Case: 10-3040 Document: 46 Page: 1 03/11/2011 232755 62 10-3040-cv
IN THE United States Court of Appeals FOR THE SECOND CIRCUIT
MLSMKd INVESTMENT COMPANY, Plaintiff-Appellant, —against—
JP MORGAN CHASE & CO., JP MORGAN CHASE BANK, NA, Defendants-Appellees.
ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK
BRIEF FOR DEFENDANTS-APPELLEES
PATRICIA M. HYNES, ESQ. ANDREW RHYS DAVIES, ESQ. LAURA R. HALL, ESQ. ALLEN &OVERY LLP 1221 Avenue of the Americas New York, New York 10020 (212) 610-6300 Attorneys for Defendants-Appellees JP Morgan Chase & Co. and JP Morgan Chase Bank, NA Case: 10-3040 Document: 46 Page: 2 03/11/2011 232755 62
CORPORATE DISCLOSURE STATEMENT Defendant-Appellee JP Morgan Chase & Co., a publicly held company organized under the laws of the State of Delaware, does not have any parent corporation and no publicly held corporation owns 10% or more of its stock. Defendant-Appellee JP Morgan Chase Bank, N.A., a national banking association, is a wholly-owned, indirect subsidiary of Defendant-Appellee JP Morgan Chase & Co.
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TABLE OF CONTENTS
TABLE OF AUTHORITIES ...... iii JURISDICTIONAL STATEMENT ...... 1 STATEMENT OF ISSUES PRESENTED FOR REVIEW ...... 1 STANDARD OF REVIEW ...... 2 STATEMENT OF THE CASE...... 4 STATEMENT OF FACTS ...... 6 MLSMK Invested With Bernard L. Madoff Investment Securities LLC (“BMIS”)...... 6 Chase Bank Provided Routine Banking Services To BMIS ...... 7 Bear, Stearns, Which JP Morgan Chase & Co. Acquired In March 2008, Traded With Madoff’s Legitimate Market-Making Business...... 7 In 2006, JP Morgan Chase & Co. Offered In Europe A Derivative Product Linked To The Performance Of A Fund That Ultimately Invested With Madoff...... 8 SUMMARY OF THE ARGUMENT ...... 8 ARGUMENT ...... 10 I. THE DISTRICT COURT CORRECTLY DISMISSED THE RICO CONSPIRACY CLAIM...... 10 A. The Complaint Fails To Plead That JPMC And Chase Bank Had Actual Knowledge That Madoff Was Engaged In Fraud...... 10 B. The Dismissal Of The RICO Conspiracy Claim May Also Be Affirmed On Additional Grounds That Were Argued To, But Not Reached By, The District Court ...... 23 1. The Complaint Fails To Plead That JPMC And Chase Bank Entered Into Any Agreement With A RICO Enterprise ...... 23
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2. The Complaint Also Fails To Plead That The Acts Alleged Against JPMC And Chase Bank Were Committed As Part Of A Pattern Of Racketeering Activity...... 26 3. Even If The Complaint Pleaded The Elements Of A RICO Conspiracy Claim, That Claim Is Precluded On The Facts Alleged Here By The Private Securities Litigation Reform Act Of 1995 ...... 30 II. THE DISTRICT COURT CORRECTLY DISMISSED THE AIDING AND ABETTING BREACH OF FIDUCIARY DUTY CLAIM ...... 33 A. The Complaint Does Not Plead That JPMC And Chase Bank Had Actual Knowledge That Madoff Was Engaged In Fraud...... 33 B. The Complaint Does Not Plead That JPMC And Chase Bank Substantially Assisted Madoff’s Fraud ...... 36 III. THE DISTRICT COURT CORRECTLY DISMISSED THE COMMERCIAL BAD FAITH CLAIM...... 39 A. The Complaint Does Not Plead That JPMC And Chase Bank Had Actual Knowledge That Madoff Was Engaged In Fraud...... 39 B. The Commercial Bad Faith Doctrine Is Inapplicable Because This Is Not A Case Involving Bank Complicity In Check Fraud...... 40 IV. THE DISTRICT COURT CORRECTLY DISMISSED THE NEGLIGENCE CLAIMS...... 42 CONCLUSION...... 46
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TABLE OF AUTHORITIES
CASES
131 Main St. Assocs. v. Manko, 897 F. Supp. 1507 (S.D.N.Y. 1995) ...... 19, 20
ACEquip Ltd. v. Am. Eng’g Corp., 315 F.3d 151 (2d Cir. 2003) ...... 23
A.I.A. Holdings, S.A. v. Lehman Bros., Inc., No. 97 CIV. 4978(LMM), 2002 WL 88226 (S.D.N.Y. Jan. 23, 2002)...... 39
ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87 (2d Cir. 2007) ...... 2, 4
Affco Invs. 2001, L.L.C., v. Proskauer Rose, L.L.P., 625 F.3d 185 (5th Cir. 2010) ...... 32, 33
Anwar v. Fairfield Greenwich Ltd., 728 F. Supp. 2d 372 (S.D.N.Y. 2010) ...... 17, 18, 34
Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009)...... 2, 3, 6, 23
Baisch v. Gallina, 346 F.3d 366 (2d Cir. 2003) ...... 11
Beck v. Prupis, 529 U.S. 494 (2000)...... 11, 27
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)...... 2, 3, 25
Berry v. Deutsche Bank Trust Co. Ams., No. 07 Civ. 7634(WHP), 2008 WL 4694968 (S.D.N.Y. Oct. 21, 2008), aff’d, 378 F. App’x 110 (2d Cir. 2010)...... 24
Bischoff v. Yorkville Bank, 218 N.Y. 106 (1916)...... 44
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Booking v. Gen. Star Mgmt. Co., 254 F.3d 414 (2d Cir. 2001) ...... 23
Boykin v. KeyCorp, 521 F.3d 202 (2d Cir. 2008) ...... 15
Cent. Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164 (1994)...... 32
City of Phila. v. Beretta U.S.A. Corp., 277 F.3d 415 (3d Cir. 2002) ...... 41
Cofacrèdit v. Windsor Plumbing Supply Co. Inc., 187 F.3d 229 (2d Cir. 1999) ...... passim
Cohain v. Klimley, Nos. 08 Civ. 5047(PGG), 09 Civ. 4527(PGG), 09 Civ. 10584(PGG), 2010 WL 3701362 (S.D.N.Y. Sept. 20, 2010) ...... 31, 32
DeFalco v. Bernas, 244 F.3d 286 (2d Cir. 2001) ...... 30
DiVittorio v. Equidyne Extractive Indus., Inc., 822 F.2d 1242 (2d Cir. 1987) ...... 16
Dubai Islamic Bank v. Citibank, N.A., 256 F. Supp. 2d 158 (S.D.N.Y. 2003) ...... 38
Fezzani v. Bear, Stearns & Co., Inc., No. 99CIV0793RCC, 2005 WL 500377 (S.D.N.Y. Mar. 2, 2005)...... 31, 32
First Capital Asset Mgmt., Inc. v. Satinwood, Inc., 385 F.3d 159 (2d Cir. 2004) ...... 24
First Nationwide Bank v. Gelt Funding, Corp., 820 F. Supp. 89 (S.D.N.Y. 1993) ...... 24
Fonte v. Bd. of Managers of Cont’l Towers Condo., 848 F.2d 24 (2d Cir. 1988) ...... 21
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GICC Capital Corp. v. Tech. Fin. Grp., Inc., 67 F.3d 463 (2d Cir. 1995) ...... 30
Getty Petro. Corp. v. Am. Express Travel Related Servs., Co., Inc., 90 N.Y.2d 322 (1997)...... 40, 41
Goldin Assocs., L.L.C. v. Donaldson, Lufkin & Jenrette Sec. Corp., No. 00 Civ. 8688(WHP), 2003 WL 22218643 (S.D.N.Y. Sept. 25, 2003)...... 34
Grace v. Corn Exch. Bank Trust Co., 287 N.Y. 94 (1941)...... 44
H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229 (1989)...... 28, 29
Hecht v. Commerce Clearing House, Inc., 897 F.2d 21 (2d Cir. 1990) ...... 23, 24
In re Agape Litig., 681 F. Supp. 2d 352 (E.D.N.Y. 2010) ...... 35, 37, 43
In re Amaranth Natural Gas Commodities Litig., 612 F. Supp. 2d 376 (S.D.N.Y. 2009) ...... 38, 39
In re Beacon Assocs. Litig., --- F. Supp. 2d ----, 09 Civ. 777(LBS), 2010 WL 3895582 (S.D.N.Y. Oct. 5, 2010)...... 21
In re Terrorist Attacks on Sept. 11, 2001, 349 F. Supp. 2d 765 (S.D.N.Y. 2005), aff’d, 538 F.3d 71 (2d Cir. 2008) .....4, 42
Kalnit v. Eichler, 264 F.3d 131 (2d Cir. 2001) ...... 22
Katzman v. Victoria’s Secret Catalogue, 167 F.R.D. 649 (S.D.N.Y. 1996)...... 4
Kolbeck v. LIT Am., Inc., 939 F. Supp. 240 (S.D.N.Y. 1996), aff’d, 152 F.3d 918 (2d Cir. 1998) ...... 34, 35
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Lerner v. Fleet Bank, N.A. (“Lerner I”), 318 F.3d 113 (2d Cir. 2003) ...... 27, 28
Lerner v. Fleet Bank, N.A. (“Lerner II”), 459 F.3d 273 (2d Cir. 2006) ...... passim
Makor Issues & Rights, Ltd. v. Tellabs Inc., 513 F.3d 702 (7th Cir. 2008) ...... 13
Mazzaro de Abreu v. Bank of Am. Corp., 525 F. Supp. 2d 381 (S.D.N.Y. 2007) ...... passim
Menasco, Inc. v. Wasserman, 886 F.2d 681 (4th Cir. 1989) ...... 4
Mikhlin v. HSBC, No. 08-CV-1302 (CPS), 2009 WL 485667 (E.D.N.Y. Feb. 26, 2009) ...... 13
Moore v. PaineWebber, Inc., 189 F.3d 165 (2d Cir. 1999) ...... 3
Morin v. Trupin, 778 F. Supp. 711 (S.D.N.Y. 1991) ...... 4
Musalli Factory for Gold & Jewelry v. JPMorgan Chase Bank, N.A., 261 F.R.D. 13 (S.D.N.Y. 2009), aff’d, 382 F. App’x 107 (2d Cir. 2010)...passim
Napoli v. United States, 32 F.3d 31 (2d Cir. 1994) ...... 11
Newman v. Family Mgmt. Corp., No. 08 Civ. 11215(LBS), 2010 WL 4118083 (S.D.N.Y. Oct. 20, 2010).....16, 18
Nigerian Nat’l Petro. Corp. v. Citibank, N.A., No. 98 Civ. 4960(MBM), 1999 WL 558141 (S.D.N.Y. July 30, 1999) ...... 38
O’Brien v. Nat’l Prop. Analysts Partners, 936 F.2d 674 (2d Cir. 1991) ...... 3
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OSRecovery, Inc. v. One Groupe Int’l, Inc., 354 F. Supp. 2d 357 (S.D.N.Y. 2005) ...... 31
Peck v. Chase Manhattan Bank, N.A., 190 A.D.2d 547 (N.Y. App. Div. 1993) ...... 41
Powers v. British Vita, P.L.C., 57 F.3d 176 (2d Cir. 1995) ...... 11
Prudential-Bache Sec., Inc. v. Citibank, N.A., 73 N.Y.2d 263 (1989)...... 40
Renner v. Chase Manhattan Bank (“Renner I”), No. 98 Civ. 926(CSH), 1999 WL 47239 (S.D.N.Y. Feb. 3, 1999) ...... passim
Renner v. Chase Manhattan Bank (“Renner II”), No. 98 CIV. 926(CSH), 2000 WL 781081 (S.D.N.Y. June 16, 2000)...... 36, 38
Rombach v. Chang, 355 F.3d 164 (2d Cir. 2004) ...... 3
Rosner v. Bank of China (“Rosner I”), 528 F. Supp. 2d 419 (S.D.N.Y. 2007) ...... 21, 22, 26
Rosner v. Bank of China (“Rosner II”), No. 06 CV 13562, 2008 WL 5416380 (S.D.N.Y. Dec. 18, 2008), aff’d, 349 F. App’x 637 (2d Cir. 2009)...... passim
Ryan v. Hunton & Williams, No. 99-CV-5938(JG), 2000 WL 1375265 (E.D.N.Y. Sept. 20, 2000)...... 35
SEC v. Cohmad Sec. Corp., No. 09 Civ. 5680(LLS), 2010 WL 363844 (S.D.N.Y. Feb. 2, 2010)...... 15
SEC v. Chenery Corp., 318 U.S. 80 (1943)...... 36
Salinas v. United States, 522 U.S. 52 (1997)...... 11
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Schmidt v. Fleet Bank, Nos. 96 Civ. 5030(AGS), 96 Civ. 7836(AGS), 96 Civ. 9705(AGS), 96 Civ. 9706(AGS), 1998 WL 47827 (S.D.N.Y. Feb. 4, 1998)...... 4, 22
Segal v. Gordon, 467 F.2d 602 (2d Cir. 1972) ...... 4
Simmons v. Roundup Funding, LLC, 622 F.3d 93 (2d Cir. 2010) ...... 2
S. Cherry St., LLC v. Hennessee Grp. LLC, 573 F.3d 98 (2d Cir. 2009) ...... 15, 22, 23
Spool v. World Child Int’l Adoption Agency, 520 F.3d 178 (2d Cir. 2008) ...... 30
Stephenson v. Citco Grp. Ltd., 700 F. Supp. 2d 599 (S.D.N.Y. 2010) ...... 18
Teamsters Local 445 Freight Div. Pension Fund v. Dynex Capital Inc., 531 F.3d 190 (2d Cir. 2008) ...... 12, 13
Thomas H. Lee Equity Fund V, L.P. v. Mayer Brown, Rowe & Maw LLP, 612 F. Supp. 2d 267 (S.D.N.Y. 2009) ...... 31, 32
Tzaras v. Evergreen Int’l Spot Trading, Inc., No. 01 Civ. 10726(LAP), 2003 WL 470611 (S.D.N.Y. Feb. 25, 2003) ...... 42, 43
US Airline Pilots Ass’n v. Awappa, LLC, 615 F.3d 312 (4th Cir. 2010) ...... 4
United States v. Scotto, 641 F.2d 47 (2d Cir. 1980), overruled in part on other grounds by Reves v. Ernst & Young, 507 U.S. 170 (1993)...... 11
Vaughn v. Air Line Pilots Ass’n, 377 F. App’x 88 (2d Cir. 2010) ...... 11
Vietnam Ass’n for Victims of Agent Orange v. Dow Chem. Co., 517 F.3d 104 (2d Cir. 2008) ...... 2
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Wexner v. First Manhattan Co., 902 F.2d 169 (2d Cir. 1990) ...... 16
Williams v. Bank Leumi Trust Co., No. 96 CIV. 6695(LMM), 1997 WL 289865 (S.D.N.Y. May 30, 1997)...... 38
Zhu v. First Atl. Bank, No. 05 Civ. 96(NRB), 2005 WL 2757536 (S.D.N.Y. Oct. 25, 2005)....22, 26, 27
STATUTES AND RULES
18 U.S.C. § 1962 (2006) ...... 10, 11
18 U.S.C. § 1964 (2006) ...... passim
28 U.S.C. § 1291 (2006) ...... 1
28 U.S.C. § 1331 (2006) ...... 1
28 U.S.C. § 1332(a)(1) (2006)...... 1
Fed. R. Civ. P. 9(b) ...... 3, 4, 12, 39
Fed. R. Civ. P. 11...... 15
Fed. R. Civ. P. 12(b)(6)...... 2, 6
Fed. R. Civ. P. 11, Advisory Comm. Note (1993) ...... 15
N.Y. U.C.C. Law § 3-405 ...... 40
OTHER AUTHORITIES
Jack P. Friedman, Dictionary of Business Terms (Barron’s Business Guides 4th ed. 2007) ...... 8
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Defendants-Appellees JP Morgan Chase & Co. (“JPMC”) and JP Morgan Chase Bank N.A. (“Chase Bank”) respectfully submit this brief in opposition to the brief filed by Plaintiff-Appellant MLSMK Investment Company (“MLSMK”).1
JURISDICTIONAL STATEMENT The district court’s jurisdiction was based on 28 U.S.C. § 1331 (federal question) and 28 U.S.C. § 1332(a)(1) (diversity of citizenship). A-7 (Compl. ¶ 9).2 On July 17, 2010, the district court entered judgment dismissing all claims, and MLSMK filed its notice of appeal on July 28, 2010 (A-4 (DE Nos. 18 & 19)).3 This Court has jurisdiction pursuant to 28 U.S.C. § 1291.
STATEMENT OF ISSUES PRESENTED FOR REVIEW 1. Should the dismissal of the claims alleging RICO conspiracy, aiding and abetting breach of fiduciary duty, and commercial bad faith, be affirmed because the Complaint fails to plead any factual basis for its assertions that JPMC and Chase Bank had actual knowledge that Madoff was defrauding his investors? 2. Should the dismissal of the negligence claims be affirmed because JPMC and Chase Bank owed no duty of care to MLSMK, a third-party non-customer?
1 Citations to MLSMK’s Brief are in the format “Br. at __.” 2 Citations to the Joint Appendix are in the format “A-__” and citations to MLSMK’s Complaint are in the format “Compl. ¶ __.” 3 MLSMK incorrectly states that the district court’s decision was filed on July 5, 2010, and states, again incorrectly, that it filed its notice of appeal on July 27, 2010. Br. at 5.
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3. Should the district court’s judgment be affirmed on the following grounds that the district court did not reach? (a) The Complaint fails to plead either that JPMC and Chase Bank entered into an agreement with a RICO enterprise, or that the routine banking services that Chase Bank and JPMC are alleged to have provided to Madoff’s firm were RICO predicate acts, those being essential elements of a RICO claim. (b) The RICO conspiracy claim is precluded by the Private Securities Litigation Reform Act of 1995 on the facts alleged in this case. (c) The Complaint fails to plead that JPMC or Chase Bank substantially assisted Madoff’s misconduct, that being an essential element of the claim for aiding and abetting breach of fiduciary duty. (d) The commercial bad faith doctrine, which is limited to cases of bank complicity in check fraud, does not apply to the facts of this case.
STANDARD OF REVIEW A district court’s grant of a motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) is reviewed de novo. See Simmons v. Roundup Funding, LLC, 622 F.3d 93, 95 (2d Cir. 2010) (citing Vietnam Ass’n for Victims of Agent Orange v. Dow Chem. Co., 517 F.3d 104, 115 (2d Cir. 2008)). To survive a motion to dismiss, a complaint must plead “factual allegations sufficient ‘to raise a right to relief above the speculative level.’” ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). A complaint does not state a claim by making allegations that are “‘merely consistent with’” a defendant’s liability, or that raise a “sheer possibility” that a defendant has acted unlawfully. Ashcroft v. Iqbal, 129 S. Ct.
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1937, 1949 (2009) (quoting Twombly, 550 U.S. at 557). Rather, the complaint’s well-pled, non-conclusory, factual allegations must “‘state a claim for relief that is plausible on its face’” by creating a “reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 1949 (quoting Twombly, 550 U.S. at 556, 570). In this case, because all of the claims rest on averments of fraud, the Complaint must also satisfy the stringent pleading requirements of Federal Rule of Civil Procedure 9(b). MLSMK’s entire case theory is that JPMC and Chase Bank knowingly aided and abetted Madoff’s massive securities fraud, meaning that Rule 9(b) applies to all of the claims. See Rombach v. Chang, 355 F.3d 164, 171-72 (2d Cir. 2004); see also Moore v. PaineWebber, Inc., 189 F.3d 165, 172-73 (2d Cir. 1999) (holding that Rule 9(b) “applies to RICO claims for which fraud is the predicate illegal act”) (citation omitted). MLSMK’s RICO claim alleges mail and wire fraud as the predicate acts. A-19-21, 23, 26-27 (Compl. ¶¶ 49-51, 55-56, 58, 67, 79, 84); Br. at 27. See also Musalli Factory for Gold & Jewelry v. JPMorgan Chase Bank, N.A., 382 F. App’x 107 (2d Cir. 2010) (summary order) (affirming the dismissal under Rule 9(b) of commercial bad faith, aiding and abetting breach of fiduciary duty and negligence claims, noting that Rule 9(b) applies to “claims of fraud and its affinities”). To comply with Rule 9(b), allegations must be pled “with particularity” and be supported by an “ample factual basis,” including facts that give rise to a “strong inference” of fraudulent intent. See, e.g., O’Brien v. Nat’l Property Analysts Partners, 936 F.2d 674, 676 (2d Cir. 1991) (citations and internal quotation omitted). Under Rule 9(b), claims are “too speculative even on a
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motion to dismiss,” when they are premised on “‘distorted inferences and speculations.’” ATSI, 493 F.3d at 104 (quoting Segal v. Gordon, 467 F.2d 602, 606, 608 (2d Cir. 1972)). Rule 9(b)’s requirements have “even greater urgency in civil RICO actions.” Schmidt v. Fleet Bank, Nos. 96 Civ. 5030(AGS), 96 Civ. 7836(AGS), 96 Civ. 9705(AGS), 96 Civ. 9706(AGS), 1998 WL 47827, at *5 (S.D.N.Y. Feb. 4, 1998) (quoting Morin v. Trupin, 778 F. Supp. 711, 716 (S.D.N.Y. 1991)). “Civil RICO is an unusually potent weapon . . . ‘courts should strive to flush out frivolous RICO allegations at an early stage of the litigation.’” In re Terrorist Attacks on Sept. 11, 2001, 349 F. Supp. 2d 765, 827 (S.D.N.Y. 2005) (quoting Katzman v. Victoria’s Secret Catalogue, 167 F.R.D. 649 (S.D.N.Y. 1996)), aff’d, 538 F.3d 71 (2d Cir. 2008).4
STATEMENT OF THE CASE MLSMK seeks to hold JPMC and Chase Bank liable for losses it allegedly suffered at the hands of convicted securities fraudster Bernard L. Madoff. MLSMK’s only alleged connection to JPMC and Chase Bank, however, is that MLSMK invested money with Madoff, which Madoff caused to be deposited into an account at Chase Bank and then misappropriated in his now-notorious securities fraud Ponzi scheme.
4 See also US Airline Pilots Ass’n v. Awappa, LLC, 615 F.3d 312, 317 (4th Cir. 2010) (recognizing the need for “caution ‘to ensure that RICO’s extraordinary remedy does not threaten the ordinary run of commercial transactions; that treble damage suits are not brought against isolated offenders for their harassment and settlement value; and that the multiple state and federal laws bearing on transactions . . . are not eclipsed or preempted’”) (quoting Menasco, Inc. v. Wasserman, 886 F.2d 681, 683 (4th Cir. 1989)).
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The case law clearly establishes that a bank is not liable simply because a fraudster uses a bank account to defraud third parties, and MLSMK is unable to identify any case law that permits claims as speculative and insubstantial as those asserted here to proceed. To reverse the district court’s judgment, this Court would need to credit as plausible MLSMK’s conclusory and speculative allegations, as well as its irrational theory that one of the nation’s premier financial institutions chose “to partner with [Madoff] in the fleecing of his victims,” Br. at 13, joining in a massive inevitably-doomed Ponzi scheme with a “prized billionaire client/criminal,” id. at 55, exposing itself to potentially billions of dollars’ worth of claims and reputational damage, for no reason but to earn routine banking fees. That inference defies economic reason. It is not only implausible but absurd. Under controlling law, the dismissal of the Complaint should be affirmed. MLSMK is not and never was a customer of JPMC or Chase Bank. A sophisticated investor in the Madoff Ponzi scheme, MLSMK has brought this action in a transparent attempt to troll for compensation from what it views as deep-pocket third parties. In a Complaint that substitutes a mélange of conclusory allegations, implausible hyperbole and outrage-laced rhetoric for well-pled factual allegations, MLSMK theorizes that JPMC and Chase Bank had, or should have, concluded by September 2008 that Madoff was operating a Ponzi scheme. Asserting that, by that date, JPMC and Chase Bank “had access to nearly all the relevant data” about Madoff’s business, Br. at 23-24 (emphasis added), MLSMK sues JPMC and Chase Bank to recover $12.8 million it invested with Madoff between October 2008 and his arrest in December 2008, plus treble and punitive damages.
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STATEMENT OF FACTS
MLSMK Invested With Bernard L. Madoff Investment Securities LLC (“BMIS”) MLSMK alleges that, on some unspecified date, it opened an investment advisory account with BMIS, a business owned and operated by convicted securities fraudster Bernard Madoff. BMIS’s investment advisory business purported to generate investment returns for its customers by trading in securities. A-5-7, 11, 17-18, 24 (Compl. ¶¶ 1, 5, 21-22, 43, 68).5 Based on account statements that BMIS issued to MLSMK during the period June- November 2008 that purported to show positive returns on MLSMK’s investments, MLSMK, between October 6, 2008 and December 5, 2008, transferred another $12.8 million to BMIS, which BMIS caused to be deposited at its account at Chase Bank. A-17-18, 24-27, 28 (Compl. ¶¶ 43, 70, 72, 74, 76, 78, 88). MLSMK does not allege that JPMC or Chase Bank ever saw any account statement that BMIS issued to MLSMK. In December 2008, in the midst of the global financial crisis, it was revealed that BMIS’s investment advisory business was, in fact, a Ponzi scheme. Instead of using money invested by its customers to trade in securities, BMIS misappropriated the money, using it to repay other investors and for the personal benefit of Madoff. A-5-6, 18-19 (Compl. ¶¶ 1, 45-46). As a result of this conduct, Bernard Madoff has been convicted of securities fraud. A-18 (Compl. ¶ 45). The Complaint does not reveal what profits or losses MLSMK earned or incurred as a result of its investments in BMIS, nor does it reveal what steps
5 On a Rule 12(b)(6) motion, a complaint’s well-pled, non-conclusory factual allegations are assumed to be true. See Iqbal, 129 S. Ct. at 1949-50.
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MLSMK has taken to recover any losses from other sources, such as the Securities Investor Protection Corporation.
Chase Bank Provided Routine Banking Services To BMIS It is not alleged that MLSMK was ever a customer of JPMC or of Chase Bank. The sole interaction alleged between MLSMK and either defendant is that, when MLSMK invested $12.8 million with BMIS between October and December 2008, it did so by wiring the funds into BMIS’s checking account at Chase Bank. A-5-6, 11-12, 17-18 (Compl. ¶¶ 1, 24-25, 43). The Complaint alleges no interaction at all between MLSMK and JPMC.
Bear, Stearns, Which JP Morgan Chase & Co. Acquired In March 2008, Traded With Madoff’s Legitimate Market-Making Business Entirely separate from its fraudulent investment advisory business, BMIS operated a concededly legitimate market-making business. See A-8-11, 20 (Compl. ¶¶ 12-13, 15, 18, 20, 54). Not even the traders who worked in BMIS’s market-making business knew that the investment advisory business was a fraud. A-10, 20 (Compl. ¶¶ 18, 54). Bear, Stearns—which JPMC acquired in March 2008—did some business with Madoff’s legitimate market-making business between 2000 and December 2008. A-9-10 (Compl. ¶¶ 15-17). The Complaint contains no allegation that MLSMK had any involvement with, exposure to, or contemporaneous knowledge of, Madoff’s legitimate market-making operation.
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In 2006, JP Morgan Chase & Co. Offered In Europe A Derivative Product Linked To The Performance Of A Fund That Ultimately Invested With Madoff According to the Complaint, in 2006, JPMC offered a derivative financial product in Europe.6 That product provided a financial return tied to the performance of certain funds owned and managed by Fairfield Greenwich Group (“Fairfield”), which funds were, in turn, largely invested with Madoff. In order to “hedge” against the risk that it would have to make a payment to the European investors who purchased the derivatives, JPMC invested its own money with Fairfield.7 A-14-15 (Compl. ¶¶ 33-35). The Complaint does not allege that MLSMK had any involvement with, exposure to, or knowledge of Fairfield or the derivative product that JPMC offered in Europe.
SUMMARY OF THE ARGUMENT MLSMK asserts five causes of action against JPMC and Chase Bank: (1) civil RICO conspiracy, (2) aiding and abetting breach of fiduciary duty, (3) commercial bad faith, and (4) two counts of negligence. A substantial body of case law establishes that JPMC and Chase Bank are not liable under any of these theories. First, the civil RICO conspiracy claim fails because, as the district court held, the Complaint does not plead that JPMC and Chase Bank had actual knowledge that Madoff was engaged in fraud. That claim also fails because the
6 A “derivative” is a security that takes its value from another security. See Jack P. Friedman, Dictionary of Business Terms 181 (Barron’s Business Guides, 4th ed. 2007). 7 A “hedge” is a strategy used to offset business or investment risk. See id. at 301.
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Complaint fails to plead any facts that would support any inference of a conspiracy, and because the routine banking services that Chase Bank and JPMC are alleged to have provided to BMIS do not constitute RICO predicate acts. Finally, the RICO claim fails because it is barred on the facts alleged here by the Private Securities Litigation Reform Act of 1995.8 Second, the claim for aiding and abetting breach of fiduciary duty fails because, as the district court held, the Complaint does not plead that JPMC and Chase Bank had actual knowledge that Madoff was engaged in fraud. That claim also fails because the Complaint fails to plead that JPMC and Chase Bank provided Madoff substantial assistance in accomplishing his fraud. Third, as the district court held, the Complaint fails to state a claim for commercial bad faith because it does not plead that JPMC and Chase Bank had actual knowledge that Madoff was engaged in fraud. That claim also fails because it is limited to claims arising from bank complicity in check fraud, so it is inapplicable in this case. Fourth, the Complaint fails to state a claim for negligence because it is well-established that, as the district court held, JPMC and Chase Bank did not owe MLSMK, a non-customer third party, any duty of care.
8 Private Securities Litigation Reform Act of 1995, Pub. L. 104-67, 109 Stat. 737, codified in relevant part at 18 U.S.C. § 1964(c) (2006).
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ARGUMENT
I. THE DISTRICT COURT CORRECTLY DISMISSED THE RICO CONSPIRACY CLAIM
A. The Complaint Fails To Plead That JPMC And Chase Bank Had Actual Knowledge That Madoff Was Engaged In Fraud MLSMK’s RICO conspiracy claim rests on the proposition that, between September 2008, when JPMC and Chase Bank allegedly learned that Madoff was engaged in fraud, and December 11, 2008, when Madoff was arrested, JPMC and Chase Bank conspired with a RICO enterprise consisting of Madoff, BMIS, and a BMIS employee named Frank DePasquale, to violate 18 U.S.C. § 1962(c) by providing banking services that, according to MLSMK, constituted predicate acts of mail and wire fraud. A-19-21, 23, 26-27 (Compl. ¶¶ 49-51, 55- 56, 58, 67, 79, 84); Br. at 27.9 After thoroughly analyzing the Complaint, the district court correctly concluded that MLSMK’s assertions that JPMC and Chase Bank knew that Madoff was engaged in fraud are wholly conclusory and speculative, and, therefore, dismissed the claim. A-83-87 (Op. at 9-13).10 MLSMK quibbles with the district court’s ruling, complaining that the sufficiency of its pleading should have been addressed under the rubric “actual knowledge” instead of “scienter.” Br. at 23-38. There is no basis for reversal, however, because the Complaint clearly does not plead an essential element of this claim—that JPMC and Chase Bank knew of Madoff’s fraud.
9 The text of 18 U.S.C. § 1962 is set forth in a Special Appendix included as an addendum to this brief. See Local Rule 32.1(c). 10 Citations to the July 14, 2010 Order dismissing MLSMK’s Complaint are in the format “Op. at __”.
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A RICO conspiracy claim under 18 U.S.C. § 1962(d) requires that the defendants “agreed to form and associate themselves with a RICO enterprise and that they agreed to commit two predicate acts in furtherance of a pattern of racketeering activity in connection with the enterprise.” Cofacrèdit v. Windsor Plumbing Supply Co. Inc., 187 F.3d 229, 244 (2d Cir. 1999) (citation omitted). Thus, to plead such a claim, “a plaintiff must allege that the defendant ‘knew about and agreed to facilitate the scheme.’” Baisch v. Gallina, 346 F.3d 366, 377 (2d Cir. 2003) (quoting Salinas v. United States, 522 U.S. 52, 66 (1997)). To state a claim under 18 U.S.C. § 1962(d), a plaintiff must also plead that it was harmed by an overt act that is “an act of racketeering or otherwise wrongful under RICO.” Beck v. Prupis, 529 U.S. 494, 505 (2000). As scienter is an essential element of the predicate acts of wire and mail fraud alleged by MLSMK, see Powers v. British Vita, P.L.C., 57 F.3d 176, 184 (2d Cir. 1995), it is also an element of MLSMK’s RICO conspiracy claim, see United States v. Scotto, 641 F.2d 47, 56 (2d Cir. 1980), overruled in part on other grounds by Reves v. Ernst & Young, 507 U.S. 170 (1993).11 Thus, in Vaughn v. Air Line Pilots Association, 377 F. App’x 88 (2d Cir. 2010) (summary order), this Court affirmed the dismissal of a RICO conspiracy claim because plaintiffs had failed to plead scienter, that being an essential element of the underlying predicate acts of wire and mail fraud. MLSMK insists that the Complaint pleads that JPMC and Chase Bank “acquired actual knowledge that Madoff was engaged in a fraud in approximately
11 See Napoli v. United States, 32 F.3d 31, 34 (2d Cir. 1994) (explaining that Reves overruled Scotto in part by holding that a defendant must take some part in directing the affairs of the RICO enterprise to be liable under 18 U.S.C. § 1962(c)).
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September 2008,” Br. at 2-3, and thereafter “chose to partner with him in the fleecing of his victims” id. at 13. See also id. at 16, 43.12 The district court’s contrary conclusion is, however, entirely correct. As this Court has held, although knowledge may be averred generally, “we must not mistake the relaxation of Rule 9(b)’s specificity requirement regarding condition of mind for a license to base claims of fraud on speculation and conclusory allegations[,] . . . plaintiffs must allege facts that give rise to a strong inference of fraudulent intent.” Lerner v. Fleet Bank, N.A., 459 F.3d 273, 290 (2d Cir. 2006) (“Lerner II”) (citation omitted; alteration in original). As a threshold point, the Complaint fails to plead actual knowledge because it does not plead that any individual whose knowledge could be imputed to JPMC or Chase Bank had the required knowledge. Cf. Teamsters Local 445 Freight Div. Pension Fund v. Dynex Capital Inc., 531 F.3d 190, 195 (2d Cir. 2008) (holding, in the securities fraud context, that to raise a strong inference of scienter against a corporation, “the pleaded facts must create a strong inference that someone whose intent could be imputed to the corporation acted with the requisite scienter”).13 Indeed, even in cases where plaintiffs have pleaded RICO claims
12 See also Br. at 25 (“What this Complaint clearly alleges is that the Appellees acquired knowledge that Madoff and BMIS were engaged in wide-spread fraudulent conduct . . . .”), 23 (“The Appellees Knew that Madoff Was Engaged in a Massive Fraud”), 13 (“Chase had [by September 2008] unequivocally concluded that Madoff’s reported returns were false and illegitimate . . . [and] knew that Madoff’s business was a fraud . . . [and] knew that Madoff was diverting customer funds.”) (emphases added). 13 In Dynex, this Court acknowledged that exceptional cases could arise in which corporate scienter might be pleaded without pleading scienter against a particular officer. Dynex, 531 F.3d at 195-96 (“‘Suppose General Motors announced that it had sold one million SUVs in 2006, and the actual number was zero. There would
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against individual bank employees, the courts of this Circuit have refused to hold the bank vicariously liable unless it is a “central figure” in the fraudulent scheme. See, e.g., Mikhlin v. HSBC, No. 08-CV-1302 (CPS), 2009 WL 485667, at *8-9 (E.D.N.Y. Feb. 26, 2009) (dismissing RICO claims against a bank, holding that “a defendant bank will not be held vicariously liable under RICO where, as here, a bank official or employee allegedly facilitated fraud by third parties.”) (collecting cases).14 This is an a fortiori case, because there is no pleading of facts that any employee of JPMC or Chase Bank violated the RICO statute or knew of Madoff’s fraud. MLSMK founds its actual knowledge theory on the assertion that, during July and August of 2008, while conducting due diligence into its investment in Fairfield, JPMC “unequivocally concluded that Madoff’s reported returns were false and illegitimate” and “knew that Madoff’s business was a fraud.” A-16, 21- 22 (Compl. ¶¶ 40, 59); Br. at 23-25. Central to MLSMK’s case is its allegation that, in the summer of 2008, as part of the alleged due diligence, JPMC “met with Madoff to discuss his operations.” A-15, 21-22 (Compl. ¶¶ 37, 59). MLSMK be a strong inference of corporate scienter, since so dramatic an announcement would have been approved by corporate officials sufficiently knowledgeable about the company to know that the announcement was false.’”) (quoting Makor Issues & Rights, Ltd. v. Tellabs Inc., 513 F.3d 702, 710 (7th Cir. 2008)). Nothing in the Complaint suggests that this is such an exceptional case. 14 Accord Renner v. Chase Manhattan Bank, No. 98 Civ. 926(CSH), 1999 WL 47239, at *10 (S.D.N.Y. Feb. 3, 1999) (“Renner I”) (dismissing RICO claims arising from allegations that the bank facilitated fraudulent transactions by its customer, holding that corporations may not be held vicariously liable for the actions of their employees in violation of the RICO statute unless the company is “an active perpetrator of the fraud or a central figure in the criminal scheme”) (citations omitted).
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specifically alleges that, during such meeting in the summer of 2008, JPMC asked Madoff about “his cash flow, what percentage of his portfolio was leveraged and with whom he traded option contracts.” Id. MLSMK alleges that Madoff replied that he was “invested almost entirely in S&P 100 stocks while hedging with options,” but “would not disclose core information” about “percentages held in cash, and the amount of money borrowed against equity, or leveraged, in the account, and who were his option counter-parties.” A-15, 21-22 (Compl. ¶¶ 37, 59); Br. at 11-12. As set forth below, these “facts,” even if assumed to be true, would not plead that JPMC had actual knowledge that Madoff was engaged in fraud, but MLSMK’s counsel admitted to the district court at oral argument that the lynchpin of its theory, that JPMC employees met with Madoff in the summer of 2008, an allegation that MLSMK repeats to this Court, Br. at 11-12, is a complete fabrication. A-71-74 (Tr. dated Oct. 29, 2009 (hereinafter “Tr.”), at 34-37). MLSMK’s counsel acknowledged to the district court that it has no evidence that such a meeting took place, and that the specific allegations about what transpired at the alleged meeting are based on sheer speculation by unidentified “experts in the field” about the types of questions that might have been asked if such a meeting had taken place. Id. MLSMK has offered no basis for its very specific allegations about how Madoff responded to imagined questions posed at an invented meeting. MLSMK insists that it was “well within its rights” to allege what “likely occurred based upon standard industry practice,” and even suggests it would have been more “speculative” to allege that events happened in some other way. Br. at 37 (emphasis added). To the contrary, counsel is responsible for
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ensuring that pleadings contain only allegations that have a good faith factual basis. See S. Cherry St., LLC v. Hennessee Grp. LLC, 573 F.3d 98, 114 (2d Cir. 2009) (“To be sure, South Cherry should not include such an allegation in its pleading without having a ‘factual basis or justification.’”) (quoting Fed. R. Civ. P. 11, Advisory Comm. Note (1993)).15 As the district court noted, A-73-74 (Tr. at 36-37), MLSMK’s oblique statement that JPMC met with Madoff in July or August 2008 “according to standard industry practice,” A-15 (Compl. ¶ 37), Br. at 11-12, in no way discloses that the entire allegation is based on the rank speculation of purported unidentified industry experts. The district court is clearly correct, therefore, that MLSMK’s allegations are wholly insufficient, and, even if they were assumed to be true, the Complaint does not plead actual knowledge. First, the allegation that Madoff refused to disclose certain information that JPMC allegedly sought in the context of its due diligence into Fairfield in July/August 2008, A-15, 21-22 (Compl. ¶¶ 37, 59), Br. at 11-12, plainly does not plead that JPMC knew that Madoff was engaged in fraud, particularly as the Complaint pleads that such refusal was consistent with his standard practice of denying investors’ requests for information, A-15 (Compl. ¶ 37). In SEC v. Cohmad Securities Corp., No. 09 Civ. 5680(LLS), 2010 WL 363844 (S.D.N.Y. Feb. 2, 2010), the court held that the SEC’s allegations about Madoff’s well-known secrecy failed to plead scienter against a broker-dealer because there was an obvious innocent alternative explanation—that Madoff was engaged in the common marketing tactic of projecting an aura of exclusivity. Id. at
15 This Court’s opinion in Boykin v. KeyCorp, 521 F.3d 202 (2d Cir. 2008), see Br. at 37, confirms that pleadings made on information and belief are fully subject to Rule 11, id. at 216 n.12, so it does not justify MLSMK’s conduct.
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*2-6; see also Newman v. Family Mgmt. Corp., No. 08 Civ. 11215(LBS), 2010 WL 4118083, at *8 (S.D.N.Y. Oct. 20, 2010) (dismissing federal securities claims against the auditor of a “feeder fund” that invested with Madoff, holding that allegations about Madoff’s lack of transparency did not plead scienter). Second, MLSMK’s speculation is again evident when it alleges “upon information and belief,” without any factual underpinning, that JPMC learned in the course of its due diligence that the volume of trading that JPMC did with BMIS’s legitimate market-making business could not sustain Madoff’s investment advisory business, which JPMC allegedly knew had to exceed at least $7 billion in customer capital contributions. A-15-16 (Compl. ¶ 38). As the district court held, A-86 (Op. at 12), allegations made on information and belief “must be accompanied by a statement of the facts upon which the belief is based.” DiVittorio v. Equidyne Extractive Indus., Inc., 822 F.2d 1242, 1247 (2d Cir. 1987) (citations omitted); see also Wexner v. First Manhattan Co., 902 F.2d 169, 172 (2d Cir. 1990) (holding that the ability to plead on information and belief “must not be mistaken for license to base claims of fraud on speculation and conclusory allegations.”). MLSMK’s allegations are patently insufficient, as the district court held, A-86-87 (Op. at 12-13), because they are not accompanied by a statement of the facts on which MLSMK’s belief is based, resting instead on naked assertions about what unidentified JPMC employees allegedly concluded as a result of consulting unidentified Bear, Stearns traders. It is fiction. In particular, the Complaint is devoid of any explanation for the assertion that JPMC understood from its own trading with BMIS’s legitimate
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market-making business—a business that the Complaint concedes was completely separate from the investment advisory business (A-10, 20 (Compl. ¶¶ 18, 54))— that such trading could not support a $7 billion investment advisory business. Nor does MLSMK plead any facts to support the assertion that JPMC even understood that BMIS’s investment advisory business was a $7 billion business, or to explain the relationship, if any, between BMIS’s legitimate market-making and investment advisory businesses. Nor is there any basis to support MLSMK’s apparent assumption that JPMC was, and knew that it was, the only counterparty with which BMIS’s legitimate market-making business traded, so that it could conclude that its trading with BMIS’s market-making business represented the entirety of that business’ trading. Nor, finally, does MLSMK explain how, in light of its allegation that not even the traders who actually worked in BMIS’s market-making division knew of the fraud in the investment advisory division, A-10, 20 (Compl. ¶¶ 18, 54), JPMC could possibly have known of the fraud merely by virtue of some trading it did with the legitimate market-making business. Third, MLSMK asserts, again upon information and belief, that it was implausible to JPMC “that Madoff could be generating substantial positive returns at a time when the S&P was down 30% and option liquidity was limited.” A-15 (Compl. ¶ 37). As the district court held, A-86-87 (Op. at 12-13), that allegation is insufficient because it is devoid of any factual support, and several courts in this Circuit have held that allegations about the implausibility of Madoff’s consistently positive returns do not plead actual knowledge of fraud or scienter.16 Moreover,
16 See Anwar v. Fairfield Greenwich Ltd., 728 F. Supp. 2d 372, 451-53, 458 (S.D.N.Y. 2010) (dismissing aiding and abetting claims against the independent auditors of BMIS feeder funds, holding that the alleged implausibility of Madoff’s
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MLSMK, a sophisticated investment company, A-7 (Compl. ¶ 5), was just as able as JPMC to compare BMIS’s purported returns with general stock market conditions in the second half of 2008. Indeed, MLSMK specifically pleads that it decided to invest additional funds with Madoff between October and December 2008 because account statements issued by BMIS “consistently showed a 10-12% annualized return.” A-17-18 (Compl. ¶ 43); Br. at 14-15. In that regard, in Anwar v. Fairfield Greenwich Ltd., 728 F. Supp. 2d 372 (S.D.N.Y. 2010), the court highlighted how disingenuous it is for investors to argue that Madoff’s allegedly implausible returns gave third parties actual knowledge of fraud, when it was precisely to partake in those now allegedly “implausible” returns that plaintiffs like MLSMK invested with him. Id. at 452-53. Fourth, again in sweeping conclusory allegations made on “information and belief,” but unaccompanied by any statement of supporting facts, A-87 (Op. at 13), MLSMK contends that JPMC had access to BMIS’s account records at Chase Bank, which, beginning in mid-2008, reflected unusually low
publicly-stated trading strategy and his consistently positive results did not plead actual knowledge that he was engaged in fraud, as it was equally plausible that the auditors were merely negligent or that they, like Madoff’s investors, were “duped”); Stephenson v. Citco Grp. Ltd., 700 F. Supp. 2d 599, 624 (S.D.N.Y. 2010) (holding that Madoff’s consistently positive returns did not plead scienter against the auditor of a BMIS feeder fund because “even in the present economic climate the Court is unwilling to hold that success in securities trading is a red flag”); Newman, 2010 WL 4118083, at *1, *8 (holding that Madoff’s consistently positive returns did not plead scienter against the officers of a Madoff feeder fund, noting that it was equally plausible that Madoff fooled defendants just as he “deceived countless investors and professionals, as well as his primary regulators, the [SEC] and [FINRA]”).
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cash balances in BMIS’s checking account. A-12-13, 16-17, 22 (Compl. ¶¶ 27, 41, 61). Even assuming, arguendo, that the cash balance in BMIS’s Chase Bank account may have fallen around the middle of 2008, there is simply no logical link between that allegation and JPMC having actual knowledge that Madoff was misappropriating client funds. The Complaint acknowledges that, at the same time, the global financial crisis was in full swing, with the S&P down 30 percent. A-12-13, 15 (Compl. ¶¶ 27, 37). In such a rapidly falling market, it would not have been surprising if investors were redeeming their investments with Madoff. Declining cash balances in BMIS’s checking account—which would be explained by investors’ redeeming their investments—thus in no way supports an inference that JPMC and Chase Bank knew that BMIS was misappropriating client funds, because ordinary-course investor redemptions would be a far more reasonable inference. Fifth, the Complaint further attempts to plead knowledge by asserting—again, without a shred of factual support—that Chase Bank knew that the account statements Madoff sent his investors contained “fictional information,” and that it learned this in the course of examining such statements while extending loans at some unidentified time to unidentified Madoff investors. A-22 (Compl. ¶ 63); Br. at 41 n.9. Even if the Complaint provided any factual basis for this assertion, which it does not, it is self-evidently implausible that Chase Bank would extend loans to borrowers whose ability to repay was dependent on investments in what Chase Bank allegedly knew to be a Ponzi scheme.17
17 MLSMK cites 131 Main Street Associates v. Manko, 897 F. Supp. 1507 (S.D.N.Y. 1995), for the proposition that “atypicality, at least in business affairs,
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Sixth, MLSMK asserts, without providing any explanation or factual basis for its allegation, that, in September 2008, JPMC liquidated a portion of its investment in Fairfield, and invites the Court to speculate that it did so because it was aware of Madoff’s Ponzi scheme. See A-14-16, 21-22 (Compl. ¶¶ 33-40, 59- 60).18 Even if one credits MLSMK’s allegation that JPMC liquidated a portion of its position in Fairfield, that would not amount to strong circumstantial evidence that JPMC knew that BMIS was misappropriating its clients’ funds. The far more plausible, and economically rational, inference would be that JPMC, like other
may circumstantially suggest the possibility of fraud.” Br. at 38. In Manko, the court held that scienter was sufficiently pleaded by allegations that certain defendants, in the context of a tax shelter fraud, utilized a shell company that had no assets, no business, no telephone, no employees, and no bank account, and that performed no functions except to have its name inserted on defendants’ bogus trading tickets. MLSMK offers no explanation as to how that holding has any applicability to this case, where there is no allegation of “atypicality” in the routine banking services that JPMC and Chase Bank allegedly provided to Madoff. As the Manko court held, dismissing claims against other defendants who were alleged only to have provided routine business services, “mere involvement with a business that happened to be run on a phony basis suggests only business association, not fraudulent intent.” Id. at 1531. 18 Before the district court, MLSMK tripped over itself in an attempt to shore up its implausible claim that one of the country’s largest financial institutions knowingly partnered with a fraudster, inviting the court to speculate that JPMC liquidated a portion of its investment in the Fairfield Funds because it expected Madoff’s Ponzi scheme to collapse imminently and wanted to protect its capital. See A-3 (D.E. No. 11, at 9); A-16 (Compl. ¶ 40). Yet, when arguing that it had pleaded an open- ended pattern of racketeering activity, MLSMK asserted that “the defendants surely did not expect the scheme to come to an end in December.” A-3 (D.E. No. 11, at 17). MLSMK’s willingness to take mutually-contradictory positions to defend the pleading of two elements of the same claim highlights the illogicality and implausibility of its entire case theory.
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investors, was taking steps to minimize investment losses in a market that, as MLSMK states, was in “downward freefall.” A-16 (Compl. ¶ 39).19 Finally, although the Complaint asserts that JPMC and Chase Bank were motivated to “partner with [Madoff] in the fleecing of his victims” because BMIS paid “substantial fees” for banking services, A-17 (Compl. ¶ 41), MLSMK makes little effort to defend the adequacy of that allegation on appeal. See Br. at 29-36.20 The district court correctly held that allegations that JPMC and Chase Bank obtained normal banking fees from BMIS do not plead fraudulent motive. A-84-85 (Op. at 10-11); see also Rosner v. Bank of China, 528 F. Supp. 2d 419, 426 (S.D.N.Y. 2007) (“Rosner I”) (“Courts in this Circuit have held that ‘a plaintiff
19 MLSMK’s attempt to supplement its Complaint on appeal with a quotation from a New York Times article, Br. at 2 n.1, is wholly inappropriate because “[f]actual allegations contained in legal briefs or memoranda are . . . treated as matters outside the pleading for purposes of Rule 12(b).” Fonte v. Bd. of Managers of Cont’l Towers Condo., 848 F.2d 24, 25 (2d Cir. 1988). Even if the Court were to consider that reference, however, it further demonstrates that MLSMK has not pleaded actual knowledge, because it states only that JPMC withdrew a portion of its investment from the Fairfield Funds due, in part, to Madoff’s “lack of transparency.” As shown above, supra at 15-16, questions about a lack of transparency during a time of stock market chaos does not equal knowledge of fraud. 20 The sole case offered by MLSMK in support of its allegation of motive is irrelevant. In In re Beacon Associates Litigation, --- F. Supp. 2d ----, No. 09 Civ. 777(LBS), 2010 WL 3895582 (S.D.N.Y. Oct. 5, 2010), the court sustained securities fraud claims against the investment advisor to a Madoff feeder fund that advised clients to invest in the fund without disclosing its belief that Madoff was engaged in fraud, and then, motivated by the wish to manage its resulting liability, delivered “veiled messages” to those clients while delivering clearer warnings about Madoff to new clients. Id. at *12-14. The holding in In re Beacon simply has no application to the claims against JPMC and Chase Bank, neither of which is alleged to have given any advice or made any representation to MLSMK.
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must allege more than an interest in bank fees to create a reasonable inference of fraudulent intent.’”) (quoting Mazzaro de Abreu v. Bank of Am. Corp., 525 F. Supp. 2d 381, 388-89 (S.D.N.Y. 2007)); Schmidt v. Fleet Bank, Nos. 96 Civ. 5030(AGS), 96 Civ. 7836(AGS), 96 Civ. 9705(AGS), 96 Civ. 9706(AGS), 1998 WL 47827, at *6 (S.D.N.Y. Feb. 4, 1998) (“The fact that the banks stood to gain by having access to additional deposits from Schick’s investors and by earning fees on Schick’s transactions does not support an inference of fraudulent intent on the part of the banks.”). When “plaintiff’s view of the facts defies economic reason, . . . [it] does not yield a reasonable inference of fraudulent intent.” Kalnit v. Eichler, 264 F.3d 131, 140-41 (2d Cir. 2001) (internal quotation omitted; ellipses and brackets in original). Thus, in South Cherry, this Court dismissed as implausible any inference that a market-leading hedge fund consultant would deliberately jeopardize its standing and the viability of its business by recommending that its clients invest in a Ponzi scheme. 573 F.3d at 113. Similarly, in Schmidt, the court dismissed RICO claims arising from a bank’s involvement in a Ponzi scheme, noting that such participation “could subject the bank to civil liability and loss of business reputation,” that Ponzi schemes are “doomed to collapse,” and that, although an individual may be able to escape with the proceeds of the fraud, a bank cannot, so participation in the scheme would not be in the bank’s economic interest. 1998 WL 47827, at *6.21
21 See also Zhu v. First Atl. Bank, No. 05 Civ. 96(NRB), 2005 WL 2757536, at *4 (S.D.N.Y. Oct. 25, 2005) (rejecting conclusory allegations that the bank knew of its customer’s scam, and finding that plaintiff offered “no plausible financial motive for the banks to facilitate the alleged fraud”); Renner I, 1999 WL 47239, at
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It is, of course, equally implausible that JPMC and Chase Bank would knowingly “partner with” Madoff to join in the “fleecing” of investors in the largest Ponzi scheme in history, purely to earn routine fees payable on regular banking services. A-16-17 (Compl. ¶ 41). Tacitly admitting the inadequacy of its pleading, MLSMK repeatedly says that it could not do any better because the district court did not permit it to take discovery. See Br. at 3, 16, 36 n.7, 51, 56 n.15. As this Court recently held, a plaintiff that, like MLSMK, cannot state a plausible claim is not entitled to discovery, and such a “confessed inability to offer more than speculation that there may have been such unlawful conduct underscores, rather than cures, the deficiency in the Complaint.” S. Cherry, 573 F.3d at 113-14 (citing Iqbal, 129 S. Ct. at 1954).
B. The Dismissal Of The RICO Conspiracy Claim May Also Be Affirmed On Additional Grounds That Were Argued To, But Not Reached By, The District Court22
1. The Complaint Fails To Plead That JPMC And Chase Bank Entered Into Any Agreement With A RICO Enterprise As this Court has held, “[b]ecause the core of a RICO civil conspiracy is an agreement to commit predicate acts, a RICO civil conspiracy complaint, at
*11 n.8 (finding it “fanciful” to infer that the bank profited so much from the fraudulent transaction that it was willing to become a partner in fraud). 22 This Court may “affirm the district court’s judgment on any ground appearing in the record, even if the ground is different from the one relied on by the district court.” ACEquip Ltd. v. Am. Eng’g Corp., 315 F.3d 151, 155 (2d Cir. 2003) (citation omitted). This Court also has “discretion to consider issues that were raised, briefed, and argued in the District Court, but that were not reached there.” Booking v. Gen. Star Mgmt. Co., 254 F.3d 414, 418-19 (2d Cir. 2001).
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the very least, must allege specifically such an agreement.” Hecht v. Commerce Clearing House, Inc., 897 F.2d 21, 25 (2d Cir. 1990) (dismissing a RICO conspiracy claim because “Hecht did not plead a RICO conspiracy with sufficient particularity”). Similarly, in Cofacrèdit, this Court reversed an award of damages for RICO conspiracy due to insufficient evidence that defendants “agreed to form and associate themselves with a RICO enterprise and that they agreed to commit two predicate acts in furtherance of a pattern of racketeering activity.” 187 F.3d at 244. Even if MLSMK had pleaded that Madoff, BMIS and DePasquale formed a RICO enterprise,23 the conspiracy claim against JPMC and Chase Bank must fail because the Complaint does not plead that they agreed to associate with that alleged RICO enterprise to commit RICO predicate acts. Lacking any factual basis to plead that JPMC and Chase Bank actually entered into any such corrupt agreement, MLSMK again resorts to blatant
23 There is no basis for MLSMK’s assertion that it does not need to plead the existence of a RICO enterprise because the facts surrounding Madoff “are so widely known and undisputed.” Br. at 22. The Complaint does not plead the existence of a RICO enterprise, because it fails to describe “the ‘hierarchy, organization, and activities’” of the alleged RICO enterprise in order to demonstrate that “‘its members functioned as a unit’” united by some common purpose. Berry v. Deutsche Bank Trust Co. Ams., No. 07 Civ. 7634(WHP), 2008 WL 4694968, at *6 (S.D.N.Y. Oct. 21, 2008) (quoting First Nationwide Bank v. Gelt Funding, Corp., 820 F. Supp. 89, 90 (S.D.N.Y. 1993), aff’d 378 F. App’x 110 (2d Cir. 2010)). This failure to plead a substantive RICO violation mandates dismissal of the RICO conspiracy claim against JPMC and Chase Bank. See, e.g., First Capital Asset Mgmt., Inc. v. Satinwood, Inc., 385 F.3d 159, 164 (2d Cir. 2004) (“And because Plaintiffs’ RICO conspiracy claims are entirely dependent on their substantive RICO claims, we also concur in the District Court’s dismissal of the RICO conspiracy claims.”).
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conjecture. MLSMK would have this court speculate that JPMC agreed to “join with and support Madoff’s fleecing of victims” simply on the basis that, in September 2008, when MLSMK claims JPMC learned Madoff was engaged in fraud, JPMC did not stop trading with BMIS’s totally separate legitimate market- making business, and that Chase Bank so agreed by not closing BMIS’s checking account. Br. at 26-29; A-19-21, 23-27 (Compl. ¶¶ 49-51, 58, 65-84). At that point, according to MLSMK, “their business relationship became a RICO conspiracy.” Br. at 27. MLSMK’s theory fails on two levels. First, as set forth above, MLSMK does not plead that JPMC and Chase Bank learned about Madoff’s fraud at any time before the rest of the world. Second, MLSMK cites no case in which a court has ever inferred a corrupt agreement to engage with a RICO enterprise to commit RICO predicate acts from nothing more than a failure to stop providing longstanding lawful services to a customer that later turned out to be engaged in wrongdoing. As the Supreme Court held in the antitrust conspiracy context in Twombly, a complaint must contain “enough factual matter (taken as true) to suggest that an agreement was made.” 550 U.S. at 556. As the Complaint fails to plead any facts from which the requisite agreement can plausibly be inferred, the RICO conspiracy claim should be dismissed.
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2. The Complaint Also Fails To Plead That The Acts Alleged Against JPMC And Chase Bank Were Committed As Part Of A Pattern Of Racketeering Activity
(a) The Banking Services That JPMC and Chase Bank Are Alleged To Have Provided Are Not RICO Predicate Acts A RICO conspiracy claim requires that “if the agreed-upon predicate acts had been carried out, they would have constituted a pattern of racketeering activity.” Cofacrèdit, 187 F.3d at 244-45 (citation omitted). The acts alleged against JPMC and Chase Bank—that, between September and December 2008, JPMC continued doing business with BMIS’s legitimate market-marking business and that, over the same period, Chase Bank continued to provide BMIS with banking services—simply do not qualify as RICO predicate acts. As to the allegation that Chase Bank continued, after September 2008, to receive and make wire transfers for its customer, BMIS, a substantial body of case law holds that a bank does not commit a RICO violation simply by providing banking services to its customer. In Rosner I, for example, the court dismissed RICO conspiracy claims against a bank that was alleged to have facilitated its customer’s fraud by making wire transfers at the customer’s instruction, holding that a bank does not commit a RICO violation by providing banking services to its customer, however essential those banking services may have been to the customer’s fraud. 528 F. Supp. 2d at 428-29, 431. Similarly, in Zhu v. First Atlantic Bank, the court dismissed RICO conspiracy claims against bank defendants that were alleged to have effected wire transfers that aided a scam committed by their customer, holding allegations that the banks “compl[ied] with their customers’ requests to make wire transfers” insufficient to plead a RICO
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conspiracy claim. No. 05 Civ. 96(NRB), 2005 WL 2757536, at *4-5 (S.D.N.Y. Oct. 25, 2005).24 As to JPMC, MLSMK’s theory is that JPMC participated in a RICO conspiracy by continuing to trade with BMIS’s legitimate market-making operation, because Madoff’s market-making business allegedly fooled investors and regulators into thinking that BMIS’s investment advisory business was also legitimate. A-6, 10, 14, 27 (Compl. ¶¶ 4, 18-19, 32, 83). That theory is not viable. JPMC cannot have committed a RICO predicate act by doing lawful business with a concededly legitimate business. A-10, 20 (Compl. ¶¶ 18, 54); Beck, 529 U.S. at 507 (“We conclude . . . that a person may not bring suit under § 1964(c) predicated on . . . an overt act that is not an act of racketeering or otherwise unlawful under the same statute.”). In addition, MLSMK cannot plead the requisite causation, which requires a plaintiff asserting a civil RICO claim to allege that it was directly injured by the predicate acts. See Lerner v. Fleet Bank, N.A., 318 F.3d 113, 123 (2d Cir. 2003) (“Lerner I”). Neither of MLSMK’s theories of causation is viable. First, MLSMK’s theory that regulators would have discovered that BMIS’s investment advisory business was a Ponzi scheme earlier if only JPMC had not continued to do business with BMIS’s separate, legitimate, market-making business is indistinguishable from the theory this Court rejected in Lerner I. See
24 MLSMK attempts to distinguish these cases on the ground that they involved “legitimate” transactions while, according to MLSMK, the monies deposited by Madoff at Chase Bank “should not have been on deposit with Chase at all,” Br. at 35 (emphasis in original), but the facts of those cases are not meaningfully distinguishable from the allegations made by MLSMK.
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id. at 123-24 (rejecting as too attenuated a RICO causation argument that, if a bank had reported suspicious attorney trust account activity to the authorities, the lawyer would have been disbarred so that the plaintiff would not have entrusted money to him). Second, MLSMK’s claim, that, between September and December 2008, unidentified “new victims” were persuaded to invest with Madoff as a result of witnessing his legitimate market-making business, A-27 (Compl. ¶ 83), also does not plead causation because MLSMK does not plead that it was so persuaded, nor could it because it was a BMIS investor before September 2008. A-24 (Compl. ¶ 68). As such, MLSMK cannot plead that it was harmed by the continuation of BMIS’s legitimate market-making business beyond September 2008.
(b) MLSMK Fails To Plead That JPMC and Chase Bank Engaged In A Pattern Of Racketeering Activity In addition to pleading that the defendant committed at least two predicate acts, a plaintiff must plead that those acts were part of a pattern of racketeering activity. See Cofacrèdit, 187 F.3d at 244-45 (citations omitted). To plead a pattern of racketeering activity, a plaintiff must allege that “the predicate acts of racketeering by a defendant are ‘related, and that they amount to or pose a threat of continued criminal activity.’” Id. at 242 (emphasis in original) (quoting H.J. Inc. v. Nw. Bell Tel. Co., 492 U.S. 229, 239 (1989)). The required continuity may be either “open-ended” or “closed-ended.” Id. As the only acts that JPMC and Chase Bank are alleged to have committed took place between September and December 2008, MLSMK cannot plead the required pattern.
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To plead open-ended continuity, a plaintiff must allege that there is a threat of continued criminal activity—that the defendant’s enterprise is engaged primarily in racketeering and that the predicate acts are inherently unlawful. See id. at 242-43. Thus, in Cofacrèdit, this Court reversed an award of damages under Section 1962(d), holding that open-ended continuity was not satisfied in the absence of evidence that defendant regularly conducted its business by means of RICO predicate acts. Id. at 244. Similarly, in Renner v. Chase Manhattan Bank, No. 98 Civ. 926(CSH), 1999 WL 47239 (S.D.N.Y. Feb. 3, 1999) (“Renner I”), the court dismissed RICO conspiracy claims against the bank, finding that open-ended continuity was not pleaded by allegations that the bank received and made wire transfers over a two-month period, because those predicate acts were not inherently unlawful. Id. at *9. For the same reasons, MLSMK does not, and cannot, plead open-ended continuity against JPMC and Chase Bank.25 To plead closed-ended continuity, a plaintiff must allege “‘a series of related predicates extending over a substantial period of time. Predicate acts extending over a few weeks or months . . . do not satisfy this requirement.’” Cofacrèdit, 187 F.3d at 242 (quoting Nw. Bell., 492 U.S. at 242) (ellipsis in
25 MLSMK argued to the district court, A-3 (D.E. No. 11 at 17) that the alleged conduct of JPMC and Chase Bank during the September–December 2008 period satisfies the open-ended continuity requirement because “the defendants surely did not expect the scheme to come to an end in December.” Not only is that position unsupported by the law (or by any facts alleged in the Complaint), but it is directly contrary to its claim that JPMC redeemed a portion of its investment in the Fairfield funds in September 2008 because it knew that Madoff was engaged in fraud and wanted to protect its own capital before the Ponzi scheme collapsed. The Court should not countenance MLSMK’s willingness to take mutually- contradictory positions in an effort to plead different elements of a single cause of action.
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original). The Second Circuit has “‘never held a period of less than two years to constitute a substantial period of time.’” Spool v. World Child Int’l Adoption Agency, 520 F.3d 178, 184 (2d Cir. 2008) (quoting Cofacrèdit, 187 F.3d at 242 (internal quotation omitted)). Under Second Circuit law, therefore, the acts allegedly committed by JPMC and Chase Bank did not extend over a sufficiently long period to satisfy the continuity requirement, so the RICO claim should be dismissed. 26
3. Even If The Complaint Pleaded The Elements Of A RICO Conspiracy Claim, That Claim Is Precluded On The Facts Alleged Here By The Private Securities Litigation Reform Act Of 1995 Even if MLSMK had pleaded the elements of a RICO conspiracy claim, which it has not, the claim would be precluded on the facts alleged here by Section 107 of the Private Securities Litigation Reform Act of 1995, codified at 18 U.S.C. § 1964(c), which provides that “no person may rely on conduct that would
26 MLSMK argued to the district court, A-3 (D.E. No. 11 at 17) that it does not matter that it cannot plead open-ended continuity against JPMC and Chase Bank, because Madoff’s “20+ year criminal enterprise” satisfies both the open-ended and closed-ended continuity requirement. That position is unsupportable. In Cofacrèdit, this Court reversed a judgment that held certain defendants liable for RICO conspiracy expressly because there was no evidence that those specific defendants agreed to commit predicate acts that satisfied either open- or closed- ended continuity. 187 F.3d at 245. Similarly, in Spool, this Court held that “‘[u]nder any prong of § 1962, a plaintiff in a civil RICO suit must establish a ‘pattern of racketeering behavior,’’” 520 F.3d at 183 (quoting GICC Capital Corp. v. Tech. Fin. Group, Inc., 67 F.3d 463, 465 (2d Cir. 1995)), and that, when assessing continuity, “[t]he relevant period . . . is the time during which RICO predicate activity occurred, not the time during which the underlying scheme operated or the underlying dispute took place,” id. at 184 (citing GICC, 67 F.3d at 467; Cofacrèdit, 187 F.3d at 243; DeFalco v. Bernas, 244 F.3d 286, 321 (2d Cir. 2001)).
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have been actionable as fraud in the purchase or sale of securities to establish a violation of [RICO].”27 Section 107 was intended to bar RICO plaintiffs from relying on mail and wire fraud as predicate acts if such offenses are based on securities fraud, see Thomas H. Lee Equity Fund V, L.P. v. Mayer Brown, Rowe & Maw LLP, 612 F. Supp. 2d 267, 281 (S.D.N.Y. 2009), and thereby to avoid the “so-called treble damages blunderbuss of RICO in securities fraud cases,” Fezzani v. Bear, Stearns & Co., Inc., No. 99CIV0793RCC, 2005 WL 500377, at *4 (S.D.N.Y. Mar. 2, 2005) (internal quotations omitted). The Fezzani court, in words that are directly applicable here, noted that Congress wanted to prevent plaintiffs from relying “on the securities fraud of those with few assets to obtain [RICO] treble damages against deeper pockets.” Id. at *4. Thus, in Thomas H. Lee, in Fezzani, and in Cohain v. Klimley, Nos. 08 Civ. 5047(PGG), 09 Civ. 4527(PGG), 09 Civ. 10584(PGG), 2010 WL 3701362, at *7-10 (S.D.N.Y. Sept. 20, 2010), the courts dismissed RICO claims that, in substance, were based on allegations that defendants aided and abetted the securities fraud of a third party. In the district court, MLSMK relied on the minority view set forth in OSRecovery, Inc. v. One Groupe International, Inc., 354 F. Supp. 2d 357, 368-71 (S.D.N.Y. 2005) and Renner I, 1999 WL 47239, at *4-7, which held that Section 107 does not bar RICO claims against defendants who aid and abet securities fraud on the basis that there is no private right of action for aiding and abetting under the federal securities laws. A-3 (D.E. No. 11, at 18-21). After a careful analysis of the
27 The text of 18 U.S.C. § 1964 is set forth in a Special Appendix included as an addendum to this brief. See Local Rule 32.1(c).
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legislative history and case law from other circuits, in Thomas H. Lee, the Honorable Gerard E. Lynch described those two opinions as “unpersuasive and against the great weight of precedent” on this point. See Thomas H. Lee, 612 F. Supp. 2d at 281; see also Cohain, 2010 WL 3701362, at *8 (“OSRecovery has not been relied on for this proposition, however, and several courts have explicitly rejected its reasoning.”) (citations omitted).28 As Judge Lynch noted in Thomas H. Lee, it is wholly implausible that the PSLRA was intended to preserve aiders and abettors’ immunity from civil securities suits,29 while exposing them—but not the actual fraudsters—to treble damages and attorneys’ fees under RICO. See 612 F. Supp. 2d at 282-83. Thus, “[t]he better interpretation—and the one supported by the plain meaning of § 107—is that the RICO Amendment bars claims based on conduct that could be actionable under the securities laws even when the plaintiff, himself, cannot bring a cause of action under the securities laws.” Id. at 283. That holding was recently endorsed by the Fifth Circuit in Affco Investments 2001, L.L.C. v. Proskauer Rose, L.L.P., 625 F.3d 185 (5th Cir. 2010), which affirmed the dismissal of RICO claims
28 MLSMK also argued to the district court that the PSLRA merely prohibits the pleading of RICO and securities claims in the alternative. See A-3 (D.E. No. 11, at 20-21). That interpretation would give plaintiffs license to elect to plead RICO claims “‘to rely on the securities fraud or those with few assets to obtain treble damages against deeper pockets,’” Thomas H. Lee, 612 F. Supp. 2d at 282 (quoting Fezzani, 2005 WL 500377, at *4), frustrating the purpose of Section 107. 29 Save for authorizing the SEC to bring enforcement action against aiders and abettors, the PSLRA left undisturbed the ruling in Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164 (1994), that there is no aiding and abetting liability under Section 10(b) of the Securities Exchange Act of 1934. Thomas H. Lee, 612 F. Supp. 2d at 275, 282-83.
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against a law firm that was alleged to have aided and abetted the securities fraud of its client. Id. at 189-91, 191 n.5. As MLSMK’s claims arise out of, and depend entirely upon allegations that JPMC and Chase Bank aided and abetted Madoff’s securities fraud, its civil RICO claim is barred by the PSLRA, so the dismissal of that claim should be affirmed.
II. THE DISTRICT COURT CORRECTLY DISMISSED THE AIDING AND ABETTING BREACH OF FIDUCIARY DUTY CLAIM
A. The Complaint Does Not Plead That JPMC And Chase Bank Had Actual Knowledge That Madoff Was Engaged In Fraud MLSMK purports to plead a claim for aiding and abetting breach of fiduciary duty based on the theory that, by September 2008, JPMC and Chase Bank knew that BMIS was a Ponzi scheme, but Chase Bank continued to permit BMIS to maintain a checking account through which Madoff allegedly misappropriated MLSMK’s money, and JPMC continued to do business with BMIS’s legitimate market-making division, causing regulators and unnamed victims to be fooled into thinking BMIS’s investment advisory business was legitimate. Thus, according to MLSMK, JPMC and Chase Bank aided and abetted Madoff’s breach of a fiduciary duty he owed to MLSMK. A-28-29 (Compl. ¶¶ 87- 97). To plead a claim for aiding and abetting breach of fiduciary duty, a plaintiff must allege facts supporting “(i) a breach by a fiduciary of obligations to another, (ii) that the defendant knowingly induced or participated in the breach,
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and (iii) that plaintiff suffered damage as a result of the breach.” Musalli, 261 F.R.D. at 23-24. Actual, not constructive, knowledge must be pled, Kolbeck v. LIT America, Inc., 939 F. Supp. 240, 246-47 (S.D.N.Y. 1996), aff’d, 152 F.3d 918 (2d Cir. 1998), and supported by facts pled in non-conclusory terms, Musalli, 261 F.R.D. at 24. The actual knowledge element encompasses both a defendant’s “actual knowledge of the primary violator’s status as a fiduciary and actual knowledge that the primary violator’s conduct contravened a fiduciary duty.” Mazzaro de Abreu v. Bank of Am. Corp., 525 F. Supp. 2d 381, 393 (S.D.N.Y. 2007) (quoting Goldin Assocs., L.L.C. v. Donaldson, Lufkin & Jenrette Sec. Corp., No. 00 Civ. 8688(WHP), 2003 WL 22218643, at *8 (S.D.N.Y. Sept. 25, 2003)). The district court correctly dismissed MLSMK’s aiding and abetting claim, holding that “Plaintiff has utterly failed to set forth non-conclusory facts indicating even that Defendants had constructive knowledge of Madoff’s fraud, let alone actual knowledge.” A-88 (Op. at 14). For all the reasons set forth in Section I.A. above, the district court correctly held that the Complaint does not plead that JPMC and Chase Bank had actual knowledge of Madoff’s fraud. Courts routinely hold that conclusory allegations about what a defendant knew or should have known, such as those on which MLSMK relies, are insufficient to plead aiding and abetting liability. See Anwar, 728 F. Supp. 2d at 452-53, 458 (dismissing aiding and abetting breach of fiduciary duty claims against the independent auditors of BMIS feeder funds, holding allegations of “red flags,” including the alleged implausibility of Madoff’s publicly-stated trading strategy and consistently positive results, did not plead
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actual knowledge of the underlying misconduct); Musalli, 261 F.R.D. at 24-25 (dismissing aiding and abetting breach of fiduciary duty claim because plaintiff failed to plead bank knew its customer was defrauding plaintiff and rejecting conclusory allegations of what bank “knew or should have known”).30 Moreover, notwithstanding MLSMK’s straw-man assertion that it would be “ludicrous” to think that “Chase did not know who Madoff was, what his business was,” Br. at 42, as in Musalli, 261 F.R.D. at 24-25, and Kolbeck, 939 F. Supp. at 246-47, MLSMK does not plead that Chase Bank had actual knowledge that the activity in BMIS’s checking account violated fiduciary obligations that Madoff owed to MLSMK under the terms of whatever arrangements governed their relationship, or, indeed, that the account activity was at all unusual for an account held by an investment advisor in the context of the stock market turmoil that characterized the second half of 2008. See also Abreu, 525 F. Supp. 2d at 394 (holding that, even though a written contract between the investor and the fraudster gave rise to fiduciary obligations between the investor and the fraudster, an aiding and abetting claim against the third-party banks had to be dismissed because the
30 See also In re Agape Litig., 681 F. Supp. 2d 352, 364, 366-67 (E.D.N.Y. 2010) (dismissing aiding and abetting claims against a bank arising from its customer’s Ponzi scheme, holding that alleged “red flags” pleaded only constructive knowledge); Rosner v. Bank of China, No. 06 CV 13562, 2008 WL 5416380, at *10 (S.D.N.Y. Dec. 18, 2008) (“Rosner II”) (dismissing aiding and abetting fraud claim and rejecting as insufficient allegations that bank ignored “red flags,” or obvious warning signs of customer’s fraudulent activity), aff’d, 349 F. App’x 637 (2d Cir. 2009) (summary order); Ryan v. Hunton & Williams, No. 99-CV- 5938(JG), 2000 WL 1375265, at *9 (E.D.N.Y. Sept. 20, 2000) (dismissing aiding and abetting fraud claims and rejecting allegations that bank suspected customer of defrauding depositor as insufficient to plead actual knowledge).
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plaintiffs “never allege that Defendants knew anything at all about Plaintiffs, or about the relationship between Plaintiffs and [the fraudster]”).31 As the Complaint fails to allege that JPMC and Chase Bank knew that activity in the BMIS account was in breach of a fiduciary duty to MLSMK, let alone that they had actual knowledge of Madoff’s fraud, MLSMK’s aiding and abetting claim was properly dismissed.
B. The Complaint Does Not Plead That JPMC And Chase Bank Substantially Assisted Madoff’s Fraud MLSMK’s aiding and abetting claim also fails for an independent reason that the district court did not reach—the Complaint does not plead facts supporting any inference that JPMC and Chase Bank substantially assisted Madoff’s breach of fiduciary duty to MLSMK. MLSMK argues that it should be excused from the requirement to plead substantial assistance. Br. at 48 (“[E]ven had Appellees done nothing, the circumstances of this case, as properly pled in the Complaint, would give rise to aider and abettor liability.”).32 To the contrary, to plead substantial assistance, a plaintiff must plead that “a defendant affirmatively assists, helps conceal, or by
31 Cf. SEC v. Chenery Corp., 318 U.S. 80, 85-86 (1943) (Frankfurter, J.) (“[T]o say that a man is a fiduciary only begins analysis; it gives direction to further inquiry. . . . What obligations does he owe as a fiduciary?”). 32 Unable to plead substantial assistance, MLSMK contends that any act by a bank with knowledge of a customer’s fraud is substantial assistance, Br. at 46-47, but it is clear that substantial assistance is a separate and substantive element of the cause of action that must be pled and supported with non-conclusory facts. See, e.g., Renner v. Chase Manhattan Bank, No. 98 CIV. 926(CSH), 2000 WL 781081, at *12 (S.D.N.Y. June 16, 2000) (“Renner II”) (“Even if actual knowledge could be attributed to Chase, it did not substantially assist in the fraud.”).
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virtue of failing to act when required to do so enables the fraud to proceed; and the actions of the aider/abettor proximately caused the harm on which the primary liability is predicated.” Musalli, 261 F.R.D. at 25 (dismissing aiding and abetting breach of fiduciary duty claim because the bank’s failure to close fraudster’s account or inform plaintiff of withdrawals “do[es] not rise to the level of substantial assistance because there was no fiduciary relationship between the bank and [plaintiff]”) (internal citations and quotations omitted). MLSMK’s allegations do not plead substantial assistance. First, although MLSMK asserts in its brief that JPMC and Chase Bank’s alleged knowledge of Madoff’s fraud “created a fiduciary relationship between the Appellees and the victims whose money reposed in the Chase Account, including [MLSMK],” Br. at 48, that assertion is unsupported factually and legally.33 Second, as to the routine banking services that Chase Bank provided to BMIS, numerous courts in this Circuit have held that providing a bank account to one who uses it to perpetrate a fraud does not constitute substantial assistance. See In re Agape Litig., 681 F. Supp. 2d 352, 365 (E.D.N.Y. 2010) (“[O]pening accounts and approving transfers, even where there is a suspicion of fraudulent activity, does not amount to substantial assistance.”) (citation omitted); Rosner v. Bank of China, No. 06 CV 13562, 2008 WL 5416380, at *12-14 (S.D.N.Y. Dec.
33 As explained in Section IV infra, even if the Complaint pleaded that JPMC and Chase Bank knew that Madoff was diverting fiduciary funds, which it does not, that would not create a fiduciary relationship between JPMC, Chase Bank and MLSMK, and this Court’s decision in Lerner II—the only case that MLSMK cites for this proposition—does not hold otherwise.
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18, 2008) (“Rosner II”) (allegations that a bank provided routine banking services did not plead substantial assistance for an aiding and abetting fraud claim), aff’d, 349 F. App’x 637 (2d Cir. 2009) (summary order); Nigerian Nat’l Petro. Corp. v. Citibank, N.A., No. 98 Civ. 4960(MBM), 1999 WL 558141, at *6 (S.D.N.Y. July 30, 1999) (dismissing aiding and abetting fraud claim); Renner v. Chase Manhattan Bank, No. 98 CIV. 926(CSH), 2000 WL 781081 (S.D.N.Y. June 16, 2000) (“Renner II”) (maintaining bank account and executing transfers at instruction of account’s authorized signatory did not constitute substantial assistance for claims of aiding and abetting fraud and aiding and abetting breach of fiduciary duty); Williams v. Bank Leumi Trust Co., No. 96 CIV. 6695(LMM), 1997 WL 289865, at *5 (S.D.N.Y. May 30, 1997) (“[T]he mere fact that all the participants in the alleged scheme used accounts at Bank Leumi to perpetrate it, without more, does not rise to the level of substantial assistance necessary to state a claim for aiding and abetting liability.”).34 Third, MLSMK is unable to plead that JPMC’s trading with Madoff’s legitimate market-making business substantially assisted Madoff’s breaches of fiduciary duty to MLSMK, because such routine trading does not constitute substantial assistance. See, e.g., In re Amaranth Natural Gas Commodities Litig., 612 F. Supp. 2d 376, 392-93 (S.D.N.Y. 2009) (“[A] clearing broker cannot be held
34 MLSMK cites Dubai Islamic Bank v. Citibank, N.A., 256 F. Supp. 2d 158 (S.D.N.Y. 2003) in support of its position that banking services can constitute “substantial assistance,” Br. at 47, but the aiding and abetting claim in that case was allowed to proceed only because the plaintiff adequately pleaded that, under Islamic law, it had a special relationship with Citibank. 256 F. Supp. 2d at 165, 167. MLSMK, on the other hand, had no relationship, much less a special or fiduciary relationship, with JPMC or Chase Bank.
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liable as an aider and abettor merely because it performed its contracted-for services.”) (citations and internal quotations omitted).35 Moreover, although MLSMK asserts that, between September and December 2008, unidentified “new victims” allegedly were persuaded to invest with Madoff as a result of witnessing his legitimate market-making business, A-10, 27 (Compl. ¶¶ 19, 83), it does not, and cannot, claim that it was so persuaded, because it was already an investor with BMIS. A-17 (Compl. ¶ 43). For all these reasons, the dismissal of MLSMK’s aiding and abetting breach of fiduciary duty claim should be affirmed.
III. THE DISTRICT COURT CORRECTLY DISMISSED THE COMMERCIAL BAD FAITH CLAIM
A. The Complaint Does Not Plead That JPMC And Chase Bank Had Actual Knowledge That Madoff Was Engaged In Fraud To plead a claim for commercial bad faith, a plaintiff must satisfy the heightened pleading standards of Federal Rule of Civil Procedure 9(b) in pleading a scheme or acts of wrongdoing, together with either (i) the bank’s actual
35 MLSMK relies on A.I.A. Holdings, S.A. v. Lehman Brothers, Inc., No. 97 CIV. 4978(LMM), 2002 WL 88226 (S.D.N.Y. Jan. 23, 2002), Br. at 47, but that case confirms that a clearing broker does not provide substantial assistance by undertaking routine trading. 2002 WL 88226, at *12-13. The A.I.A. court permitted the aiding and abetting claim to proceed because there was evidence that employees of the clearing brokers had actual knowledge of the introducing broker’s fraud and actively participated in it by establishing “dummy” and secret accounts and taking kickbacks, which established that they “did more than just clear trades.” Id. at *3-8, 13. MLSMK, on the other hand, has not pleaded that JPMC or Chase Bank or any of their employees had actual knowledge of Madoff’s fraud, nor that either of them did anything beyond providing routine banking services.
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knowledge of the scheme or wrongdoing, amounting to bad faith, or (ii) complicity by bank principals in confederation with the wrongdoers. See Musalli, 261 F.R.D. at 24 (citing Prudential-Bache Sec., Inc. v. Citibank, N.A., 73 N.Y.2d 263, 275 (1989) and Abreu, 525 F. Supp. 2d at 394-95 (S.D.N.Y. 2007)). The district court correctly dismissed this claim, because MLSMK does not attempt to plead that any bank official was complicit in Madoff’s fraud, Br. at 49-51, and, for the reasons set forth in Section I.A. above, the Complaint does not plead that JPMC or Chase Bank had actual knowledge that Madoff was engaged in fraud. A-90 (Op. at 16).36
B. The Commercial Bad Faith Doctrine Is Inapplicable Because This Is Not A Case Involving Bank Complicity In Check Fraud The “commercial bad faith” doctrine is an exception, created by the New York Court of Appeals, to the general Uniform Commercial Code rule that a bank is not liable on a check made out to a fictitious payee when the maker of the check knows the payee to be fictitious. See Lerner v. Fleet Bank, N.A., 459 F.3d 273, 293 (2d Cir. 2006) (“Lerner II”) (citing N.Y. U.C.C. Law § 3-405). Under this exception, the bank “may be held liable if it in fact knows of the fraud and participates in it.” Id. (citing Prudential-Bache, 73 N.Y.2d at 274-75; Getty Petro.
36 MLSMK cites Prudential-Bache in support of its claim that it has adequately pleaded actual knowledge. Br. at 50-51. As this Court held, affirming the dismissal of a commercial bad faith claim in Rosner v. Bank of China, 349 F. App’x 637 (2d Cir. 2009) (summary order): “[I]n [Prudential-Bache], the court found that the plaintiff had properly alleged that Citibank had actual knowledge of the fraud, sufficient for a claim of commercial bad faith, because two of its employees participated in the scheme and knew of the illegal conduct. Rosner alleges no analogous facts.” Id. at 639 (citation omitted). MLSMK, too, has pleaded no analogous facts.
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Corp. v. Am. Express Travel Related Servs., Co., Inc., 90 N.Y.2d 322, 331 (1997)). As the New York state courts created and have applied the commercial bad faith doctrine only in the narrow context of check fraud, several federal courts, including this one, have expressed “considerable doubt” that it can be extended to situations that, like the case before this Court, “do not allege fraud in the making and cashing of checks.” Lerner II, 459 F.3d at 293; Musalli, 261 F.R.D. at 24 n.10 (same); Rosner II, 2008 WL 5416380, at *15 n.19 (same).37 This Court, too, should decline MLSMK’s invitation to expand the commercial bad faith doctrine to this novel context in a way that is wholly unsupported by state law. See City of Phila. v. Beretta U.S.A. Corp., 277 F.3d 415, 421 (3d Cir. 2002) (noting that “it is not the role of a federal court to expand state law in ways not foreshadowed by state precedent”).
37 MLSMK apparently has abandoned its argument to the district court, A-3 (D.E. No. 11, at 30 n.18), that Peck v. Chase Manhattan Bank, N.A., 190 A.D.2d 547 (N.Y. App. Div. 1993), extended the commercial bad faith doctrine beyond the check fraud context, and rightly so. See Peck, 190 A.D. at 548 (summarizing plaintiff’s allegations that a fraudster “regularly was depositing checks payable to others in his personal account and that [his] right to make those deposits was not questioned by Chase for many months”). MLSMK cites only one case, Abreu, 525 F. Supp. 2d 381, where a court denied a motion to dismiss a commercial bad faith claim that was not predicated on check fraud. There is, however, no discussion in the opinion as to whether the doctrine is limited to check fraud cases and no indication that any party raised the issue, so the case hardly stands as authority for the expansion of state law that MLSMK proposes.
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IV. THE DISTRICT COURT CORRECTLY DISMISSED THE NEGLIGENCE CLAIMS MLSMK seeks punitive damages based on two claims of “purposeful and contumacious” negligence, one on the theory that JPMC and Chase Bank failed to protect MLSMK’s interests after they allegedly learned of Madoff’s fraud, A-31-33 (Compl. ¶¶ 112-22), and the other on the theory that Chase Bank should have shut down BMIS’s checking account when it allegedly saw “volatile and erratic” account activity after September 2008 (A-33-35 (Compl. ¶¶ 124-33). The district court correctly dismissed both claims on the ground that JPMC and Chase Bank owed no duty of care to MLSMK, a third-party, non-customer. A-90-93 (Op. at 16-19). As MLSMK acknowledges, Br. at 52, a bank owes no duty to protect a non-customer from fraud perpetrated by a customer. See In re Terrorist Attacks on Sept. 11, 2001, 349 F. Supp. 2d 765, 830 (S.D.N.Y. 2005) (dismissing negligence claims because the bank owed no duty to a non-customer plaintiff), aff’d, 538 F.3d 71 (2d Cir. 2008).38 MLSMK attempts to invoke a narrow exception to that rule that arises when a bank fails to act to safeguard trust funds on deposit in a fiduciary account after receiving “clear evidence” of misappropriation. See Lerner II, 459 F.3d at 286-90. The district court correctly held that exception to be unavailable because the Complaint does not plead that JPMC or Chase Bank knew that Madoff was engaged in fraud. A-92-93 (Op. at 18-19).
38 See also Musalli, 261 F.R.D. at 27-28 (dismissing negligence claims because the bank owed no duty to a non-customer plaintiff); Tzaras v. Evergreen Int’l Spot Trading, Inc., No. 01 Civ. 10726(LAP), 2003 WL 470611, at *6 (S.D.N.Y. Feb. 25, 2003) (same); Renner I, 1999 WL 47239, at *13-14 (same).
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As the district court also noted, A-93 (Op. at 19 n.2), MLSMK’s argument also fails because its own allegations make clear that BMIS’s checking account was not a fiduciary account at all, but rather a demand deposit account, meaning that Chase Bank had full use of the funds until Madoff withdrew them. A-11-12 (Compl. ¶ 24). As the court held in Agape, the fiduciary account exception that MLSMK attempts to invoke simply does not apply to conventional depositary accounts like that held by BMIS. 681 F. Supp. 2d at 360; see also Renner I, 1999 WL 47239, at *14.39 Moreover, even if the BMIS checking account had been a trust account, it is clear that “‘a bank has no duty to monitor even a fiduciary account under New York law.’”); Tzaras v. Evergreen Int’l Spot Trading, Inc., No. 01 Civ. 10726(LAP), 2003 WL 470611, at *6 (S.D.N.Y. Feb. 25, 2003) (quoting Renner I, 1999 WL 47239, at *14). A duty arises only when the bank becomes aware of “clear evidence” of diversion of fiduciary funds. See Lerner II, 459 F.3d at 286- 90, 295. In this case, unlike the cases on which MLSMK relies, Br. at 53-54, there is no basis at all to infer that the account activity after September 2008 provided JPMC or Chase Bank clear evidence that Madoff was misappropriating client funds.
39 MLSMK attempts to plead that the BMIS account was a fiduciary account by alleging that wire transfers into that account were accompanied by instructions reflecting that they were “for the benefit of Bernard L. Madoff, ” A-12, 17-18, 24- 25 (Compl. ¶¶ 25, 43, 72), but it is clear that such instructions, which are directed to the account holder and not to the bank, neither convert the account into a fiduciary account nor put the bank on notice that its customer owes fiduciary obligations. See Tzaras, 2003 WL 470611, at *6.
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In Lerner II, the plaintiffs pleaded a claim by alleging the banks failed to act when an attorney’s trust account repeatedly went into overdraft, because such an account cannot go into overdraft absent misappropriation. See 459 F.3d at 287-90, 294. Similarly, Bischoff v. Yorkville Bank, 218 N.Y. 106, 112-13 (1916) and Grace v. Corn Exchange Bank Trust Co., 287 N.Y. 94, 106-07 (1941), rest on the proposition that when a bank knows that an executor is using money derived exclusively from his trust account to repay his personal indebtedness to the bank it has “absolute proof” that the executor is misappropriating trust funds. By contrast, Madoff must have had the right to trade with his client’s funds and transfer them out of the account, or he would have been unable to buy and sell securities, which is what everyone believed he was doing. A-5 (Compl. ¶ 1.). Nor does MLSMK allege that all the assets of Madoff’s investment advisory business were held in the BMIS account at Chase Bank, or that JPMC and Chase Bank had any insight into what assets Madoff held at other financial institutions, including an account held at another bank in London. See A-34 (Compl. ¶ 129). Thus, account activity that might constitute evidence of misappropriation from an attorney escrow account would not indicate wrongdoing in the very different context of an investment manager’s account. Far from constituting clear evidence of misappropriation, allegedly “volatile and erratic” activity in the account of an investment advisor in September 2008 was entirely consistent with investor redemptions in the unprecedented economic crisis that the Complaint pleads was then underway. A-12, 15 (Compl. ¶¶ 27, 36). As MLSMK has not pled either that the BMIS account was a fiduciary account or that JPMC or Chase Bank received clear evidence that Madoff was
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misappropriating client funds, the district court’s dismissal of MLSMK’s negligence claims should be affirmed.
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CONCLUSION For all the foregoing reasons, Defendants-Appellees JP Morgan Chase & Co and JP Morgan Chase Bank N.A. respectfully request that this Court affirm the district court’s judgment dismissing the Complaint in its entirety and without leave to amend.
Dated: March 11, 2011 New York, New York
Respectfully submitted,
/s/ Patricia M. Hynes Patricia M. Hynes ([email protected]) Andrew Rhys Davies ([email protected]) Laura R. Hall ([email protected]) ALLEN & OVERY LLP 1221 Avenue of the Americas New York, New York 10020 (212) 610-6300
Attorneys for Defendant-Appellees JP Morgan Chase & Co. and JP Morgan Chase Bank N.A.
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Certificate of Compliance with Type-Volume Limitation, Typeface Requirements and Type Style Requirements
1. This brief complies with the type-volume limitation of Fed. R. App. P. 32(a)(7)(B) because it contains 13,343 words, excluding the parts of the brief exempted by Fed. R. App. P. 32(a)(7)(B)(iii).
2. This brief complies with the typeface requirements of Fed. R. App. P. 32(a)(5) and the type-style requirements of Fed. R. App. P. 32(a)(6) because it has been prepared in a proportionately-spaced typeface using Microsoft Word, 14 point font size.
Dated: March 11, 2011 New York, New York
/s/ Patricia M. Hynes Patricia M. Hynes ([email protected]) ALLEN & OVERY LLP 1221 Avenue of the Americas New York, New York 10020 (212) 610-6300
Attorneys for Defendant-Appellees JP Morgan Chase & Co. and JP Morgan Chase Bank N.A.
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ADDENDUM
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§ 1962. Prohibited activities
(a) It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity or through collection of an unlawful debt in which such person has participated as a principal within the meaning of section 2, title 18, United States Code, to use or invest, directly or indirectly, any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce. A purchase of securities on the open market for purposes of investment, and without the intention of controlling or participating in the control of the issuer, or of assisting another to do so, shall not be unlawful under this subsection if the securities of the issuer held by the purchaser, the members of his immediate family, and his or their accomplices in any pattern or racketeering activity or the collection of an unlawful debt after such purchase do not amount in the aggregate to one percent of the outstanding securities of any one class, and do not confer, either in law or in fact, the power to elect one or more directors of the issuer.
(b) It shall be unlawful for any person through a pattern of racketeering activity or through collection of an unlawful debt to acquire or maintain, directly or indirectly, any interest in or control of any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce.
(c) It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity or collection of unlawful debt.
(d) It shall be unlawful for any person to conspire to violate any of the provisions of subsection (a), (b), or (c) of this section.
[Source: 18 U.S.C. § 1962]
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§ 1964. Civil remedies
(a) The district courts of the United States shall have jurisdiction to prevent and restrain violations of section 1962 of this chapter by issuing appropriate orders, including, but not limited to: ordering any person to divest himself of any interest, direct or indirect, in any enterprise; imposing reasonable restrictions on the future activities or investments of any person, including, but not limited to, prohibiting any person from engaging in the same type of endeavor as the enterprise engaged in, the activities of which affect interstate or foreign commerce; or ordering dissolution or reorganization of any enterprise, making due provision for the rights of innocent persons.
(b) The Attorney General may institute proceedings under this section. Pending final determination thereof, the court may at any time enter such restraining orders or prohibitions, or take such other actions, including the acceptance of satisfactory performance bonds, as it shall deem proper.
(c) Any person injured in his business or property by reason of a violation of section 1962 of this chapter may sue therefor in any appropriate United States district court and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney’s fee, except that no person may rely upon any conduct that would have been actionable as fraud in the purchase or sale of securities to establish a violation of section 1962. The exception contained in the preceding sentence does not apply to an action against any person that is criminally convicted in connection with the fraud, in which case the statute of limitations shall start to run on the date on which the conviction becomes final.
(d) A final judgment or decree rendered in favor of the United States in any criminal proceeding brought by the United States under this chapter shall estop the defendant from denying the essential allegations of the criminal offense in any subsequent civil proceeding brought by the United States.
[Source: 18 U.S.C. § 1964]
SPA 2 Case: 10-3040 Document: 46 Page: 62 03/11/2011 232755 62 CERTIFICATE OF SERVICE & CM/ECF FILING
10-3040-cv MLSMK Investment Company v. JP Morgan Chase & Co.
I hereby certify that I caused the foregoing Brief for Defendants- Appellees to be served on counsel for Plaintiff-Appellant via Electronic Mail generated by the Court’s electronic filing system (CM/ECF) with a Notice of Docket Activity pursuant to Local Appellate Rule 25.1: Howard Kleinhendler, Esq. Wachtel & Masyr, LLP 885 Second Avenue New York, New York 10017 (212) 909-9522
Attorneys for Plaintiff-Appellant MLSMK Investment Company
I certify that an electronic copy was uploaded to the Court’s electronic filing system. One original and five hard copies of the foregoing Brief for Defendants- Appellees for were sent to the Clerk’s Office By Hand Delivery to: Clerk of Court United States Court of Appeals, Second Circuit United States Courthouse 500 Pearl Street, 3rd floor New York, New York 10007 (212) 857-8576 on this 11th day of March, 2011. Notary Public:
______/s/ Nadia R. Oswald Hamid ______/s/ Thomas L. Burke Sworn to me this THOMAS L. BURKE Record Press, Inc. March 11, 2011 th th 229 West 36 Street, 8 Floor NADIA R. OSWALD HAMID New York, New York 10018 Notary Public, State of New York (212) 619-4949 No. 01OS6101366 Qualified in Kings County Commission Expires November 10, 2011