United States District Court, S.D. New York
December 6, 2005.
In re EATON VANCE MUTUAL FUNDS FEE LITIGATION. This document relates to: ALL ACTIONS.
The opinion of the court was delivered by: JOHN KOELTL, District Judge
OPINION & ORDER
The plaintiffs have moved to alter or amend the judgment
dismissing this action and for reconsideration of this Court's
August 1, 2005 Opinion and Order granting the defendants' motion
to dismiss each of the ten counts alleged in the Second Amended
Complaint and denying the plaintiffs leave to amend. See In re
Eaton Vance Mutual Funds Fee Litig., 380 F. Supp. 2d 222
(S.D.N.Y. 2005). The plaintiffs also move for leave to file a
third amended complaint.
The Second Amended Complaint ("SAC"), filed on August 26, 2004
on behalf of a purported class of persons or entities who held
shares in Eaton Vance Funds between January 30, 1999 and November
17, 2003, alleged ten counts against Eaton Vance and its
subsidiaries, certain Investment Adviser Defendants, Eaton Vance
Distributors, and Trustee Defendants, as well as the Eaton Vance
Funds as nominal defendants. Id. at 224. One of the claims was
asserted derivatively on behalf of the Eaton Vance Funds. These claims stem from allegations that the defendants
used improper means to acquire "shelf-space" for Eaton Vance
mutual funds at brokerage firms.
Count One of the SAC alleged that the Investment Adviser
Defendants and Trustee Defendants violated § 34(b) of the
Investment Company Act of 1940 ("ICA"), 15 U.S.C. § 80a-33(b), by
making misrepresentations and omissions of material facts in
registration statements and reports required by the ICA. Counts
Two and Three alleged that the Investment Adviser Defendants and
Trustee Defendants breached their fiduciary duties to the class
in violation, respectively, of §§ 36(a) and 36(b) of the ICA,
15 U.S.C. §§ 80a-35(a) and (b). Count Four alleged that certain
defendants also violated § 48(a) of the ICA,
15 U.S.C. § 80a-47(a), by causing the Investment Adviser Defendants to
violate §§ 34(b) and 36(a) and (b) of the ICA as set forth in
Counts One, Two, and Three. Count Five alleged a derivative claim
brought on behalf of the Eaton Vance Funds against the Investment
Adviser Defendants under § 215 of the Investment Advisers Act of
1940, 15 U.S.C. § 80b-6. Count Six alleged a violation by all
defendants of the N.Y. Gen. Bus. L. § 349. Counts Seven, Eight,
and Nine alleged breaches of fiduciary duties under common law,
while Count Ten alleged unjust enrichment under common law. Id.
at 228-30. The Court previously held that Counts One, Two, and Four were
barred because there is no private right of action under §§
34(b), 36(a), or 48(a), respectively. Id. at 233. The Court
also dismissed Counts Two, Four, Seven, Eight, Nine, and Ten on
the grounds that they should have been brought as derivative
actions. Id. at 236. Count Three was dismissed because, as
pleaded, it failed to allege a violation of § 36(b), and the
Investment Adviser Defendants and Trustee Defendants were
dismissed on the additional ground that they were not the
recipients of the disputed fees. Id. at 238. The Court
dismissed Count Five for failure to make the demand required by
Fed.R.Civ.P. 23.1, and dismissed Count Six because N.Y. Gen.
Bus. L. § 349 does not apply to securities transactions. Id. at
240. The Court also dismissed Counts Six, Seven, Eight, Nine, and
Ten because they are preempted by the Securities Litigation
Uniform Standards Act ("SLUSA"). Id. at 242. The Court also
noted that it would not exercise supplemental jurisdiction over
the state law claims after the federal claims were dismissed.
Id. Finally, the Court denied leave to amend. Id. The Clerk
thereafter entered judgment dismissing the SAC.
The plaintiffs have now moved to alter or amend the judgment
pursuant to Fed.R.Civ.P. 59(e) and for reconsideration pursuant to Local Civil Rule 6.3.*fn1 They
have also moved to file a third amended complaint.
The plaintiff presents this motion under Fed.R.Civ.P. 59(e)
and Local Civil Rule 6.3, which are governed by the same
standard. See Watson v. United States, No. 04 Civ. 2222, 2005
WL 2560375, at *2 (S.D.N.Y. Oct. 12, 2005); see also Nakano v.
Jamie Sadock, Inc., 98 Civ. 0515, 2000 WL 1010825, at *1
(S.D.N.Y. July 20, 2000) (collecting cases). This
well-established standard is the same as that governing former
Local Civil Rule 3(j). See United States v. Letscher,
83 F. Supp. 2d 367, 382 (S.D.N.Y. 1999) (collecting cases). The moving
party is required to demonstrate that the Court overlooked the
controlling decisions or factual matters that were put before the
Court in the underlying motion and which, had they been
considered, might have reasonably altered the result reached by
the Court. Nakano, 2000 WL 1010825, at *1. The decision to
grant or deny a motion for reconsideration "rests within the
sound discretion of the district court." Id. The rule is
"narrowly construed and strictly applied so as to avoid
repetitive arguments on issues that have been considered fully by
the court." Walsh v. McGee, 918 F. Supp. 107, 110 (S.D.N.Y. 1996) (internal citation and quotation marks omitted); see also
Nakano, 2000 WL 1010825, at *1.
The Court previously held that Counts One, Two, and Four were
barred because there are no private rights of action under §§
34(b), 36(a), or 48(a) of the ICA, respectively, in light of the
decision by the Second Circuit Court of Appeals in Olmsted v.
Pruco Life Insurance Co. of New Jersey, 283 F.3d 429 (2d Cir.
2002). The plaintiffs argue that Olmsted and subsequent cases
that relied on Olmsted are called into question by Jackson v.
Birmingham Bd. of Educ., 125 S.Ct. 1497 (2005). They argue that
Jackson and the legislative history for § 36(a) support a
finding that §§ 34(b), 36(a), and 48(a) have implied private
rights of action.
Jackson was considered at argument, and was not discussed in
the Court's previous opinion because it is inapplicable.
Olmsted relied on the Supreme Court's analysis in Alexander v.
Sandoval, 532 U.S. 275 (2001), to determine whether Congress
intended to create private rights of action. Olmsted found that
Congress did not intend to create private rights of action under
§§ 26(f) and 27(i) of the ICA. Jackson did not alter the
Supreme Court's emphasis on statutory text in determining whether
Congress intended to create a private right of action and did not question the analytical framework adopted in
Sandoval. Having previously found an implied right of action
under Title IX more than twenty-five years ago, the Supreme Court
in Jackson stated: "In step with Sandoval, we hold that Title
IX's private right of action encompasses suits for retaliation,
because retaliation falls within the statute's prohibition of
intentional discrimination on the basis of sex." Jackson,
125 S.Ct. at 1507. The Supreme Court noted that it reached this
result "based on the statute's text." Id.
Jackson does not alter this Court's analysis under Olmsted
and Sandoval, and thus there is no basis for reconsidering this
Court's prior holding. Indeed, the Court's prior holding has been
cited by several other courts also finding that there are no
private rights of action under §§ 34(b), 36(a), or 48(a). See
Stegall v. Ladner, NO. CIV.A. 05-10062, 2005 WL 2709127, at *8
(D. Mass. Oct 14, 2005); Hamilton v. Allen, NO. CIV.A. 05-110),
2005 WL 2660356, at *6 (E.D. Pa. Oct 14, 2005); Yameen v. Eaton
Vance Distributors, Inc., NO. CIV.A. 03-12437, 2005 WL 2709116,
at *1 n. 1 (D. Mass. Oct 14, 2005); In re Davis Selected Mutual
Funds Litig., No. 04 Civ. 4186, 2005 WL 2509732, at *2 (S.D.N.Y.
Oct. 11, 2005); In re Franklin Mutual Funds Fee Litig.,
388 F. Supp. 2d 451, 466 (D.N.J. 2005); In re Mutual Funds Inv.
Litig., 384 F. Supp. 2d 845, 869-70 (D. Md. 2005). IV.
The Court previously dismissed Count Three, which alleged a
claim under § 36(b) of the ICA against Eaton Vance Distributors,
the Investment Adviser Defendants, and the Trustee Defendants.
The Court found that Count Three alleged improper payments that
were outside the scope of § 36(b), rather than excessive fees,
and thus should be dismissed. The Court also found that Count
Three must be dismissed against the Investment Adviser Defendants
and the Trustee Defendants because they were not the alleged
direct recipients of the disputed payments. Eaton Vance,
380 F. Supp. 2d at 237-238.
The plaintiffs argue that they sufficiently alleged excessive
fees under the notice pleading standard of Fed.R.Civ.P. 8.
They argue that they do not need to allege any "evidentiary
details" supporting a § 36(b) claim, and that all that is
required is a short and plain statement alleging that the fees
are excessive. While § 36(b) is governed by Rule 8 notice
pleading, the plaintiffs must provide "fair notice of what the
plaintiff's claim is and the grounds upon which it rests." Dura
Pharmaceuticals, Inc. v. Broudo, 125 S.Ct. 1627, 1634 (2005).
The Supreme Court's recent opinion in Dura noted, after finding
that loss causation and economic loss are required elements of a private securities fraud action, that the complaint
must allege the economic loss suffered and how it was related to
defendants' actions. Id. Similarly here, while the plaintiffs
need not necessarily allege any specific factor identified in
Gartenberg v. Merrill Lynch Asset Management, Inc.,
694 F.2d 923, 930 (2d Cir. 1982), to meet the notice pleading standard for
an excessive fee claim, the plaintiffs must still allege facts
demonstrating how the fee "is so disproportionately large that it
bears no reasonable relationship to the services rendered and
could not have been the product of arm's-length bargaining."
Id. at 928.*fn2 As explained below, the SAC failed to meet
the Rule 8 notice pleading standard. B.
The plaintiffs do not appear to challenge the Court's previous
ruling that § 36(b) applies to claims of excessive fees that
could not have been the product of arm's-length bargaining, and
not to "whether investment advisers acted improperly in the use
of the funds." Eaton Vance, 380 F. Supp. 2d at 237.*fn3
The plaintiffs instead argue that the SAC does indeed allege
excessive rather than improper fees.
First, the plaintiffs argue that the fees were excessive
because plaintiffs received no benefit from fees that were put to
allegedly improper use. In other words, the plaintiffs argue that
because they paid "something for nothing," the payments were by
definition excessive.*fn4 This interpretation stretches the
reach of § 36(b) too far, because any allegation of improper use
of fees that does not benefit the plaintiffs would be impermissibly swept into the purview of § 36(b). See Meyer v.
Oppenheimer Management Corp., 764 F.2d 76, 85 (2d Cir. 1985)
("We do not understand section 36(b) to be an enforcing mechanism
for every SEC regulation or every action authorized
thereunder."); Stegall, 2005 WL 2709127 at *12 (dismissing a
complaint that alleged deficient services because to allow such a
claim without an explanation of how fees were excessive in light
of those services "would turn any breach of a fiduciary duty into
a section 36(b) violation").
Second, the plaintiffs argue that because fees remained
constant while the assets of the fund grew, the plaintiffs did
not benefit from economies of scale. (Pl. Mem. at 12, citing SAC
¶¶ 89-94, 115, 117, 119, 129.) Courts have found that the failure
to pass on benefits of economies of scale is a factor to be
considered in determining whether fees are excessive under §
36(b). See Gartenberg, 694 F.2d at 930 ("the extent to which
the adviser-manager realizes economies of scale as the fund grows
larger" is a factor in determining excessive fees). However,
Count Three itself does not make any allegations concerning the
failure to pass on any benefits of economies of scale, but rather
alleges that defendants "violated Section 36(b) by improperly
charging investors in the Eaton Vance Funds purported Rule 12b-1
marketing fees, and by drawing on the assets of Eaton Vance Fund
investors to make undisclosed payments of Soft Dollars and excessive commissions, as defined
herein, in violation of Rule 12b-1." (SAC ¶ 144.) Even though
Count Three repeats and realleges every previous allegation in
the SAC, nowhere in the SAC do the plaintiffs ever allege that
the failure to pass on benefits from economies of scale was a
violation of § 36(b). There is also no allegation that the fees
charged were so disproportionately large that they bore no
relationship to the services rendered. Thus, there is no basis to
reconsider the Court's decision.
The plaintiffs also challenge the Court's ruling that the
Investment Adviser Defendants and Trustee Defendants are not
recipients of the disputed payments, and thus not proper
defendants for § 36(b). The plaintiffs first argue that because
the Trustee Defendants are alleged to be "captive and controlled"
by Eaton Vance, they are alleged "affiliated persons" and "were
recipients of the payments," and thus proper § 36(b) defendants.
(Pl. Mem. at 13.) But there is no allegation that the Trustees
directly received any of the disputed payments other than by
merely receiving compensation for their trustee services, which
would be an indirect benefit excluded from § 36(b). Similarly,
the plaintiffs' second argument that the Investment Adviser
Defendants received advisory fees from the Eaton Vance Fund ignores that these were
indirect benefits of the disputed payments. There is no basis to
reconsider the Court's decision.
This Court also dismissed Counts Two, Four, Seven, Eight, Nine,
and Ten on the grounds that they were, in fact, derivative
claims, but were brought as direct claims on behalf of the
purported class of shareholders. Eaton Vance,
380 F. Supp. 2d at 236. In their motion for reconsideration, the plaintiffs
advance three arguments why the claims are not derivative.
First, the plaintiffs reiterate their argument, based on
Strigliabotti v. Franklin Resources, Inc., No. C. 04-00883,
2005 WL 645529 (N.D. Cal. Mar 07, 2005), that the unique
structure of a mutual fund causes the alleged injuries to be
directly borne by the individual investor, not by the Funds.
Noting that "[e]very dollar of expense borne by the fund is
distributed to shareholders, as a pro rata deduction from the net
asset value per share," and that "[f]ees, likewise, are paid by
individual investors," the Strigliabotti court found that
financial harm from alleged overcharges was borne by individual
investors directly on a pro rata basis, and was thus not a
corporate injury under California law. Id. at *7-8. This
argument, however, is unpersuasive for the reasons explained in
this Court's original opinion, and it is not a basis for
reconsideration. As another court has noted, "[w]hile
Strigliabiotti is on point, its reasoning is at odds with the
overwhelming majority of courts who have addressed this issue."
Hogan v. Baker, No. Civ.A. 305CV0073P, 2005 WL 1949476, at *4
(N.D. Tex. Aug. 12, 2005). Moreover, the Strigliabotti analysis
is inconsistent with the analysis used by courts applying
Massachusetts law, which governs in this case. See, e.g.,
Lapidus v. Hecht, 232 F.3d 679, 683 (9th Cir. 2000); Green v.
Nuveen Advisory Corp., 186 F.R.D. 486, 489-90 (N.D. Ill. 1999);
Jackson v. Stuhlfire, 547 N.E.2d 1146, 1148 (Mass.App.Ct.
Second, the plaintiffs argue that Eaton Vance Funds are
organized as Massachusetts business trusts for the purpose of
rendering professional services, and thus create direct liability
for trustees and employees of the trust particularly the
Investment Adviser Defendants with respect to those receiving
the services, namely, the plaintiffs. This is a new argument that
was not previously raised by the plaintiffs, and the Court will
therefore not consider it on a motion for reconsideration.
Third, the plaintiffs argue that the harms alleged in Counts
Two, Four, Seven, Eight, and Ten are direct just like the harm
from materially false and misleading prospectuses alleged in Count One, which the Court previously found was an injury
separate and distinct from any injury to the Eaton Vance
Funds.*fn5 Eaton Vance, 380 F. Supp. 2d at 235 n. 5. The
plaintiffs argue that allegations of omissions were pleaded
throughout the complaint, and thus "run through" plaintiffs'
other claims. However, the injury pleaded under these other
counts was the adverse effects on the assets of the Eaton Vance
Funds, which the Court previously explained was an indirect
injury to the shareholders. Id. at 235-36. Thus, there is no
basis for reconsideration.
With respect to the dismissal of the derivative claim in Count
Five, the plaintiffs argue that the Court erred in holding that
the plaintiffs failed to allege properly the futility of demand
upon the Eaton Vance Trustees as required by Fed.R.Civ.P.
23.1. Eaton Vance, 380 F. Supp. 2d at 240. The plaintiffs
repeat their argument that the demand requirement should be
excused because the plaintiffs alleged that the Trustee
Defendants were rendered incapable of independent decision-making
due to their service on multiple fund boards and substantial
compensation. For the reasons explained in the original opinion,
the Court disagrees, and finds that these allegations are insufficient to excuse the demand requirement.
See id. at 239-40.
The Court previously found that Counts Six, Seven, Eight, Nine,
and Ten were state law claims preempted by SLUSA because the
proposed Class fails to distinguish between preempted claims that
are "in connection with the purchase or sale of a covered
security" and non-preempted claims of class members who simply
held shares of Eaton Vance Funds throughout the Class Period.
Eaton Vance, 380 F. Supp. 2d at 241-42 (citing Dabit v.
Merrill Lynch, Pierce, Fenner & Smith, Inc., 395 F.3d 25, 46 (2d
Cir. 2005) and Atencio v. Smith Barney, No. 04 Civ. 5653, 2005
WL 267556 (S.D.N.Y. Feb. 2, 2005)).
The plaintiffs argue that the Court's ruling ignores the
holding in Dabit that allowed certain plaintiffs to proceed
with claims for the return of flat annual fees paid for unbiased
investment research which the defendant allegedly promised but
failed to provide. In Dabit, the Second Circuit Court of
Appeals found a logical distinction between "claims that turn on
injuries caused by acting on misleading investment advice . . .
which necessarily allege a purchase or sale, and claims which
merely allege that the plaintiff was injured by paying,
independent of any given transaction, for a service that the
broker failed to provide." Dabit, 395 F.3d at 48. Accordingly, the Court of Appeals found that claims relating to the
defendant's alleged overcharging of commissions were necessarily
tied to the underlying securities transaction and thus
preempted while claims relating to annual fees for services
paid whether or not a customer conducts a transaction in the
account do not necessarily rest on any allegation of a purchase
or sale of a security, and thus were not preempted by SLUSA.
Id. at 49-50.
However, in this case the plaintiffs do not merely allege
claims for the return of annual fees paid for services not
rendered, but rather seeks to include claims that the purported
class was damaged by holding shares of the Eaton Vance Funds
based on alleged misrepresentations concerning the 12b-1 fees.
The Court previously found that this class would also necessarily
include members who had purchased shares during the Class Period.
Eaton Vance, 380 F. Supp. 2d at 241-42. With respect to those
members, the Court found that because "the SAC alleges that the
actions of the defendants that are the subject of the plaintiff's
claims steered purchasers into buying shares of the Fund, the
claims of class members who purchased shares during the Class
Period are inextricably related to their purchases of shares of
those funds and are preempted by SLUSA." Id. at 241. Thus, the
plaintiffs' claims in Counts Six, Seven, Eight, Nine, and Ten are not akin to the flat fee repayment
claims in Dabit, and are preempted by SLUSA.
In a footnote in their Memorandum in Support of their Motion to
Strike, the plaintiffs originally requested leave to amend "once
the parties complete briefing on the motions to dismiss and the
Court issues its opinion thereon, if necessary. . . ."
(Memorandum of Law in Support of Plaintiffs' Motion to Strike
Material Not Previously Raised in Defendants' Pre-Motion Letters,
filed Jan. 12, 2005, at 7 n. 7.) At that time, the plaintiffs did
not propose any amendments nor indicate how amending would cure
any alleged deficiencies. The Court then granted the defendants'
motion to dismiss without leave to amend. The Court denied leave
to amend because of the plaintiffs' failure to cure deficiencies,
despite notice and an opportunity to do so, as well as the
plaintiffs' failure to show how any amended complaint could cure
the deficiencies. Eaton Vance, 380 F. Supp. 2d at 242. In
dismissing the SAC in its entirety, the Court directed the Clerk
to enter judgment and to close this case.
After judgment was entered, the plaintiffs filed a motion for
leave to file a third amended complaint. "When the moving party
has had an opportunity to assert the amendment earlier, but has waited until after judgment before requesting leave, a
court may exercise its discretion more exactingly." State
Trading Corp. of India, Ltd. v. Assuranceforeningen Skuld,
921 F.2d 409, 418 (2d Cir. 1990); see also National Petrochemical
Co. of Iran v. M/T Stolt Sheaf, 930 F.2d 240, 245 (2d Cir. 1991)
(collecting cases). While leave to amend should generally be
"freely given when justice so requires," Fed.R.Civ.P. 15(a),
there is no basis to reconsider the Court's previous decision.
The plaintiffs argue that despite having two previous
opportunities to amend, they are entitled to amend after the
Court has given guidance as to what the deficiencies in their SAC
are. However, plaintiffs "were not entitled to an advisory
opinion from the Court informing them of the deficiencies of the
complaint and then an opportunity to cure those deficiencies."
PR Diamonds, Inc. v. Chandler, 364 F.3d 671, 699 (6th Cir.
2004) (emphasis and citation omitted); see also Vine v.
Beneficial Finance Co., 374 F.2d 627, 637 (2d Cir. 1967).
Here, the plaintiffs had ample notice of defects in their
complaint and opportunity to cure them before the Court ruled on
the motion to dismiss. The Court adopted a procedure by which
after the plaintiffs filed their Consolidated Amended Complaint,
the defendants submitted letters to the plaintiffs outlining
alleged defects in the Complaint. (Revised Stipulation and
Pretrial Order No. 1 Consolidating the Actions, dated April 27, 2004, at 5.) The plaintiffs then had the opportunity to cure the
defects by filing the SAC. This procedure was intended to prevent
the parties from needlessly expending considerable time, effort,
and expense in briefing the motion to dismiss and obtaining a
decision on that motion, which would then be followed by yet
another amended complaint and possibly a new round of motions to
dismiss. Absent some good cause, the defendants and the Court
were entitled to the plaintiffs' best effort at presenting their
claims in response to the objections raised by the defendants.
See In re Capstead Mortg. Corp. Sec. Litig.,
258 F. Supp. 2d 533, 568 (N.D. Tex. 2003).
In light of the plaintiffs' failure to cure the defects after
being provided notice, this is not a case where leave to amend
should be given because "justice so requires." See Foman v.
Davis, 371 U.S. 178, 182 (1962) (denial of leave to amend
appropriate where there is "repeated failure to cure deficiencies
by amendments previously allowed"); Benzon v. Morgan Stanley
Distributors, Inc., 420 F.3d 598, 613-14 (6th Civ. 2005)
(denying leave to amend after first dismissal was not an abuse of
discretion where the plaintiff previously filed an amended
complaint after having notice of defects from a previous motion
to dismiss that was filed but not decided); U.S. ex rel. Adrian
v. Regents of Univ. of California 363 F.3d 398, 404 (5th Cir.
2004) (same); Krantz v. Prudential Investments Fund Management LLC, 305 F.3d 140, 144 (3d Cir. 2002) (same, noting
that a "District Court has discretion to deny a plaintiff leave
to amend where the plaintiff was put on notice as to the
deficiencies in his complaint, but chose not to resolve them.");
see also Hall v. United Techs. Corp., 872 F. Supp. 1094,
1101-03 (D. Conn. 1995) (denying leave to amend after the first
ruling on a motion to dismiss where the plaintiffs had notice of
defects in their Second Amended Complaint from two previous
motions to dismiss).
The Court also previously denied leave to amend because the
plaintiffs failed to submit a proposed amended complaint that
would cure the pleading defects, and there was a strong argument
that leave to amend would be futile. The plaintiffs now submit a
Proposed Third Amended Complaint ("PTAC"). (Ex. A. to Plaintiffs'
Memorandum of Law in Support of Their Motion for Leave to File an
Amended Complaint.) However, in considering the PTAC in light of
the other rulings above, there still remains a strong argument
that leave to amend would be futile.
In the PTAC, the plaintiffs have now abandoned Counts Six and
Nine of the SAC. Counts Seven and Eight of the SAC, which alleged
a breach of fiduciary duty against the Investment Adviser
Defendants and the Trustee Defendants, respectively, have now
been re-pleaded as Counts Six, Seven, and Eight in the PTAC as
claims for breach of fiduciary duty against the Investment Adviser Defendants, the Trustee Defendants, and the
Officer Defendants, respectively, on behalf of a "sub-class" of
purchasers of Eaton Vance Funds who purchased shares before the
Class Period and held the shares during the Class Period. (PTAC ¶
1.) Count Nine of the PTAC, similar to Count Ten of the SAC,
alleges a claim of unjust enrichment on behalf of the sub-class.
Counts One, Two, and Four of the PTAC, which resemble the same
counts in the SAC, would be barred as a matter of law because
there is no private right of action to pursue such claims. Counts
Two, Four, Six, Seven, Eight, and Nine of the PTAC would still be
barred because they are either derivative and/or preempted
claims. The Court also would not exercise supplemental
jurisdiction over the state law claims, Counts Six through Nine
of the PTAC, after the federal claims are dismissed. Count Five
of the PTAC would still be barred because the plaintiffs continue
to assert incorrectly that demand was excused because it was
allegedly futile. (PTAC ¶¶ 177-86.)
The plaintiffs attempt to re-plead Counts Seven, Eight, and Ten
to avoid SLUSA preemption by asserting claims on behalf of a
putative "State Law Sub-Class" of persons or entities who held
but never purchased Fund shares during the Class Period. (PTAC ¶¶
1, 27.) However, the sole sub-class representative, Marvin
Goldfarb, had previously admitted in ¶ 15 of the earlier
Consolidated Amended Complaint to having purchased and held Fund shares during the Class Period, and is thus ineligible for
sub-class membership. To the extent that Dabit notes that
courts should dismiss without prejudice SLUSA-preempted claims
that fail to distinguish a non-preempted subclass "in order to
allow the plaintiff to plead a claim sounding only in state law
if possible," Dabit, 395 F.3d at 47, this Court dismissed the
claims under SLUSA "as interpreted in Dabit" and further
declined to "exercise supplemental jurisdiction over purely state
law claims." Eaton Vance, 380 F. Supp. 2d at 242.
To the extent that the PTAC cures some (but certainly not all)
of the pleading defects in Count Three, the Court has previously
noted that plaintiffs specifically had prior notice of these
defects, yet chose not to cure them in the SAC. See Eaton
Vance, 380 F. Supp. 2d at 242. Moreover, there remain strong
arguments that re-pleading Count Three would still be futile in
light of other objections made by the defendants in the
underlying motion, which the Court considered but did not rule
on. Most notably, the defendants previously argued that a claim
for excessive fees must be asserted as a derivative cause of
action, and that the plaintiffs have impermissibly asserted it as
a direct action. (Memorandum of Law in Support of Defendants'
Motion to Dismiss the Second Amended Complaint, filed Oct. 26,
2004, at 18-19.) While the Court did not rule on this argument,
the Court notes that there is strong support for it. See Olmsted, 283 F.3d at 433 (noting § 36(b) is a
"private right of derivative action"); In re Franklin Mutual
Funds Fee Litig., 388 F. Supp. 2d at 468 (dismissing claim
because "§ 36(b) does not provide for a direct private right of
action"); In re Lord Abbett Mutual Funds Fee Litig.,
385 F. Supp. 2d 471, 489 (D.N.J. 2005) (the plaintiffs "may not maintain
[a § 36(b) claim] as a class action claim, given the derivative
nature of the claim"); Mutchka v. Harris, 373 F. Supp. 2d 1021,
1025 (C.D. Cal. 2005) (section 36(b) claim "must fail because it
has not been brought derivatively").
There is a strong interest in finality of judgments and the
expeditious termination of litigation. National Petrochemical
Co. of Iran, 930 F.2d at 245. For the reasons explained above
and in the Court's original opinion, this is not a case where
justice requires that the plaintiffs be afforded yet another
opportunity to file an amended complaint. See Fisher v.
Offerman & Co., Inc., No. 95 Civ. 2566, 1996 WL 563141, at *9
(S.D.N.Y. Oct. 2, 1996). The motion to file a third amended
complaint is denied. CONCLUSION
The motion for reconsideration is granted. Upon
reconsideration, the Court adheres to its prior order. The motion
for leave to file a third amended complaint is denied.
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