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In re Optimal U.S. Litigation

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

[ยง 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] ...


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