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Becnel v. Deutsche Bank AG


December 21, 2011


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



Thomas R. Becnel and Jardine Ventures, LLC (collectively, "Becnel") sued Deutsche Bank AG and Deutsche Bank Securities, Inc. (collectively, "Deutsche Bank") for state-law claims of fraud, conspirace to commit fraud, fraudulent concealment, aiding and abetting fraud, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, breach of contract and breach of the implied duty of good faith and fair dealing. Deutsche Bank filed a motion to dismiss Becnel's complaint as time-barred, which this Court granted on ("September Opinion").*fn1 The Clerk of the Court entered final judgment on September 8, 2011 ("September Judgment").*fn2

Becnel now moves under Federal Rules of Civil Procedure 59 and 60 to alter or amend the September Judgment.*fn3 Specifically, Becnel seeks reinstatement of his fraud claim, or, in the alternative, leave to amend the complaint in order to assert a modified theory of fraud. For the reasons stated below, the motion is denied.


The background to this motion is fully set forth in the September Opinion. Briefly stated, Becnel claimed that Deutsche Bank conspired with Presidio Growth LLC and Presidio Advisory Services, LLC ("Presidio") in order to persuade him to take part in a tax shelter program known as the Hubbard Strategic Investment Fund, which operated according to the BLIPS Strategy devised by the KPMG accounting firm. As a part of that strategy, Becnel took out a loan from Deutsche Bank, which, along with Presidio, charged Bencel fees to manage the loan proceeds. Becnel's original complaint alleged that those loans were a sham because Deutsche Bank never relinquished control of the loan proceeds. Accordingly, Becnel claimed that any fees that Deutsche Bank and Presidio charged to manage the loan proceeds were fraudulent.*fn4

Instead of persisting in the claim that the loan from Deutsche Bank was a sham in toto, Becnel seeks leave to modify his theory of fraud. He would now allege solely that while Deutsche Bank did in fact create a loan, the loan it created was a single-tier market-rate loan, instead of a dual-tier above-market loan with a loan premium, even though he paid Deutsche Bank to create a loan premium.*fn5 Specifically, he alleges that Presidio conspired with Deutsche Bank to enter into interest rate swaps that "effectively converted the loans [from nominally above-market rate loans with a loan premium] to variable-rate loans at market rates, with no premium," and that Deutsche Bank concealed its knowledge of that conversion.*fn6 Finally, Becnel claims that he could not have learned the information necessary to support this modified theory of fraud until December 2010.*fn7


A. Post-Judgment Leave to Amend Under Rule 15

Except for amendments as of right under Federal Rule of Civil Procedure 15(a)(1), a party must obtain the court's permission to amend a pleading. Although Rule 15(a)(2) states that "[t]he court should freely give leave [to amend] when justice so requires," the Second Circuit states that "Rule 15's liberality must be tempered by considerations of finality" when leave to file an amended complaint is sought post-judgment.*fn8 Accordingly, "[a] party seeking to file an amended complaint post[-]judgment must first have the judgment vacated or set aside pursuant to [Rule 59(e) or 60(b)]."*fn9 This is so because Rule 15's "liberal amendment policy [should not] be employed in a way that is contrary to the philosophy favoring finality of judgments and the expeditious termination of litigation."*fn10 Nonetheless, "the liberal spirit of Rule 15 [does not necessarily dissolve] as soon as final judgment is entered."*fn11 Accordingly, the Second Circuit holds that it is reversible error for a court to address only concerns of finality without also taking into "account the nature of the proposed amendment," in light of the "strong preference for resolving disputes on the merits."*fn12

B. Newly Discovered Evidence Under Rules 59(e) and 60(b)

While Rule 59(e) does not explicitly list the grounds on which reconsideration may be granted, one ground on which courts will generally grant a Rule 59(e) motion is "the availability of new evidence."*fn13 Additionally, under Rule 60(b)(2), a party may seek reconsideration on the basis of "newly discovered evidence that, with reasonable diligence, could not have been discovered in time to move for a new trial under Rule 59(b)."*fn14

Whether relief is sought under Rule 59(e) or Rule 60(b)(2), courts apply the same strict standard for determining what qualifies as "newly discovered evidence." In order to meet that standard, the moving party must demonstrate that

(1) the newly discovered evidence was of facts that existed at the time of trial or other dispositive proceeding, (2) the movant must have been justifiably ignorant of them despite due diligence, (3) the evidence must be admissible and of such importance that it probably would have changed the outcome, and (4) the evidence must not be merely cumulative or impeaching.*fn15


A. Because Becnel Has Not Presented Any New Evidence He Is Not Entitled to Reconsideration The only basis for relief under Rules 59(e) and 60(b)(2) that Becnel puts forth is that he has newly discovered evidence in the form of the report of Dr. Frank J. Fabozzi. After reviewing all of the evidence available to Becnel when he filed his complaint, Dr. Fabozzi concluded that Becnel would not have been "able to identify the fraud [he now seeks leave to raise via an amended pleading] using reasonable due diligence" until December 21, 2010.*fn17 It strains credulity, however, to claim that expert conclusions based solely on information available to the plaintiff at the time the complaint was filed are facts of which the plaintiff was "justifiably ignorant . . . despite due diligence."*fn18 If this were not so, parties would be able to raise arguments "that could have been raised prior to the entry of judgment"*fn19 simply by scrutinizing the motion opinion and finding an expert willing to disagree with it after the fact.

That is precisely what Becnel has done here. While he states that "Dr. Fabozzi's report was not available at the time Plaintiffs responded to Deutsche Bank's motion to dismiss,"*fn20 he offers no explanation -- other than the bare fact that he chose not to seek it -- for why that is so. In a case involving a fraud as complex as this one, it simply defies common sense for Becnel to claim that he exercised due diligence even though he waited until after his case was dismissed and final judgment was entered to obtain an expert report that reveals the above-described modified theory of fraud that may rescue his case. Accordingly, I find that the Fabozzi Report does not qualify as newly discovered evidence.*fn21 As Becnel provides no other argument in support of his motion, relief from the September Judgment is not warranted.

B. Becnel May Not Amend His Complaint

Based on the conclusions in the Fabozzi Report, Becnel argues at length that he could have amended his Complaint to raise an issue of fact that would have precluded granting Deutsche Bank's motion to dismiss.*fn22 That argument, however, puts the cart before the horse. Because Becnel's claims have already been dismissed, there is, properly speaking, no complaint to amend until relief from the judgment is granted.*fn23 As explained above, Becnel is not entitled to such relief. Accordingly, concerns for finality and the expeditious termination of litigation clearly weigh in favor of denying Becnel post-judgment leave to amend his complaint.

As noted above, however, Rule 15's liberal amendment policy does not entirely disappear once final judgment has been entered. Instead, courts must consider the nature of the proposed amendment and whether, in light of the general preference to decide cases on the merits, leave to amend should be granted. It is to this question that I now turn.

Under New York law, an action for fraud or conspiracy to defraud must be brought within six years of the fraud or within two years of the date when the plaintiff discovered the fraud, or with reasonable diligence could have discovered it.*fn24 This is an objective standard that asks "whether circumstances are such as to suggest to a person of ordinary intelligence the probability that he has been defrauded."*fn25 If such circumstances exist and the plaintiff does not investigate them within two years, he will be charged with knowledge of the fraud, and any complaint he brings thereafter will be untimely.*fn26

According to the Fabozzi Report, Becnel could not have learned of Deutsche Bank's role in concealing the effect of the interest rate swap until Amir Makov, one of Presidio's principals, testified in a criminal case in 2009. Even with that testimony, the Fabozzi Report states that there was no conclusive proof against Deutsche Bank on this issue until the United States Attorney for the Southern District of New York released the Non-Prosecution Agreement ("NPA") in December 2010.*fn27 On this basis, Becnel asserts that the modified theory of fraud he seeks leave to plead -- which, instead of alleging that the loan from Deutsche Bank was a sham in toto, alleges that Deutsche Bank fraudulently concealed the fact that the interest rate swap converted the loan to one without a premium component -- would be brought well within the two-year statute of limitations based on the discovery rule.*fn28

What the Fabozzi Report does not explain, however, is why Becnel failed to investigate the possibility that Deutsche Bank was involved in concealing the effect of the interest rate swap. In 2003, well before the NPA was released, Becnel knew -- or at least could allege -- that Deutsche Bank's involvement in the BLIPS tax shelter scheme "was approved at the highest levels of the organization."*fn29 Also in 2003, the Permanent Subcommittee on Investigations of the Senate Committee on Governmental Affairs released a report that clearly indicated that the interest rate swap effectively eliminated the premium component of the loan.*fn30 These facts would have alerted an objectively reasonable person to explore whether Deutsche Bank knew of the effect of the interest rate swap, and, if so, whether Deutsche Bank concealed such knowledge. While it is impossible to tell in hindsight whether such an investigation would have borne fruit, there is no evidence that Becnel even attempted to conduct it. Instead of making an effort to look into Deutsche Bank's knowledge and potential concealment of the interest rate swap, Becnel merely states that he was "unable until now to discover facts that would support a claim of fraud against Deutsche Bank."*fn31 Indeed, the only explanation that can plausibly be deduced from his declaration is that he believed that his membership in the Kottler class action -- which was not dismissed until 2010 -- relieved him of the duty to investigate other theories of fraud.*fn32

If a plaintiff is allowed to try every theory of the case that the facts might reasonably support seriatim, and simply assert that by pursuing one theory, he was relieved from the obligation to investigate the others, the discovery limitations period would be a nullity. The only limit on the length of time a plaintiff would have to bring a claim would be the creativity of the plaintiff's lawyers in dreaming up new theories of the case. "It is the knowledge of facts not legal theories," however, that triggers the two-year period of the discovery rule.*fn33

Therefore, I find that Becnel should have investigated the modified theory of fraud, described above, that he now seeks leave to plead as early as 2003. He did not do so, and therefore must be charged with knowledge of the fraud as of 2005, by which time the discovery rule period would have elapsed. Now, near the end of 2011, his proposed amended complaint is plainly time-barred. Accordingly, his proposed amendment is futile, and leave to file it is denied.*fn34


For the reasons given above, Becnel's motion is denied. The Clerk of the Court is directed to close this motion (Docket No. 23).


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