16‐1913‐cv Friedman, et al. v. JP Morgan Chase & Co., et al.

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY COUNSEL.

1 2 At a stated term of the United States Court of Appeals for the Second 3 Circuit, held at the Thurgood Marshall United States Courthouse, 40 Foley 4 Square, in the City of New York, on the 26th day of April, two thousand and 5 seventeen. 6 7 PRESENT: ROSEMARY S. POOLER, 8 RICHARD C. WESLEY, 9 SUSAN L. CARNEY, 10 Circuit Judges. 11 ______________________ 12 13 RICHARD FRIEDMAN, as Executor of 14 the Estate of Shirley Friedman, CARLA 15 HIRSCHHORN, on behalf of themselves 16 and on behalf of all others similarly 17 situated, together with the parties listed 18 on Exhibit “A” hereto, 19 20 Plaintiffs‐Appellants, 21 22 ‐v.‐ 16‐1913‐cv 23 24 JPMORGAN CHASE & CO., JPMORGAN 25 CHASE BANK, N.A., JP MORGAN

1 1 SECURITIES LLC, JPMORGAN 2 SECURITIES LTD., JOHN HOGAN, 3 RICHARD CASSA, 4 5 Defendants‐Appellees. 6 ______________________ 7 8 FOR APPELLANTS: LANCE GOTTHOFFER (Helen Davis Chaitman, on the 9 brief), Chaitman LLP, New York, NY. 10 11 FOR APPELLEES: JOHN F. SAVARESE (Stephen R. DiPrima, Emil A. 12 Kleinhaus, Noah B. Yavitz, on the brief), Wachtell, 13 Lipton, Rosen & Katz, New York, NY. 14 15 Appeal from the United States District Court for the Southern District of 16 New York (Koeltl, J.). 17 18 UPON DUE CONSIDERATION, IT IS HEREBY ORDERED,

19 ADJUDGED AND DECREED that the judgment of said District Court be and it

20 hereby is AFFIRMED.

21 Plaintiffs‐Appellants (as captioned above and referred to herein as

22 “Plaintiffs”) appeal the May 18, 2016, Opinion and Order of the United States

23 District Court for the Southern District of New York (Koeltl, J.) dismissing in its

24 entirety their Second Amended Complaint (“SAC”) against Defendants‐

25 Appellees JPMorgan Chase & Co., JPMorgan Chase Bank, N.A., JP Morgan

26 Securities LLC, JPMorgan Securities Ltd., John Hogan, and Richard Cassa

27 (collectively, “JPMorgan”), which asserted, as relevant here, a control‐person

2 1 claim under Section 20(a) of the Securities Exchange Act of 1934 (the “Exchange

2 Act”), 15 U.S.C. § 78t(a), and a claim under the Federal Racketeer Influenced and

3 Corrupt Organizations Act,

et seq. (the “Federal RICO claim”).

4 We assume the parties’ familiarity with the underlying facts and the procedural

5 history, which we reference only as necessary to explain our conclusions.

6 Plaintiffs are former customers of Bernard L. Madoff Investment Securities

7 LLC (“BLMIS”) who are commonly referred to as “net winners,” having

8 withdrawn more from Bernard Madoff’s Ponzi scheme than they put in. More

9 than five years after Madoff’s 2008 arrest, Plaintiffs sued JPMorgan under Section

10 20(a), alleging that JPMorgan, as primary banker to Madoff and BLMIS, is liable

11 for BLMIS’s and Madoff’s individual violations of Section 10(b) and Rule 10b‐5 of

12 the Exchange Act. Plaintiffs also raised various claims under the federal RICO

13 statute and state law.

14 The District Court dismissed Plaintiffs’ SAC in its entirety on several

15 independent grounds. As relevant here, the District Court first held that

16 Plaintiffs’ Section 20(a) control‐person claim failed for three reasons. First, the

17 claim was time‐barred by the Exchange Act’s five‐year statute of repose, which—

18 unless and until the Supreme Court informs us that our decision in Police and Fire

3 1 Retirement System of City of Detroit v. IndyMac MBS, Inc.,

, 109‐10 (2d

2 Cir. 2013), is erroneous—is not entitled to tolling under American Pipe &

3 Construction Co. v. Utah,

(1974). Further, even if statutes of repose

4 were entitled to American Pipe tolling, such tolling was not available here given

5 the differences between the present claims and parties and those in the class

6 action that Plaintiffs argue paused the clock. Second, even if Plaintiffs’ Section

7 20(a) claim were timely, the District Court found that Plaintiffs failed to

8 adequately plead that JPMorgan exercised the requisite “control” over BLMIS or

9 the Ponzi scheme under the law of this Circuit. Third, there was no plausible

10 allegation that JPMorgan employees knew or culpably participated in the Ponzi

11 scheme. The District Court then expressly declined to address whether Plaintiffs’

12 various theories of damages were cognizable under Section 20(a). Finally, the

13 District Court dismissed the Federal RICO claim as barred by the applicable

14 four‐year statute of limitations and, in any event, barred by the Private Securities

15 Litigation Reform Act of 1995 (“PSLRA”), which precludes the use of allegations

16 of securities fraud to form the basis for civil RICO liability. See Friedman v. JP

17 Morgan Chase & Co., No. 15‐cv‐5899,

, at *10, *13, *14 (S.D.N.Y.

18 May 18, 2016).

4 1 On appeal, Plaintiffs challenge each of the District Court’s rulings, and,

2 more specifically, each independent basis for dismissal.

3 With respect to Plaintiffs’ Section 20(a) claim, we agree with the District

4 Court’s conclusion that Plaintiffs failed to adequately plead the control element

5 of their Section 20(a) claim. We therefore need not consider the remainder of

6 Plaintiffs’ arguments as to that claim. See ATSI Commc’ns, Inc. v. Shaar Fund, Ltd.,

7

(2d Cir. 2007) (“To establish a prima facie case of control person

8 liability, a plaintiff must show . . . control of the primary violator by the

9 defendant . . . .”).

10 We have also considered the remainder of Plaintiffs’ arguments as to the

11 dismissal of their Federal RICO claim and find them to be without merit.

12 Accordingly, the judgment of the District Court is AFFIRMED.

13 14 FOR THE COURT: 15 Catherine O’Hagan Wolfe, Clerk 16 17

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