1992). “Congress intended to grant comprehensive jurisdiction to the bankruptcy courts so that they might deal efficiently and expeditiously with all matters connected with the bankruptcy estate.” Celotex, 514 U.S. at 308. While “related to” jurisdiction is not “limitless,” id., it is fairly capacious, and includes “suits between third parties which have an
Here, the claims at issue arise in an action that does not directly involve the bankruptcy estates. “In determining whether potential claims by third party defendants against the debtor for either indemnification or contribution give rise to “related to” jurisdiction over litigation to which the debtor is not a party, courts in this circuit . . . have generally found jurisdiction where there is a ‘reasonable’ legal basis for the claim.” In re Worldcom, Inc. Sec. Litig., 293 B.R. 308, 319 (S.D.N.Y. 2003) (collecting cases). A claim need not be certain to provide a federal court with jurisdiction: “contingent outcomes can satisfy the ‘conceivable effects’ test, so long as there is the possibility of an effect on the estate.” N.Y. Commercial Bank v. Pullo, No. 12-02052 (BRL), 2013 WL 494050, at *3 (Bankr. S.D.N.Y. Feb. 7, 2013).
The gravamen of SPV’s complaint is that defendants are joint tortfeasors with Madoff and BLMIS, which, if proven, would provide defendants with a putative contribution claim, to be asserted in the bankruptcy proceedings. SPV
We agree with the district court that the failure to file claims prior to the bar date is not fatal to the potential claims at issue here. Bankruptcy courts are permitted to accept late proofs of claim. See, e.g., In re PT–1 Commc‘ns, Inc., 292 B.R. 482, 489 (Bankr. E.D.N.Y. 2003) (allowing filing of late claim where claimant did not know claim existed until after the bar date lapsed). Unlike indemnification claims, contribution claims do not accrue until after liability is established. A party may not know of a potential contribution claim until sued, which may be years after bankruptcy proceedings have commenced. For
Conversely, “[a]n indemnification right arises at the time the indemnification agreement is executed, and it constitutes a claim under the Bankruptcy Code even if the act giving rise to indemnification has not yet occurred.” Allstate Ins. Co. v. Credit Suisse Sec. (USA) LLC, 2011 WL 4965150, at *5 (S.D.N.Y. Oct. 19, 2011) (internal quotation marks omitted). Excusable neglect does not excuse the failure to file proof of claim for an indemnification liability by the bar date, such that the claim could not have any “conceivable effect” on the estate. Id., see also Sealink Funding Ltd. v. Bear Stearns & Co. Inc., No. 12 Civ. 1397, 2012 WL 4794450, at *3 (S.D.N.Y. Oct. 9, 2012) (same).
Moreover, it is unclear whether the applicable bar date has passed. While a bar date was set and has passed in the SIPA action involving the BLMIS estate, no bar date was set in the Madoff estate. The consolidation order states only that the combined estate “shall be administered in accordance with SIPA and the
We need not resolve the issue of which bar date controls. Even if the bar date set in the SIPA estate controls, simply settling the issue of whether a late claim is allowable would likely have an effect on the estate. Any attempt to file a late claim would result in the estate incurring costs. As the district court noted, even unsuccessful claims require evaluation by the trustee, who recovers fees for such work from the estate. See
The need for litigation to settle the issue of whether a late claim would be permitted also militates against finding this litigation “related to” the bankruptcy proceeding. SPV relies on Pacor, Inc. v. Higgins for the proposition that unless the underlying litigation “automatic[ally] creat[es] liability” for the bankruptcy estate, the connection between the underlying litigation and the bankruptcy proceedings is too remote to support “related to” jurisdiction. 743 F.2d 984, 995 (3d Cir. 1984). Like the other circuits to reject this branch of the Pacor analysis, we think a more flexible approach appropriate. See In re El Paso Refinery, LP, 302 F.3d 343, 348-49 (5th Cir. 2002) (holding a “chain of indemnification provisions” that could be used to assert a claim against the debtor allowed for “related to” jurisdiction); In re Dow Corning Corp., 86 F.3d 482, 489-94 (6th Cir. 1996) (holding that suits against manufacturers and suppliers of silicone gel breast implants were “related to” the bankruptcy of the Dow Corning Corporation because of
SPV also challenges the district court’s conclusion that it is “within the realm of possibility” for defendants to receive a distribution from the estate. SPV I, 2015 WL 4079079, at *4. SPV notes that the amount of loss claim greatly exceeds the assets recovered by the estates. Thus, it argues, there will be no funds available to pay UBS, assuming SPV prevails in the underlying litigation and UBS asserts a contribution claim against the bankruptcy estate. The district court found recovery possible because “the estate continues to recover substantial
Finally, there is a high degree of interconnectedness between this action and the Madoff bankruptcies: SPV can only proceed on these claims if it establishes that the Madoff fraud occurred. SPV’s assignor invested directly with BLMIS. But for the automatic stay, it is difficult to imagine a scenario wherein SPV would not also sue Madoff and BLMIS, given that SPV alleges that UBS aided and abetted in their fraud. “The existence of strong interconnections between the third party action and the bankruptcy has been cited frequently by courts in concluding that the third party litigation is related to the bankruptcy proceeding.” See WorldCom, 293 B.R. at 321 (“but for WorldCom‘s bankruptcy, [defendants] would have been named as a defendant in [this] action, and despite its absence as a party, its conduct will remain at the heart of [this] litigation.”).
“We review a district court‘s dismissal of an action for want of personal jurisdiction de novo, construing all pleadings and affidavits in the light most favorable to the plaintiff and resolving all doubts in the plaintiff‘s favor.” Penguin Grp. (USA) Inc. v. Am. Buddha, 609 F.3d 30, 34 (2d Cir. 2010). “In order to survive a motion to dismiss for lack of personal jurisdiction, a plaintiff must make a prima facie showing that jurisdiction exists.” Id. at 34–35 (internal quotation marks omitted). A plaintiff “must include an averment of facts that, if credited by the ultimate trier of fact, would suffice to establish jurisdiction over the defendant.” Chloé v. Queen Bee of Beverly Hills, LLC, 616 F.3d 158, 163 (2d Cir. 2010) (internal quotation marks and brackets omitted).
When a case is removed to federal court pursuant to
“Because general jurisdiction is not related to the events giving rise to the suit, courts impose a more stringent minimum contacts test, requiring the plaintiff to demonstrate the defendant‘s continuous and systematic general business contacts.” Id. (internal quotation marks omitted). “For an individual, the paradigm forum for the exercise of general jurisdiction is the individual‘s domicile; for a corporation, it is an equivalent place, one in which the corporation is fairly regarded as at home.” Goodyear Dunlop Tires Operations, S.A. v. Brown, 564 U.S. 915, 923 (2011). “The inquiry under Goodyear is not whether a foreign corporation‘s in-forum contacts can be said to be in some sense continuous and
Our Court, in interpreting Daimler, noted that the case “expressly cast doubt on previous Supreme Court and New York Court of Appeals cases that permitted general jurisdiction on the basis that a foreign corporation was doing business through a local branch office in the forum.” Gucci Am., Inc. v. Weixing Li, 768 F.3d 122, 135 (2d Cir. 2014). In Gucci, we held that a court could not properly exercise general jurisdiction over the Bank of China, which had branch offices in New York but was “incorporated and headquartered elsewhere” and conducted only a small portion of its worldwide business within the forum. Id. at 135.
Here, UBS SA, UBS FSL and UBS TPM lack any presence in New York at all: each is incorporated, and has its principal place of business in, Luxembourg. None have any employees in the United States. UBS AG’s place of incorporation and principal place of business is in Switzerland. As the district court correctly adduced, Daimler bars the court’s exercise general jurisdiction over the USB defendants. “[A]side from the truly exceptional case, a corporation is at home
Turning to the exercise of specific jurisdiction, “[t]he inquiry whether a forum State may assert specific jurisdiction over a nonresident defendant focuses on the relationship among the defendant, the forum, and the litigation.” Walden v. Fiore, 134 S. Ct. 1115, 1121 (2014) (internal quotation marks omitted). “[S]pecific jurisdiction is confined to adjudication of issues deriving from, or
The Supreme Court has yet to address exactly how a defendant‘s activities must be tied to the forum for a court to properly exercise specific personal jurisdiction over a defendant. Some circuits require that the in-forum conduct to be the proximate cause of plaintiff‘s injuries, while others find the standard satisfied if the defendant‘s activities are the “but for” cause of those injuries. See Chew v. Dietrich, 143 F.3d 24, 29 (2d Cir. 1998) (collecting and comparing cases).
Where the defendant has had only limited contacts with the state it may be appropriate to say that he will be subject to suit in that state only if the plaintiff‘s injury was proximately caused by those contacts. Where the defendant‘s contacts with the jurisdiction that relate to the cause of action are more substantial, however, it is not unreasonable to say that the defendant is subject to personal jurisdiction even though the acts within the state are not the proximate cause of the plaintiff‘s injury.
Here, the connections between the USB Defendants, SPV‘s claims, and its chosen New York forum are too tenuous to support the exercise of specific jurisdiction. None of the USB Defendants are resident in New York. SPV‘s complaint alleges the injuries suffered by OSUS were caused by Madoff and BLMIS. Missing from the complaint is any allegation that OSUS relied on UBS‘s contacts with the feeder funds when OSUS decided to invest directly with BLMIS. Nor are there any allegations that OSUS based its decision to invest with BLMIS on the fact that the UBS defendants helped create and service the feeder funds. Indeed, OSUS began investing in BLMIS in 1997, and the feeder funds were not created until 2003 (Groupement) and 2004 (Luxalpha). At bottom, the
III. Proximate cause
As to the Access Defendants, SPV alleges that they aided and abetted Madoff and BLMIS by luring investors into the feeder funds, which in turn invested funds in BLMIS, and those funds allowed BLMIS to continue to perpetuate its fraud. SPV asserted state law claims for aiding and abetting fraud, aiding and abetting breach of fiduciary duty, aiding and abetting conversion, and knowing participation in a breach of trust (which is essentially an aiding and abetting claim). As set forth in Lerner v. Fleet Bank, N.A., a claim for aiding and abetting a breach of fiduciary duty under New York law:
(1) a breach by a fiduciary of obligations to another, (2) that the defendant knowingly induced or participated in the breach, and (3) that plaintiff suffered damage as a result of the breach. With respect to the second requirement, although a plaintiff is not required to allege that the aider and abettor had an intent to harm, there must be an allegation that such defendant had actual knowledge of the breach of duty. And a person knowingly participates in a breach of fiduciary duty only when he or she provides substantial assistance to the primary violator.
459 F.3d 273, 294 (2d Cir. 2006) (internal citation and brackets omitted). Under New York law, “the elements of aiding and abetting a breach of fiduciary duty, aiding and abetting a conversion, and aiding and abetting a fraud are substantially similar.” Kirschner v. Bennett, 648 F. Supp. 2d 525, 533 (S.D.N.Y. 2009); see also Fed. Ins. Co. v. Am. Home Assurance Co., 639 F.3d 557, 566 (2d Cir. 2011) (“[W]here the parties agree that New York law controls, this is sufficient to establish choice of law.“).
The district court dismissed SPV‘s state law claims against the Access Defendants after finding that SPV failed to adequately plead the “substantial assistance” element of its claims. SPV III, 2016 WL 3039192 at *6-8. “Substantial assistance occurs when a defendant affirmatively assists, helps conceal or fails to act when required to do so, thereby enabling the breach to occur.” Lerner, 459 F.3d at 295 (citation omitted). “Substantial assistance requires the plaintiff to allege that the actions of the aider/abettor proximately caused the harm on which the primary liability is predicated.” Cromer Fin. Ltd. v. Berger, 137 F. Supp. 2d 452, 470 (S.D.N.Y. 2001). That is, the injury must “be a direct or reasonably foreseeable result of the conduct.” Id. The district court correctly determined that SPV‘s state law claims against the Access Defendants are deficient as a matter of law because SPV failed to adequately plead proximate cause. At most, SPV pleads but-for causation. If the Access Defendants did not provide support and assistance to the feeder funds, the feeder funds would not have collected money from investors. If the money stopped flowing into BLMIS, such that the fraudulent scheme would have collapsed much sooner, staunching OSUS‘s losses. The link between the Access Defendants’ actions (or inactions) and the harm suffered by OSUS is simply too attenuated to constitute proximate cause. As the district court pointed out, “if any entity that injected massive sums into BLMIS could be said to have aided and abetted Madoff‘s Ponzi scheme, OSUS, which plaintiff claims invested $1.6 billion in BLMIS, would presumably be subject to liability on the same theory.” SPV III, 2016 WL 3039192, at *6; see also Cromer Fin. Ltd., 137 F. Supp. 2d at 472 (granting motion to dismiss aiding and
SPV offers two different theories of proximate cause that it proposes to incorporate into an amended complaint. Neither theory can salvage SPV‘s claims. The first alternate theory is that the Access Defendants, through misleading marketing materials, aided and abetted the BLMIS fraud by providing BLMIS an “air of legitimacy.” Appellant‘s Br. at 64. SPV points to nothing showing OSUS relied on the marketing materials provided by the Access Defendants, was aware of the Access Defendants or even knew of the feeder funds at issue. As noted above, OSUS invested with BLMIS directly, and its investments began before the feeder funds were created. SPV‘s second alternate theory is that the Access Defendants are liable because they failed to notify “the world at large and international investors in particular” of BLMIS‘s fraud. Appellant‘s Br. at 59. This theory of causation is unavailing because the Access Defendants owed neither OSUS nor SPV any fiduciary duty. See Lerner, 459 F.3d at 295 (“The mere inaction of an alleged aider and abettor constitutes substantial
CONCLUSION
For the reasons given above, the judgment of the district court is AFFIRMED.
I join in the opinion except for its analysis of personal jurisdiction. It is not that I necessarily disagree with that analysis. But I believe the better course, in circumstances like those before us, is to assume personal jurisdiction arguendo and direct a dismissal with prejudice for failure to state a claim. Our prior case law allows us to do so.
Before Steel Co. v. Citizens for a Better Environment, 523 U.S. 83 (1998), we, and other circuits, regularly assumed jurisdiction when “the merits question [wa]s more readily resolved . . . .” Id. at 93-94. But, in Steel Co., the Supreme Court held that this practice, dubbed the “doctrine of hypothetical jurisdiction,” “offend[ed] fundamental principles of separation of powers” and, thus, was impermissible. Id. at 94, 101.
Steel Co. does not, however, undermine the appropriateness of our deciding the merits in the current case. Steel Co. was concerned with the judiciary‘s powers under
The relevant differences between personal and subject-matter jurisdiction are legion. Parties cannot stipulate to subject-matter jurisdiction, Great Southern Fire Proof Hotel Co. v. Jones, 177 U.S. 449, 453 (1900), but can to personal jurisdiction, see Burger King, 471 U.S. at 472 n. 14. Courts have an independent duty to assess subject-matter jurisdiction, Great Southern, 177 U.S. at 453, but not personal jurisdiction, Sinoying Logistics Pte Ltd. v. Yi Da Xin Trading Corp., 619 F.3d 207, 213 (2d Cir. 2010). And while subject-matter jurisdiction is an absolute limit on the court‘s power to adjudicate a claim, Mansfield, C. & L. M. Ry. Co. v. Swan, 111 U.S. 379, 382 (1884), personal jurisdiction is not, cf. In re DES Litigation, 7 F.3d 20, 23-24 (2d Cir. 1993) (explaining that an interlocutory order finding personal jurisdiction cannot be appealed by a prevailing party because a finding of personal jurisdiction is not a “necessary step” for a district court‘s dismissal of a complaint and entry of judgment). I believe that Steel Co. is not controlling in cases of personal jurisdiction. But see Rationis Enter. Inc. of Panama v. AEP/Borden Indus., 261 F.3d 264, 267-68 (2d Cir. 2001) (suggesting there is no difference between personal and subject-matter jurisdiction in this regard).
Even if there is no difference in how personal jurisdiction and subject-matter jurisdiction are to be treated, the prior cases would allow us to assume jurisdiction
The Norton rule applies here as well. “[T]he outcome on the merits” against the UBS defendants “has been foreordained.” We already reached the merits in resolving the claims against the Access defendants, who are, except for the
We note that the Norton rule survived Steel Co. Steel Co. specifically distinguished Norton. Steel Co., 523 U.S. at 98. And this Court in Center affirmed that Norton was still good law after Steel Co. Center, 304 F.3d at 194.
For these reasons, I conclude that we can and should assume personal jurisdiction and reach the merits in this case. Moreover, I believe an additional practical consideration favors our doing so here. A dismissal for lack of personal jurisdiction, which must be without prejudice, invites Appellant to seek another jurisdiction in which to bring claims we have already deemed meritless. This result would be doubly wasteful of judicial resources.
Accordingly, while I fully join the rest of the court‘s opinion, I do not join the discussion of personal jurisdiction as to the UBS defendants. Instead, I would hold in favor of Appellees on the merits, and dismiss the entire suit with prejudice.