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In re Optimal U.S. Litigation

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK


August 26, 2011

IN RE OPTIMAL U.S. LITIGATION

The opinion of the court was delivered by: Shira A. Scheindlin, U.S.D.J.

OPINION AND ORDER

I. INTRODUCTION

This putative class action arises out of Plaintiffs' investment in the Optimal Strategic U.S. Equity fund ("Optimal U.S." or the "Fund"), which in turn invested one-hundred percent of its assets with Bernard L. Madoff ("Madoff") and his firm, Bernard L. Madoff Investment Securities LLC ("BMIS"). Plaintiffs allege that Defendants failed to conduct adequate diligence regarding Madoff, ignored "red flags" that should have alerted them to Madoff's fraud, and made misstatements and omissions in connection with the sale of Optimal U.S. shares, causing Plaintiffs to lose their investments and allowing Defendants wrongfully to collect management fees.*fn1

On May 2, 2011, I granted in part Defendants' motion to dismiss Plaintiffs' Second Amended Complaint ("SAC") for improper forum, lack of standing, and failure to state certain claims.*fn2 First, and of relevance to this Opinion, I dismissed the Santander Plaintiffs from this action on the grounds that a forum selection clause contained in the Terms and Conditions governing their accounts with SBT ("SBT Terms & Conditions") required them to litigate all of their claims, against all Defendants, in the Bahamas. Second, I dismissed the common law claims for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, gross negligence, third party breach of contract, and unjust enrichment brought by the Pioneer Plaintiffs and Santander Plaintiffs against OIS, Clark, and Banco Santander (Counts V-VII and IX-X) because any harm arising from such conduct was sustained by Optimal U.S., the only entity that could bring suit directly. However, I deferred ruling on whether the "Wagoner Rule" nevertheless imbues Plaintiffs with standing,*fn3 invited additional briefing on the issue, and indicated that I would accept renewed motions to dismiss those claims in the event they were sustained.*fn4

This Opinion addresses (1) Plaintiffs' motion for reconsideration of my holding that the Santander Plaintiffs' claims are subject to the forum selection clause contained in the SBT Terms & Conditions and (2) the parties' supplemental briefing on the Wagoner Rule. For the following reasons, Plaintiffs' motion for reconsideration is granted in part and denied in part. I also now hold that the Wagoner Rule does not imbue Plaintiffs with standing to bring Counts V-VII and IX-X, thereby again dismissing those Counts.

II. DISCUSSION

A. Motion for Reconsideration

The Santander Plaintiffs move for reconsideration of my holding that Defendants -- who are non-signatories to the Santander Plaintiffs' Account Agreements with SBT -- "are sufficiently 'closely related' to SBT such that enforcement of the forum selection clause [contained in the SBT Terms & Conditions] by those entities was foreseeable to the Santander Plaintiffs."*fn5

Although I deny the Santander Plaintiffs' motion as to Santander U.S., who may invoke the forum selection clause as to the Santander Plaintiffs' claims, I grant the Santander Plaintiffs' motion with respect to OIS, Clark, and Banco Santander.

1. Legal Standard

Motions for reconsideration are governed by Local Rule 6.3 and are committed to the sound discretion of the district court.*fn6 A motion for reconsideration is appropriate where "'the moving party can point to controlling decisions or data that the court overlooked -- matters, in other words, that might reasonably be expected to alter the conclusion reached by the court.'"*fn7 A motion for reconsideration may also be granted to "'correct a clear error or prevent manifest injustice.'"*fn8

The purpose of Local Rule 6.3 is to "'ensure the finality of decisions and to prevent the practice of a losing party examining a decision and then plugging the gaps of a lost motion with additional matters.'"*fn9 Local Rule 6.3 must be "narrowly construed and strictly applied so as to avoid repetitive arguments on issues that have been considered fully by the Court."*fn10 Courts have repeatedly been forced to warn counsel that such motions should not be made reflexively to reargue "'those issues already considered when a party does not like the way the original motion was resolved.'"*fn11 A motion for reconsideration is not an "opportunity for making new arguments that could have been previously advanced,"*fn12 nor is it a substitute for appeal.*fn13

2. Applicable Law

It is well established that a range of transaction participants, parties and non-parties, should benefit from and be subject to forum selection clauses. In order to bind a non-party to a forum selection clause, the party must be closely related to the dispute such that it becomes foreseeable that it will be bound. A non-party is closely related to a dispute if its interests are completely derivative of and directly related to, if not predicated upon the signatory party's interests or conduct.*fn14

3. OIS, Clark, and Banco Santander Cannot Invoke the Forum Selection Clause

The Santander Plaintiffs move for reconsideration of my holding that Defendants are "closely related" to SBT such that they may enforce the forum selection clause contained in the SBT Terms & Conditions,*fn15 on the grounds that I relied on an incomplete version of the Account Agreement.*fn16 They argue that my reliance on section 21L of the Account Agreement was in error, and that section 34 -- which was not before this Court on Defendants' original motion -- makes clear that "the Account Agreement explicitly excluded the Santander Plaintiffs' claims against Defendants."*fn17

Section 21L provides that SBT "may engage other agents or subagents (that may be [SBT's] affiliates) to provide investment advisory, brokerage, and other services to [SBT] for the Advisory Accounts."*fn18 In the May 2 Opinion, I reasoned that the Santander Plaintiffs' claims against Santander U.S., Banco Santander, and OIS -- all SBT affiliates -- are based on those Defendants' provision, albeit indirectly, of such "investment advisory . . . services to SBT." Thus, section 21L indicates that "the signatories [to the SBT account agreements incorporating the SBT Terms & Conditions] intended the contract to benefit related [Santander] companies" and "gave [the Santander Plaintiffs] reason to know that one of the reasons motivating [SBT] to enter the contract was a desire to confer a pecuniary benefit on related [Santander] companies."*fn19

"But here," the Santander Plaintiffs argue, SBT did not engage Defendants Banco Santander, OIS, nor Clark. Optimal U.S. engaged OIS to provide investment advisory services to Optimal U.S. Not even Plaintiffs engaged OIS and certainly not SBT. OIS also did not provide any services to SBT. OIS provided investment advisory services to Optimal U.S., from which Plaintiffs, at best, were supposed to benefit indirectly. Accordingly, neither Banco Santander, OIS, nor Clark are subject to section 21L.*fn20

Instead, the Santander Plaintiffs contend, section 34 describes "exactly what happened here":*fn21

[§ 34] . . . [Y]ou understand and agree that [SBT] and its . . . employees, agents, and affiliates have no liability or responsibility for the failure or inability of an issuer [such as Optimal U.S.] to repay or perform . . . . If an issuer of any Property purchased by [SBT] for you defaults either totally or partially in the payment or performance of its obligation, or is prevented for any reason from transferring funds owed, [SBT's] only obligation will be to assign to you the claim against the issuer that [SBT] holds on your behalf . . . .*fn22

The Santander Plaintiffs argue that, because "the Account Agreement is clear that SBT had no obligation whatsoever other than to assign [any] claim [against an issuer] . . . , even assuming that Defendants here were 'closely related' to SBT . . . , the Account Agreement does not contemplate the Santander Plaintiffs' claims" which are "wholly outside the purview of this agreement, negating the application of any of its clauses, much less the forum selection clause . . . ."*fn23

However, just because the Account Agreement does not delineate the scope of liability of SBT's affiliates for the failure of an issuer to repay or perform does not mean the Agreement does not "contemplate" such claims against those affiliates. To the contrary, section 34 expressly contemplates such claims, but disclaims any liability by SBT's affiliates for them.

The Santander Plaintiffs' better argument is that, even if the Account Agreement purports to insulate SBT's affiliates from such claims, according to section 78 of the Agreement, such claims must still "aris[e] out of or relat[e] to the Account or [the] Account Agreement" in order to be governed by the forum selection clause.*fn24 While the language of this clause is broad -- and would apply to almost any claim against SBT and its affiliates that derives in any way from their interaction with the Santander Plaintiffs in the Santander Plaintiffs' capacity as private banking clients*fn25 -- none of the actions or omissions for which the Santander Plaintiffs are suing OIS, Clark, and Banco Santander are predicated or depend upon their private banking relationships with SBT and its affiliates. As the Santander Plaintiffs rightly note, SBT did not engage these defendants to provide investment advisory services to the Santander Plaintiffs; Optimal U.S. did. My holding to the contrary in the May 2 Opinion -- which was based solely upon my analysis of section 21L -- was clear error.

The Santander Plaintiffs, like all other Plaintiffs in this action, are suing OIS, Clark, and Banco Santander for mismanagement of -- and misrepresentations about -- Plaintiffs' investments in Optimal U.S. Whether any plaintiffs in this action held their Optimal U.S. investments in accounts with SBT Bahamas (like the Santander Plaintiffs), Dresdner Bank (like Silvana), or Banc Julius Baer (like the Pioneer Plaintiffs) is "irrelevant to their ability to invest in Optimal U.S. and sue."*fn26 Put differently, to the extent the Santander Plaintiffs are suing these three defendants "for the failure or inability of an issuer to repay or perform"*fn27 or for a "transaction or position in the Advisory Accounts,"*fn28 it is simply a coincidence that the "issuer" whose securities were held in the Santander Plaintiffs' Advisory Accounts (i.e., Optimal U.S.) also happens to be an "affiliate" of SBT. Indeed, under any other reading of section 34, the forum selection clause "would even apply . . . to a Section 11 claim against Banco Santander, as underwriter, if an SBT account holder invested in the offering."*fn29 While OIS, Clark, and Banco Santander may attempt to invoke section 34 as a defense to the Santander Plaintiffs' claims in this action, that does not transform their claims into ones "arising out of or relating to the Account or [the Account] Agreement"*fn30 such that these defendants may invoke section 78 to provide the benefit of the forum selection clause. For these reasons, the Santander Plaintiffs' motion for reconsideration is granted with respect to OIS, Clark, and Banco Santander.

4. Santander U.S. May Invoke the Forum Selection Clause

However, the Santander Plaintiffs' claims against Santander U.S. clearly arise out of or relate to their Account Agreements. The Santander Plaintiffs are suing Santander U.S. for negligent misrepresentation, breach of fiduciary duty, gross negligence, unjust enrichment, and assisting OIS's fraud.*fn31 These claims are all based on Santander U.S.'s marketing and sales of Optimal U.S. to the Santander Plaintiffs (for which it earned sales fees), its distribution of Optimal U.S. Explanatory Memoranda to those plaintiffs,*fn32 and the "special relationship of trust or confidence" that developed between Santander U.S. and the Santander Plaintiffs as a result.*fn33 However, "a private banking relationship with a Santander affiliate was the basis for Santander U.S.'s communications with investors concerning their investments in Optimal U.S."*fn34 Thus, Santander U.S.'s ability to market and sell Optimal U.S. and earn sales fees, and its responsibility for distributing Explanatory Memoranda, "derived from [SBT's] interests" under the Account Agreement.*fn35

Indeed, those responsibilities depended upon the existence of a contractual banking relationship between Santander U.S.'s clients and an SBT affiliate -- a relationship governed by terms and conditions that expressly contemplate SBT's coordination with affiliates in the provision of private banking services.*fn36 Even if SBT did not formally "engage" or "employ" Santander U.S. to provide services on its behalf,*fn37 it is plausible to infer that Santander U.S. had assumed responsibility for, and acted as SBT's agent in, the provision of certain services related to those accounts and to the Account Agreements. This inference is based on the allegations that Santander U.S. had complete control over all communications with the Santander Plaintiffs related to their Advisory Accounts. For example, Santander U.S. not only distributed account statements on SBT's behalf, but also "ma[de] available" certain "disclosure documents" related to the "purchase or sale of [shares of Optimal U.S.]";*fn38 "conduct[ed] reviews of the Advisory Accounts from time to time";*fn39 and "provid[ed] investment advice and ma[de] recommendations whenever, in [its] judgment, developments so warrant."*fn40 As I noted in the May 2 Opinion, in Anwar II, Judge Victor Marrero of this Court held that a forum selection clause contained in the "Terms and Conditions" applicable to plaintiffs' bank accounts covered plaintiffs' "dispute about [the bank]'s diligence in investigating [a Madoff feeder fund] and its representations about [that fund]."*fn41 The result must be the same here, even though Plaintiffs did not name SBT as a defendant.*fn42

Moreover, as I held in the May 2 Opinion, the SBT Terms & Conditions were clearly intended to benefit Santander U.S. For example, section 34 provides that not only SBT, but also "its . . . employees, agents, and affiliates" "have no liability in connection with any other act taken or omitted by them in good faith under this Agreement (including, without limitation, negligent acts or omissions)."*fn43 Section 34 further provides that private banking clients agree to indemnify not only SBT, but also its . . . employees, agents, and affiliates against . . . any liability, cost, and expense . . . that . . . its . . . employees, agents, and affiliates may incur or be subjected to with respect to the Advisory Accounts or any transaction or position in the Advisory Accounts.*fn44

These provisions bolster my prior holding that "'the signatories [to the SBT account agreements incorporating the SBT Terms & Conditions] intended the contract to benefit related [Santander] companies' and 'gave [the Santander Plaintiffs] reason to know that one of the reasons motivating [SBT] to enter the contract was a desire to confer a pecuniary benefit on related [Santander] companies.'"*fn45 Not only that, but the pecuniary benefit was intended to benefit affiliates like Santander U.S. in the precise scenario that, by the Santander Plaintiffs' own admission, was "exactly what happened here."*fn46

The Santander Plaintiffs argue that section 64, which purports to insulate SBT from liability for its affiliates' acts and omissions,*fn47 "precludes a finding that SBT and Defendants are closely related" for two reasons: first, because it "creates an unequivocal distinction and separation between SBT (as signatory) and its affiliates (as non-signatories) with respect to lawsuits by the Santander Plaintiffs";*fn48 and, second, because "Defendants' misconduct cannot serve as a basis for a lawsuit against SBT."*fn49 The language also "negates the conclusion reached in the Order that Defendants were intended beneficiaries of the forum selection clause" because "[s]section 64 indicates that SBT did not want to have anything to do with any claims for misconduct against Defendants" and therefore "could not have intended for the forum selection clause to apply to Defendants in a lawsuit only predicated on Defendants' misconduct."*fn50

Of course, SBT also disclaimed liability for an issuer's failure to repay or perform,*fn51 acts taken or omitted by SBT in good faith under the Agreement,*fn52 any loss in value of nondeposit investment products maintained in any Advisory Account,*fn53 and any inability to contact private banking clients regarding particular investment decisions or recommendations.*fn54 Yet lawsuits against SBT based on such events would clearly "aris[e] out of or relat[e] to the Account or th[e] Agreement"*fn55 and therefore be subject to the forum selection clause. Under Plaintiffs' logic, not even SBT could invoke the forum selection clause with respect to any of the "Indemnified Liabilities" which are defined to include causes of action "in any way relating to or arising out of: (a) this Agreement . . . [and] (b) any Account."*fn56 In other words, just because SBT disclaims liability for certain activity does not mean lawsuits based on that activity are not governed by the forum selection clause. Similarly, just because SBT disclaims liability for actions taken byits affiliates (Santander U.S.)does not mean lawsuits based on certain of those actions do not "aris[e] out of or relat[e] to the Account or th[e] Agreement."*fn57 For these reasons, the Santander Plaintiffs' argument fails, and their motion for reconsideration is denied as to Santander U.S., who may invoke the forum selection clause found in the Santander Plaintiffs' Account Agreements.

B. The "Wagoner" Rule/In Pari Delicto

In the May 2 Opinion, I held that the Pioneer Plaintiffs' direct claims against OIS, Clark, and Banco Santander*fn58 in Counts V-VII and IX-X belonged to the Fund, and therefore could not be asserted directly by those Plaintiffs.*fn59

Plaintiffs declined my invitation to replead the claims as derivative. They maintain their position that, "[a]part from any other basis for standing, Plaintiffs have standing to bring claims that would otherwise belong to the Fund because of the 'Wagoner Rule.'"*fn60

1. Applicable (New York) Law*fn61

The Wagoner Rule provides that "[a] claim against a third party for defrauding a corporation with the cooperation of management accrues to creditors, not to the guilty corporation."*fn62 The WagonerRule "derives in significant part from federal bankruptcy law, and is a prudential limitation on standing under federal law."*fn63 However, it "is not part of New York law except as it reflects the [affirmative defense] in pari delicto,"*fn64 which mandates that the courts will not intercede to resolve a dispute between two wrongdoers. This principle has been wrought in the inmost texture of our common law for at least two centuries. The doctrine survives because it serves important public policy purposes. First, denying judicial relief to an admitted wrongdoer deters illegality. Second, in pari delicto avoids entangling courts in disputes between wrongdoers.*fn65

Thus, in Kirschner v. KPMG LLP, in pari delicto was held to bar a derivative action brought on behalf of American International Group, Inc. ("AIG") against PricewaterhouseCoopers LLP (PwC) on the theory that PwC failed to detect or report fraud perpetrated by AIG's senior officers. In arguing for an expansion of the so-called "adverse interest exception" to the doctrine of in pari delicto, the derivative plaintiffs had argued that "although they [] stand in the shoes of corporate malefactors, any recovery they achieve will, in fact, benefit blameless . . . shareholders . . . at the expense of defendants who allegedly assisted the fraud or were negligent."*fn66 The New York Court of Appeals was not persuaded, however, that the equities are quite so obvious. In particular, why should the interests of innocent stakeholders of corporate fraudsters trump those of innocent stakeholders of the outside professionals who are the defendants in these cases? . .

In a sense, plaintiffs' proposals may be viewed as creating a double standard whereby the innocent stakeholders of the corporation's outside professionals are held responsible for the sins of their errant agents while the innocent stakeholders of the corporation itself are not charged with knowledge of their wrongdoing agents. . . . The owners and creditors of . . . PwC may be said to be at least as "innocent" as . . . AIG's stockholders. . . . We are also not convinced that altering our precedent to expand remedies for these or similarly situated plaintiffs would produce a meaningful additional deterrent to professional misconduct or malpractice. . . . Indeed, . . . [i]n the AIG securities fraud litigation, PwC settled with shareholder plaintiffs last year for $97.5 million. . . . [T]he approach advocated by . . . the derivative plaintiffs would allow the creditors and shareholders of the company that employs miscreant agents to enjoy the benefit of their misconduct without suffering the harm.*fn67

2. In Pari Delicto Does Not Imbue Plaintiffs with Standing

Plaintiffs argue that, because their assertion of any derivative claims against OIS on behalf of Optimal U.S. "would be subject to an unclean hands defense" by OIS -- because OIS "collaborat[ed] with the Board of Optimal U.S. (through [Optimal U.S.'s Director Manuel] Echeverria) in promulgating and promoting the Madoff Ponzi scheme"*fn68 -- "the Court should apply the Wagoner rule as provided under New York law and allow the claims at issue to proceed directly."*fn69

Plaintiffs' argument is self-defeating. This Court has already ruled that Counts V-VII and IX-X allege claims that belong to the Fund, not to Plaintiffs. As I explained in the May 2 Opinion, Plaintiffs' claims for breach of fiduciary duty, aiding and abetting breach of fiduciary duty, gross negligence and unjust enrichment against OIS, Clark, and Banco Santander are "'based on the alleged mismanagement of the [] Fund through the failure to conduct adequate due diligence and to discover and act upon red flags.'"*fn70 Such "'allegations of mismanagement or diversion of assets by officers or directors to their own enrichment, without more, plead a wrong to the corporation only, for which a shareholder may sue derivatively but not individually.'"*fn71 Similarly, I held that Plaintiffs' third party beneficiary breach of contract claim against OIS was "derivative in nature" because Plaintiffs "'could not demonstrate an injury (a breach of that contract) independent of injury to [Optimal U.S.] (the promisee and primary beneficiary of the contract).'"*fn72 Thus, I held, Plaintiffs could only pursue these claims derivatively on behalf of the Fund.

But to the extent the Wagoner Rule applies to shareholder derivative claims -- as opposed to claims asserted by trustees in bankruptcy (the factual scenario presented by Shearson Lehman Hutton, Inc. v. Wagoner) -- it operates to bar such claims because, as derivative claimants, Plaintiffs stand in the shoes of the corporation whose "unclean hands" bar it from bringing suit.*fn73 Nothing in Kirschner supports the notion that a corporation's unclean hands -- potentially barring derivative claims -- will yet allow the corporation's shareholders to sue directly. Quite to the contrary, Kirschner expressly rejected the argument that "innocent stakeholders of the corporation itself [should] not [be] charged with knowledge of their wrongdoing agents."*fn74 This "presumption of imputation reflects the recognition that principals, rather than third parties, are best suited to police their chosen agents and to make sure they do not take actions that ultimately do more harm than good."*fn75

In In re Refco Inc. Securities Litigation, plaintiffs made a similar argument which was rejected by a Special Master whose reasoning was adopted by the court:

The Plaintiffs argue that Wagoner itself establishes their standing to pursue [claims previously dismissed by the Special Master as derivative] because the Wagoner court states that if the Trustee is barred by imputation, a claim against a third party 'accrues to creditors, not to the guilty corporation.' [Wagoner, 944 F.2d at 120.] But the Wagoner court's statement obviously does not mean that creditor corporations can collect on the claims if they, themselves, are barred by the wrongdoing of their own corporate agents that is imputed to them. Wagoner by definition bars claims that would otherwise accrue to parties but for imputation of wrongdoing. So even assuming the claims of the Refco Estate now accrue to the Plaintiffs as creditors, the Plaintiffs will be barred if in pari delicto/Wagoner applies to them.*fn76

Regarding plaintiffs' argument that this would result in "a wrong without a remedy," the Special Master observed that

[t]he New York Court of Appeals was quite clear that an application of the in pari delicto doctrine can leave a wrong without a remedy for the corporation, but was comfortable with that outcome because it found no reason to choose the corporation's innocent stakeholders over the innocent stakeholders of third parties.*fn77

To the extent this seems like an inequitable result, I note that I have sustained Plaintiffs' direct claims for both fraud and negligent misrepresentation against OIS -- claims that are not tainted by Optimal U.S.'s unclean hands, because they accrue to Optimal U.S.'s shareholders, not Optimal U.S. This outcome is consistent with Wagoner's first holding regarding the trustee's claim against a third-party broker for aiding, abetting, and unduly influencing the corporation's sole shareholder in making bad trades that dissipated corporate funds: "to the extent this claim alleges money damages to the 'clients of [the corporation, HMK],' it belongs only to the creditors and the trustee has no standing to assert it."*fn78 Indeed, had Optimal U.S. gone bankrupt, its trustee in bankruptcy would likely be barred from asserting fraud claims against OIS, not only because of its unclean hands, but also because such claims -- to the extent they allege "inducement such that recovery would only flow to those individuals who were so induced"*fn79 -- would "belong[] only to the creditors [of Optimal U.S.]," depriving the trustee of "standing to assert [them]."*fn80

Nor is this outcome inconsistent with Wagoner's second holding that "to the extent the [trustee's claim] alleges money damages to HMK itself, . . . [that] claim . . . accrues to creditors, not to the guilty corporation."*fn81 Plaintiffs here are the shareholders in a solvent, allegedly "guilty" corporation, not the creditors of a bankrupt "guilty" corporation. Wagoner itself demonstrates that, in the absence of some exception, the "unclean hands" of a corporation's agent are imputed to the entire corporation, which includes its shareholders. That HMK's "sole stockholder" had unclean hands -- because he was the same person as HMK's "sole . . . decisionmaker" -- was irrelevant to Wagoner's holding that the trustee's claim accrued to HMK's creditors; certainly nothing in Wagoner suggests that, had HMK's "sole stockholder" been "innocent," the trustee's claim would have accrued to that stockholder as opposed to the corporation's creditors.*fn82 As Kirschner makes clear, the so-called "innocence" of shareholders is irrelevant to the principle of imputation that is part and parcel of the in pari delicto defense.

To the extent Plaintiffs are arguing that they are similarly situated to the creditors in Wagoner -- Jehovah's Witnesses to whom Kirschner issued HMK Notes and HMK Loan Agreements -- they disregard the important legal significance attached to the distinction between shareholders and creditors in bankruptcy.*fn83

Plaintiffs assert that, outside of bankruptcy, "'the relative priorities between creditors and shareholders are without significance.'"*fn84 However, Plaintiffs cite no authority for the proposition that this Court should (1) limit Wagoner's creditor-shareholder distinction to the bankruptcy context and then (2) apply it outside the bankruptcy context to imbue Plaintiffs with standing in a shareholder derivative suit in New York -- a state where in pari delicto (i) does not govern standing and (ii) operates to bar Plaintiffs' derivative claims. In any event, this argument is in direct conflict with Kirschner -- controlling authority in New York -- which expressly rejected the argument that "the innocent stakeholders of [a] corporation [should] not [be] charged with knowledge of their wrongdoing agents."*fn85

It bears noting that in pari delicto "does not apply to the actions of fiduciaries who are insiders in the sense that they either are on the board or in management, or in some other way control the corporation."*fn86 Thus, given Plaintiffs' argument that Optimal U.S. "was nothing more than a corporate shell created by OIS simply as a pass-through vehicle to invest in Madoff,"*fn87 their decision not to pursue these claims as derivative -- and then refute any in pari delicto defense asserted by OIS on the grounds that OIS controlled Optimal U.S. -- is curious.*fn88 Plaintiffs' contention that "even if Plaintiffs were to sue derivatively and obtain a recovery for Optimal U.S., it would benefit OIS because OIS would be indemnified by Optimal U.S. under the Investment Management Agreement"*fn89

("IMA") is similarly puzzling, given that the IMA expressly excepts from indemnification "any matter as to which [OIS] shall have been adjudicated to have acted with willful default or not to have acted honestly[,] in good faith[,] or in the reasonable belief that such Indemnitee's action was in the best interest of the Fund."*fn90 Moreover, although OIS owns voting shares in Optimal U.S.'s parent (Optimal Multiadvisors Ltd (Bahamas)), those shares confer no right upon OIS to participate in any investment return or any recovery by the Fund, including an award of damages in the Fund's favor.*fn91 Thus, there is no "plausible concern here that the traditional rule vesting standing in Optimal U.S. alone could unjustly enrich alleged wrongdoers (the policy underlying the in pari delictodefense, which Wagoner purports to implement)."*fn92

For all of these reasons, I again dismiss Counts V-VII and IX-X as to OIS, Clark, and Banco Santander, because Plaintiffs lack standing to pursue the claims directly and have now waived their right to pursue them derivatively.*fn93

C. Santander U.S. Is Dismissed from this Action

In the May 2 Opinion, I dismissed the Santander Plaintiffs from this action because I determined that all of their claims against all Defendants must be litigated in the Bahamas. However, as discussed in Part II.A, I now conclude that OIS, Clark, and Banco Santander may not invoke the forum selection clause because the Santander Plaintiffs' claims against them do not arise out of or relate to their Accounts or Account Agreements with SBT. Accordingly, the Santander Plaintiffs' claims may proceed against those Defendants, to the extent they have not been dismissed on other grounds such as lack of standing.

However, Santander U.S. must be dismissed from this action. This is because (1) all of the Santander Plaintiffs' remaining claims against Santander U.S. arise out of or relate to the Santander Plaintiffs' private banking relationship with SBT (and must therefore be litigated in the Bahamas) and because, as described below, (2) the Pioneer Plaintiffs and Silvana fail to state, or lack standing to bring, any claims against Santander U.S.*fn94

In the 4AC (and SAC), "Plaintiffs" -- who include the Pioneer Plaintiffs, the Santander Plaintiffs, and Silvana*fn95 -- assert the following claims against Santander U.S.: aiding and abetting OIS's breach of fiduciary duty (VII), breach of fiduciary duty (VI), gross negligence (V), negligent misrepresentation (III & IV), and unjust enrichment (X).*fn96 I address each in turn. First, the Pioneer Plaintiffs and Silvana lack standing to bring a claim against Santander U.S. for aiding and abetting OIS's breach of fiduciary duty (VII), a necessary element of which is "'that plaintiffs [as opposed to the Fund] suffered damage as a result of [OIS's] breach.'"*fn97 This follows from my analysis of Plaintiffs' standing to bring the same claim against Banco Santander.*fn98 Alternatively, the Pioneer Plaintiffs and Silvana fail to state a claim against Santander U.S. for aiding and abetting OIS's alleged breach of fiduciary duty. This is because Santander U.S.'s alleged "active and integral participa[tion]" in OIS's breach*fn99 -- marketing and selling Optimal U.S. to the Santander Plaintiffs -- did not proximately cause any of the other plaintiffs' alleged damages.*fn100

Second, the basis for these "Plaintiffs'" breach of fiduciary duty claim against Santander U.S. is its "substantial discretion and control over marketing Optimal U.S. and communications with Plaintiffs."*fn101 But, as I discussed extensively in Part II.A.3, "a private banking relationship with a Santander affiliate was the basis for Santander U.S.'s communications with investors concerning their investments in Optimal U.S.,"*fn102 and only the Santander Plaintiffs had such a relationship with Santander affiliates. Therefore, there was no fiduciary duty for Santander U.S. to breach with respect to the Pioneer Plaintiffs or Silvana,*fn103 foreclosing Count VI.

Third, as alleged, Santander U.S. had no "special relationship" with the Pioneer Plaintiffs or Silvana that could "g[i]ve rise to a duty to exercise due care in the management of Plaintiffs' assets invested in Optimal U.S.,"*fn104 foreclosing their claims for gross negligence (V) and negligent misrepresentation (III & IV).*fn105

Fourth, to the extent Santander U.S. was unjustly enriched by the "sales charges" it charged the Santander Plaintiffs "at the time of the[ir] investment,"*fn106 that enrichment was not "at the expense" of the Pioneer Plaintiffs or Silvana, foreclosing their claim for unjust enrichment.*fn107 To the extent Santander U.S. is alleged to have been unjustly enriched by the annual management fee it shared with OIS,*fn108 the Pioneer Plaintiffs' and Silvana's claim for disgorgement of that fee belongs to the Fund, for the same reasons their unjust enrichment claims against OIS, Clark, and Banco Santander belong to the Fund.*fn109

Finally, these plaintiffs' unjust enrichment claim is also foreclosed by the attenuated connection between them and Santander U.S.*fn110 Therefore, these plaintiffs fail to state a (direct) claim for unjust enrichment (X) against Santander U.S.

Because there are no remaining claims against Santander U.S., it is dismissed from this action.

III. CONCLUSION

For the aforementioned reasons, Plaintiffs' motion for reconsideration is granted in part and denied in part; Counts V-VII and IX-X are dismissed either as derivative, for improper forum, or for failure to state claims; and Santander U.S. is dismissed from this action. The Clerk of the Court is directed to close the motion for reconsideration [Docket No. 33].

The following claims remain in this action: common law fraud, negligent misrepresentation, and gross negligence*fn111 against OIS, Clark, and Banco Santander (Counts I-IV and XVI-XVII); aiding and abetting fraud against Banco Santander (Count VIII); and federal securities fraud against OIS (Counts XI and XIII), Clark (Count XII), and Banco Santander (Counts XIV-XV). A motion to dismiss the federal securities fraud claims is currently pending before this Court.*fn112

As stated at the May 10 conference, Defendants' must file their forum non conveniens motion together with their motion to dismiss (1) Counts I-II and VIII (as to Banco Santander only) and (2) Counts XVI-XVIII by September 16, 2011 (25 pages). Plaintiffs' opposition (25 pages) is due by October 7, 2011, with Defendants' reply (10 pages) due by October 21, 2011. A conference is scheduled for August 31, 2011 at 3:00 p.m.

SO ORDERED.


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