In re Bank of New York Mellon Corp. Forex Transactions Litigation
In re Bank of New York Mellon Corp. Forex Transactions Litigation
Opinion of the Court
MEMORANDUM OPINION
The plaintiffs in these three actions all were or are customers of the Bank of New York Mellon (“BNYM”)
The plaintiffs now move to dismiss those counterclaims, arguing that (1) they are untimely; (2) the counterclaims against the IUOE Local 39 and its Trustees were waived; (3) they fail to state a plausible claim; and (4) conditional counterclaims against absent class members are improper.
Background
SEPTA filed its original complaint against BNYM in March 2011, IUOE Local 39 in July 2011, and Ohio Police and Fire in April 2012. BNYM answered IUOE Local 39’s amended complaint, but never answered in the other two actions. After the cases were transferred to this district as part of the multi-district litigation against BNYM, the Court granted the plaintiffs leave to file a Master Customer Class Complaint.
On September 15, 2013 BNYM answered the Master Customer Class Complaint and included its counterclaims for indemnification. It asserts that the counterclaims arise under the Master Trust Agreement (“MTA”), pursuant to which it provided custody services to SEPTA, and the Global Custody Agreement (“GCA”), pursuant to which it provided custody services to IUOE Local 39. BNYM is seeking, at minimum, indemnification for costs and attorneys fees incurred in defending against these actions and, at broadest, indemnification also for costs, attorneys fees, and any liability assessed against it in the related actions, to the extent that those actions arise out of the MTA and GCA.
The MTA provides that SEPTA will compensate BNYM for, inter alia, expenses and “reasonable attorneys’ fees, that may be incurred by, imposed upon, or asserted against [BNYM] by reason of any claim, regulatory proceeding, or litigation arising from any act done or omitted to be done by any individual or person with respect to the Participating Plans or Master Trust Fund, excepting only any and all cost and expense arising solely from [BNYM’s] negligence, bad faith, or breach of fiduciary duty.”
Similarly, the GCA provides that IUOE Local 39 “will be liable for and will indemnify and keep fully indemnified ... [BNYM] and its nominees and hold them harmless from and against, any and all Losses howsoever arising from or in connection with this Agreement or the performance of their duties hereunder (including disputes between the parties or enforcement of this Agreement), provided, however, that nothing contained herein shall require that [BNYM] or its nominees be indemnified for their respective fraud, negligence, or willful misconduct....”
The parties agree, for the purposes of this motion, that Pennsylvania law controls the claim for indemnification against SEPTA under the MTA and California law controls the claim for indemnification against IUOE Local 39 under the GCA.
Discussion
I. Timeliness
The plaintiffs argue that the counterclaims are not timely and that. BNYM in effect is seeking to modify the scheduling order because the scheduling order did not address the time by which counterclaims must be filed.
Rule 13(a) directs that “[a] pleading must state as a counterclaim any [compulsory counter] claim that — at the time of its service — the pleader has against an opposing party....” Rule 13(b) similarly permits the assertion of permissive counterclaims. BNYM therefore was permitted to file counterclaims as part of its first pleadings responsive to the complaints. Its first responsive pleading in the SEPTA and Ohio Police and Fire actions was its answer to the Master Customer Class Complaint, which was filed on September 15, 2013 pursuant to the scheduling order. That answer included the counterclaims at issue here. There is nothing in the.scheduling order that suggests an intent to override Rule 13 to bar the filing of counterclaims. Silence in the scheduling order does not so imply.
The plaintiffs argue also that BNYM has waived its counterclaims against IUOE Local 39 and its Trustees because (a) they are compulsory counterclaims and (b) BNYM did not raise them in its first responsive pleading, which was its answer to IUOE Local 39’s amended complaint.
BNYM argues that it is entitled to file counterclaims with its amended answer for two reasons. First, BNYM was entitled to plead new counterclaims because the Master Customer Class Complaint expanded the scope of IUOE Local 39’s claims against BNYM. Second, leave to amend in any case would be warranted under Rule 15(a)(2).
“[W]hen a plaintiff files an amended complaint which changes the theory or scope of the case, the defendant is allowed to plead anew as though it were the original complaint filed by the Plaintiff.... The obvious corollary is that if an amended complaint does not change the theory or scope of the case, a [defendant] must seek leave of court pursuant to Rule 15(a) before it can amend its answer to assert a counterclaim.”
The plaintiffs argue that these changes did not expand the scope of IUOE Local 39’s claims because the Master Customer Class Complaint merely “aggregates the claims of the three actions ... thereby adding any causes of action that were asserted in the SEPTA Action and Ohio Action to the claims that the Local 39 Fund brought in California.”
III. Failure to State a Claim
The plaintiffs make several substantive arguments as to why BNYM’s counter
First, they argue that BNYM is alleged to have caused the very loss for which it seeks indemnification by breaching its custodial agreements, including by acting, inter alia, negligently, fraudulently, in bad faith, or in breach of fiduciary duty and that BNYM therefore is not entitled to indemnification under the MTA or GCA. That BNYM is alleged to have committed certain acts is immaterial. Whether it actually did commit those acts, which it disputes, is not appropriate for determination on a motion to dismiss.
Second, the plaintiffs assert that under the controlling states’ laws — California, in the case of the agreement with IUOE Local 39 and Pennsylvania in the case of the agreement with SEPTA — the indemnification provisions are not adequately explicit to allow for fee shifting between the parties to the contract. The Court disagrees.
Under California law, an award of attorneys’ fees in an action between the parties to a contract is permissible as long as the contract explicitly so provides.
The plaintiffs argue also that, under Pennsylvania law, a contract providing for indemnification in suits between the parties to that contract must be “unmistakably clear” and that the MTA does not meet that threshold. This statement of the law is not entirely accurate. “Pennsylvania law allows for the recovery of attorneys’ fees ‘from an adverse party to a cause only when provided for by statute, or when clearly agreed to by the parties.’ ”
The plaintiffs cite Jacobs Constructors, Inc. v. NPS Energy Services, Inc.,
The facts in Jacobs are nowhere near the facts of this case — here, the indemnification provisions would not apply if BNYM were found to have acted negligently or otherwise been at fault. In the present posture of this case, there are no prevailing policy reasons akin to those in Jacobs to construe the MTA so narrowly and effectively ignore the plain meaning of the contract.
Finally, the plaintiffs argue that BNYM’s conditional counterclaims against non-party putative class members are premature.
Courts faced with the question of whether to allow conditional counterclaims of this nature to proceed have not acted uniformly. Some have held that non-party putative class members are not “opposing parties” for the purposes of Rule 13 and, accordingly, cannot be subject to counterclaims.
This Court agrees with those that have held that non-party putative class members are not properly considered “opposing parties” under Rule 13. From a practical perspective, it is entirely speculative which putative class members will opt out of the classes, whether the contracts of those who do not opt out will contain indemnification clauses, or whether the defendants will have any plausible claim for indemnification under any such clauses.
Conclusion
For the foregoing reasons, the plaintiffs’ motion to dismiss BNYM’s counterclaims [12 MD 2335 DI 294] is granted to the extent that BNYM’s conditional counterclaims against nonparty putative class members are dismissed. It is denied in all other respects.
SO ORDERED.
. "BNYM” refers collectively to the Bank of New York Mellon and its various predecessors and affiliates.
. The claim against the Trustees is a third-party claim.
.May 17, 2013 Hr’g Tr. [DI 246] at 1411-162, 227-10; Master Customer Class Compl. [DI 262].
. Scheduling Order [DI 273] at 2.
. Meltzer Decl. [DI 296], Ex. A § 10.1.
. Id. Ex. B § 6(b).
. See generally DI 273.
. Cf. Roman Y Gordillo, S.C. v. Bank of New York Mellon Corp., 12 Civ. 0212(DF), 2014 WL 1224361, at *7 (S.D.N.Y. Mar. 20, 2014)
. Answer [12 Civ. 3067 DI 94].
. Pereira v. Cogan, 00 Civ. 619(RWS), 2002 WL 1822928, at *3 (S.D.N.Y. Aug. 7, 2002) (quoting Tralon Corp. v. Cedarapids, Inc., 966 F.Supp. 812, 832 (N.D.Iowa 1997), aff'd 2000 WL 84400 (8th Cir. Jan. 21, 2000)); see also E.E.O.C. v. Morgan Stanley & Co., Inc., 211 F.R.D. 225, 226-27 (S.D.N.Y. 2002) (collecting cases).
There is some support for a rule requiring that amendments to an answer relate directly to the amendments to the complaint, see Wechsler v. Hunt Health Sys. Ltd., 186 F.Supp.2d 402, 415-16 (S.D.N.Y. 2002), but this appears to be the minority view among courts in this district.
. Master Customer Class Complaint [DI 262] at 81.
. Id. at 80; see also BNYM Br. [DI 300], Att. A (listing the substantive additions to the Master Customer Class Complaint).
. Reply Br. [DI 324] at 8.
. See Dream Theater, Inc. v. Dream Theater, 124 Cal.App.4th 547, 555, 21 Cal.Rptr.3d 322, 328 (2004) ("Here, buyer Dream Theater, LLC agreed to indemnify seller Dream Theater, Inc. against not only third party claims but also any breach of buyer’s obligations to seller....”); see also Zalkind v. Ceradyne, Inc., 194 Cal.App.4th 1010, 1024, 124 Cal.Rptr.3d 105, 113 (2011).
. Meltzer Decl. [DI 296], Ex. B §§ l(o), 6(b) (emphasis added).
. Waynesborough Country Club of Chester Cnty. v. Diedrich Niles Bolton Architects, Inc., 07 Civ. 155(GEP), 2008 WL 4916029, at *3, *5 (E.D.Pa. Nov. 12, 2008) (quoting Fidelity-Philadelphia Trust Co. v. Philadelphia Transportation Co., 404 Pa. 541, 173 A.2d 109, 113 (1961)); see also id. ("Therefore, in terms of allocating attorneys’ fees and costs, contracting parties may structure their agreement as they choose, and the Court should enforce such unambiguous contracts as they áre written.”).
. STS Holdings, Inc. v. CDI Corp., 99 Civ. 3480(CRW), 2004 WL 739869, at *l-*3 (E.D.Pa. Mar. 19, 2004). The court did not state explicitly which law controlled the interpretation of the contract at issue. It suggests, however, that Pennsylvania law may have controlled, or at least that its decision was consistent with Pennsylvania law. It noted that the plaintiffs urged the court to ignore the law of other circuits and follow Pennsylvania state law, but went on to conclude that "[tjhere is nothing inconsistent between [Pennsylvania state law] and the [Fourth, Eighth, and Ninth Circuit] decisions cited above” allowing broadly worded indemnification provisions to apply between the parties to the contract. Id. at *2.
. The plaintiffs make much of the fact that the quoted language appears in Section 10. 1, labeled "Compensation and Expenses of the Master Trustee” rather than in Section 3.4, labeled "Indemnity.” They assert that BNYM "pivot[s] and instead arguefs] that the Court should import MTA § 10.1, titled 'Compensation and Expenses- of Master Trustee,' into MTA § 3.4's clearly titled 'Indemnification' clause.” DI 324 at 6. They do not suggest any reason that the contract's headings rather than its substance should control the Court’s interpretation.
. 264 F.3d 365 (3d Cir. 2001) (applying Pennsylvania law).
. Id. at 371-72 (quoting Perry v. Payne, 217 Pa. 252, 262, 66 A. 553, 557 (1907)).
. Id. at 372.
. The plaintiffs cite also Zambelli Fireworks Mfg. Co., Inc. v. Wood, 08 Civ. 415(TFM), 2010 WL 4672357 (W.D.Pa. Nov. 9, 2010). This case is inapposite. It addresses how broadly or narrowly to construe the term "prevail” in a fee shifting provision in an employment contract and expresses concern
Plaintiffs in their reply brief make several arguments about the time at which a claim for indemnification accrues under state law. "[I]f the governing law recognizes a substantive claim, its accrual and the method of its presentation are properly regarded as procedural for Erie purposes.” 3 Moore’s Federal Practice 14-32 (3d ed. 2014). Courts in this district generally permit counterclaims for indemnification to be brought under Rule 13 before a determination of liability has been made in the underlying matter. See, e.g., Index Fund, Inc. v. Hagopian, 91 F.R.D. 599, 605 (S.D.N.Y. 1981); Atlantic Aviation Corp. v. Costas' Estate, 332 F.Supp. 1002, 1006-07 (E.D.N.Y. 1971).
. See, e.g., In re Sugar Antitrust Litigation, 73 F.R.D. 322 (E.D.Pa. 1976); Donson Stores, Inc. v. American Bakeries Co., 58 F.R.D. 485 (S.D.N.Y. 1973); Weit v. Continental Illinois Nat’l Bank & Trust Co., 60 F.R.D. 5 (N.D.Ill. 1973).
. See Nat’l Super Spuds, Inc. v. New York Mercantile Exch., 75 F.R.D. 40, 43 (S.D.N.Y. 1977).
Reference
- Full Case Name
- In re BANK OF NEW YORK MELLON CORP. FOREX TRANSACTIONS LITIGATION
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- 3 cases
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