AER Advisors Inc. v. Fidelity Brokerage Svcs., LLC

United States Court of Appeals
For the First Circuit
No. 18-1884
AER ADVISORS, INC.; WILLIAM J. DEUTSCH; PETER E. DEUTSCH,
Plaintiffs, Appellants,
v.
FIDELITY BROKERAGE SERVICES, LLC,
Defendant, Appellee.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Patti B. Saris, U.S. District Judge]
Before
Thompson, Circuit Judge,
Souter,* Associate Justice,
and Lipez, Circuit Judge.
David Graff, with whom Graff Silverstein LLP, Howard Graff,
Arent Fox LLP, Irwin B. Schwartz, Nicholas R. Cassie, and BLA
Schwartz, PC were on brief, for appellants.
Christopher R.J. Pace, with whom Christopher M. Morrison and
Jones Day were on brief, for appellee.
Ira D. Hammerman, Kevin M. Carroll, Securities Industry and
Financial Markets Association, Colleen P. Mahoney, James R.
Carroll, Alisha Q. Nanda, Immanuel R. Foster, Skadden, Arps, Slate,
Meagher & Flom LLP, on brief for the Securities Industry and
Financial Markets Association (SIFMA), amicus curiae in support of
affirmance.
* Hon. David H. Souter, Associate Justice (Ret.) of the
Supreme Court of the United States, sitting by designation.
April 17, 2019
THOMPSON, Circuit Judge. William and Peter Deutsch,
father and son, together with their financial advisor, AER Advisors
("AER"), ask us to undo the district judge's decision dismissing
their complaint against Fidelity Brokerage Services, LLC
("Fidelity") under Fed. R. Civ. P. 12(b)(6).1 The judge had deemed
Fidelity immune from suit here based on an immunity provision in
the Bank Secrecy Act ("BSA"), 31 U.S.C. § 5318(g)(3)(A) — a
provision that says, most pertinently, that a "financial
institution that makes a voluntary disclosure of any possible
violation of law or regulation to a government agency . . . shall
not be liable to any person under any law or regulation of the
United States, [or] any constitution, law, or regulation of any
State . . ., for such disclosure." Seeing no reason to reverse
the judge's thoughtful decision, we affirm.
How the Case Got Here
We draw the facts from the complaint's allegations,
which at this stage of the litigation we must accept as true and
construe in the light most favorable to plaintiffs. See, e.g.,
Schatz v. Republican State Leadership Comm., 669 F.3d 50, 55 (1st
Cir. 2012).
1
For convenience, we will sometimes refer to AER, William
Deutsch, and Peter Deutsch, collectively, as "plaintiffs."
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Parties' Dealings
At all times relevant to this suit, AER operated as a
registered investment advisor, serving wealthy clients nationally.
In 2009, AER joined Fidelity's Wealth Central platform, giving it
access to Fidelity's investment technologies — technologies that
AER relied on in advising its clients. William and Peter were two
of AER's clients. And they were and are, respectively, chairman
and chief executive officer of a billion-dollar company called
Deutsch Family Wine & Spirits.
Starting in 2011 and continuing through part of 2012,
the Deutsches pursued a "China Gold" investment strategy
introduced by AER and supported by Fidelity — a strategy that
resulted in their acquiring millions of shares of China Medical
Technologies, Inc. ("China Medical"), all in the hopes of making
a profit from an eventual management buy-out or a third-party
acquisition of that company. In March 2012, Fidelity offered the
Deutsches the chance to participate in its "fully paid lending
program," in which they would lend Fidelity their China Medical
shares for an interest-based fee. If they accepted Fidelity's
offer, they probably would have been able to engineer a "short
squeeze."2 But they declined, saying they had no interest in
lending stock.
2 A "short squeeze" involves a
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Apparently unwilling to take no for an answer, Fidelity
lent about 1.8 million of the Deutsches' China Medical shares to
situation when prices of a stock . . . start to move up
sharply and many traders with short positions are forced
to buy stocks or commodities . . . to cover their
positions and prevent losses. This sudden surge of
buying leads to even higher prices, further aggravating
the losses of short sellers who have not covered their
positions.
Tello v. Dean Witter Reynolds, Inc., 410 F.3d 1275, 1277 n.3 (11th
Cir. 2005) (quoting John Downes & Jordan Elliot Goodman, Barron's
Finance & Investment Handbook 807 (6th ed. 2003)), abrogated on
other grounds by Merck & Co. v. Reynolds, 559 U.S. 633 (2010). To
bring a little more clarity to the matter, we note that a "short
position" — mentioned in the short-squeeze definition — is a
technique used by some investors. As a leading treatise explains:
A "short sale" is . . . any sale of a security which the
seller does not own or any sale which is consummated by
the delivery of a security borrowed by, or for the
account of, the seller. Short selling can be a logical
trading strategy for a trader who believes that the price
of shares is likely to decline over the near-term. To
sell short, the trader typically borrows the shares from
a broker who obtains them either from its own reserves
or from an external source. The trader then sells the
borrowed shares in the open market. At this point, the
trader has an "open short position" in the stock. At
some point in the future, the trader "covers" the short
position by purchasing an identical number of shares and
returning them to the lender. [If,] as the trader hopes,
the share price declines, the trader earns a profit equal
to the difference between the price at which she sold
short and the price at which she purchased the shares
back to cover the short position (not taking into account
fees or commissions). Short selling can be extremely
risky because if the stock price rises, the trader must
cover the short position at a loss.
23A Jerry W. Markham and Thomas Lee Hazen, Broker-Dealer Operations
Sec. & Comm. Law § 9.7 (citations and some internal quotation marks
omitted) (quoting SEC v. Colonial Inv. Mgmt. LLC, 659 F. Supp. 2d
467, 470 (S.D.N.Y. 2009), aff'd, 381 F. App'x 27 (2d Cir. 2010)).
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short sellers or their brokers between May and early June 2012.
Fidelity made money from these loans. But the Deutsches got
nothing — no notice of what Fidelity was up to, no collateral to
protect their interests, and no compensation.
On June 11, 2012, after "a routine monthly transfer of
[China Medical] shares between the Deutsches' margin accounts,"
Fidelity's surreptitious lending triggered a recall obligation,
basically because Fidelity had loaned more China Medical
securities than legally permitted (fyi, all dates in the rest of
this paragraph refer to 2012 as well). Over the next several days,
Fidelity issued recall notices for about 1.8 million shares. The
recalls for about 1.2 million shares failed, however, causing
Fidelity to believe a short squeeze would occur. Ultimately, China
Medical's stock price went from $4.00 per share on June 13 to
$11.80 per share on June 29. Fidelity ended up buying roughly 1.2
million shares on the open market between June 19 and June 27.
And the Securities and Exchange Commission ("SEC") halted trading
in China Medical securities on July 29.
Investigations
Sometime around July 5, 2012, Fidelity filed a
suspicious activity report ("SAR") with the federal Treasury
Department's Financial Crimes Enforcement Network, accusing the
Deutsches of manipulating China Medical's stock price. Plaintiffs
base this allegation on an internal memo written by David Whitlock,
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an employee in Fidelity's Compliance Department, which they say
"upon information and belief . . . reflects the contents" of the
SAR.3 Whitlock's memo recommended that Fidelity's Investigations,
Evaluation and Response Department investigate the Deutsches'
China Medical-related activities because they had "the appearance
of attempting to influence a short squeeze in the stock of China
Medical." And "a scheme to manipulate the price or availability
of stock in order to cause a short squeeze is illegal," his memo
added.
In August 2012, the SEC kicked off an investigation of
both AER and Peter Deutsch for (in plaintiffs' words) "possible
market manipulation in the equities of China Medical." AER, for
example, received one SEC subpoena and participated in one SEC
interview. Peter also participated in one SEC interview. State
securities agencies investigated AER as well. William was not
investigated at all, apparently (he makes no allegation that he
was). Ultimately, neither the SEC nor the state agencies pursued
enforcement actions against AER or Peter. Still, AER had to spend
3
Because a major goal of the BSA is to help law enforcement
react quickly to evidence of financial chicanery, federal law
mandates that SARs be kept confidential so that the SARs' subjects
do not learn that they have come under suspicion. In fact, federal
law forbids financial institutions, government authorities, and
their respective employees from disclosing SARs or even "any
information that would reveal the[ir] existence." 31 C.F.R.
§ 1023.320(e)(1)(i); 31 U.S.C. § 5318(g)(2)(A). Indeed, federal
law makes it a federal crime to willfully disclose the existence
or contents of an SAR. See 31 U.S.C. § 5322(a).
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hundreds of thousands of dollars in defending itself and did not
"economically recover" from the ordeal. Peter had to spend
hundreds of thousands of dollars too and suffered emotional
distress as well.
Proceedings in the Southern District of Florida
Invoking diversity jurisdiction, the Deutsches and AER
later sued Fidelity in Florida's federal district court. Their
operative complaint contained an array of Florida-law claims,
including claims predicated on the SAR — e.g., negligent reporting
and misrepresentation, fraud, and tortious interference with
existing and prospective business relations.
Fidelity eventually moved to dismiss the complaint or to
transfer the case to Massachusetts's federal district court. Most
pertinently for our purposes, Fidelity's dismissal arguments
pushed the idea that the BSA immunized it from any civil liability
for filing the SAR. And its transfer arguments pushed the notion
that all the events leading to the suit happened in or around
Massachusetts. Plaintiffs opposed the motion, contending among
other things that the BSA did not shield Fidelity from liability
for its "bad faith" filing of the SAR and that Florida was a
reasonably convenient forum for all concerned.
Noting "the vast majority of the facts underpinning
[p]laintiffs' cause[s] of action did not occur in . . . Florida,"
the federal district court in Florida held that "the locus of
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operative facts in this case favors a transfer to the District of
Massachusetts." So that court transferred the action to
Massachusetts under 28 U.S.C. § 1404(a) and denied Fidelity's
"other arguments and requests" as moot.4 To use some legalese,
the Florida federal court here was the "transferor court" and the
Massachusetts federal court was the "transferee court." See Atl.
Marine Constr. Co. v. U.S. Dist. Court for W. Dist. of Tex., 571
U.S. 49, 64-65 (2013).
Proceedings in the District of Massachusetts
Again asserting diversity jurisdiction, plaintiffs filed
an amended complaint after the transfer, alleging Florida-law
claims for negligent reporting, interference with existing and
prospective business relations, breach of contract, breach of good
faith and fair dealing, promissory estoppel, breach of fiduciary
duty, unjust enrichment, negligence or gross negligence, deceptive
and unfair trade practices, and prima facie tort. A common theme
in each claim was that Fidelity filed an SAR falsely accusing
4 Section 1404(a) states that "[f]or the convenience of
parties and witnesses, in the interest of justice, a district court
may transfer any civil action to any other district or division
where it might have been brought or to any district or division to
which all parties have consented."
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plaintiffs of trying to manipulate the market for China Medical
stock, which sparked the governmental investigations.
Fidelity responded with a motion to dismiss the
complaint. First Fidelity argued that First Circuit law applied
to federal questions transferred here under § 1404(a). Then citing
Stoutt v. Banco Popular de Puerto Rico, 320 F.3d 26 (1st Cir.
2003), Fidelity wrote "that the BSA provides a financial
institution with absolute immunity from civil liability for filing
a[n] SAR." The provision Fidelity relied on says (as we said
earlier) that a "financial institution that makes a voluntary
disclosure of any possible violation of law or regulation to a
government agency . . . shall not be liable to any person under
any law or regulation of the United States, [or] any constitution,
law, or regulation of any State . . ., for such disclosure." See
31 U.S.C. § 5318(g)(3)(A) (emphasis added). Keep the italicized
phrase "any possible violation of law" in mind.
Plaintiffs opposed the motion, arguing that the
§ 1404(a) transfer left the applicable law unaffected. Which meant
Eleventh Circuit law, specifically Lopez v. First Union National
Bank of Florida, 129 F.3d 1186 (11th Cir. 1997), controlled and
(to quote their memo) holds "that immunity may be conferred in
this case (transferred from Florida District Court) only with
respect to a[n] SAR filing made in good faith." And, plaintiffs
continued, because Fidelity used the SAR "as a smoke screen to
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camouflage [its] own contraventions of law" and did not
"objective[ly] identif[y] a possible violation" by plaintiffs,
Fidelity's "bad faith" filing precluded a grant of immunity under
the BSA.
Taking up the motion, the district judge wrote that when
federal-law questions arise, "the transferee court will apply the
law of its own circuit" — a "general rule" that "applies with equal
force where a transferee court is considering a federal statutory
defense in a diversity case." AER Advisors Inc. v. Fidelity
Brokerage Servs. LLC, 327 F. Supp. 3d 278, 284 (D. Mass. 2018).
And with that, the judge applied this Circuit's interpretation of
the BSA. Id.
Relying on Stoutt, the judge then wrote that the BSA
grants financial institutions "absolute immunity from suit, even
when [their] disclosures are fabricated or made with malice" — in
other words, there is no "good faith qualification to [civil]
immunity," meaning this immunity applies even to fraudulent SARs
filed by an institution to "falsely point blame at others to cover
up its own wrongdoing." AER Advisors Inc., 327 F. Supp. 3d at
284-85 (discussing Stoutt, 320 F.3d at 30-33). The judge also
rejected plaintiffs' theory that Fidelity's SAR could not have
stated a "possible violation of law." Id. at 285. Even if Fidelity
"'knew that there was (in reality) no violation,'" the judge
reasoned, "[b]ased on [p]laintiffs' own allegations, the SAR . . .
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'was cast' as a disclosure of a possible violation of securities
law." Id. (quoting Stoutt, 320 F.3d at 30). Criminal law, the
judge added, is the mechanism to deter and remedy false reports to
the government, whose agents are quite capable of "filter[ing] out
SARs reporting 'false charges' and decid[ing] not to pursue those
investigations." Id. (quoting Stoutt, 320 F.3d at 32). So the
judge dismissed the case under Rule 12(b)(6). Id. at 280.
The Parties' Principal Appellate Arguments
Unhappy with the judge's ruling, plaintiffs appeal,
making two basic arguments (echoing their positions in the district
court). One is that Eleventh Circuit precedent applies because
the case came to our Circuit via a transfer order from a court in
the Eleventh Circuit. And, plaintiffs say, Eleventh Circuit
precedent holds that BSA immunity requires a good-faith filing —
a requirement not met here because Fidelity filed "an intentionally
misleading SAR . . . to cover up [its] own wrongdoing." The second
argument is that even if First Circuit precedent applies, we (in
their words) must not read the BSA as "immuniz[ing] an institution
that filed a report disclosing an objectively impossible violation
that falsely implicated the victim of the financial institution's
own wrongdoing — leading the government to investigate the victim
rather than the perpetrator." To let Fidelity escape scot-free
would frustrate the congressional purpose behind the BSA, which is
to help "law enforcement by incentivizing reports of violations of
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law" — "not to incentivize the issuance of reports that will be of
no use to law enforcement; i.e., reported facts that could not
possibly constitute a violation of law" (quotations taken from
their brief). And they insist that a trio of state-court opinions
support their view of how BSA immunity should work.
Fidelity, for its part, thinks that plaintiffs are wrong
across the board (repeating what they argued below). Courts of
appeals, Fidelity writes, regularly hold "that a district court"
must "appl[y] the law of its own Circuit to federal questions (such
as whether BSA immunity applies to Fidelity), including in cases
transferred from another Circuit." So, Fidelity continues, Stoutt
applies and gives "a financial institution . . . BSA immunity
even if it files a[n] SAR that is 'wholly unfounded'" (the interior
quotation is from Stoutt, 320 F.3d at 31). On the public-policy
front, Fidelity writes that "[u]nqualified BSA immunity" is key to
the SAR regime — to create an atmosphere that encourages financial
institutions to report dishonest-looking activities without the
fear of reprisals in civil lawsuits. And finally, Fidelity
protests that the state-court cases plaintiffs champion cannot
trump our Stoutt opinion.
The Standard of Review
We review the judge's dismissal decision with fresh
eyes, knowing that she could grant Fidelity's BSA-immunity-based
dismissal motion only if, after taking the complaint's well-
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pleaded facts as true and drawing every reasonable inference in
plaintiffs' favor, see Schatz, 669 F.3d at 55, the facts
establishing Fidelity's immunity "are clear on the face of . . .
plaintiff[s'] pleading[]," see Medina-Padilla v. U.S. Aviation
Underwriters, Inc., 815 F.3d 83, 85 (1st Cir. 2016); see also
DeGrandis v. Children's Hosp. Boston, 806 F.3d 13, 16 (1st. Cir.
2015).
Our Take
First Circuit Law Governs this Case
First up is plaintiffs' claim that the judge should have
applied the Eleventh Circuit's interpretation of BSA immunity in
Lopez, not our interpretation in Stoutt. Unfortunately for
plaintiffs, however, we — like Fidelity — side with the district
judge on this issue. And we spill a bit of ink to explain why.
While we have yet to consider the subject, every Circuit
to do so has concluded that when one district court transfers a
case to another, the norm is that the transferee court applies its
own Circuit's cases on the meaning of federal law — and for a good
reason: as Justice (then Judge) Ginsburg pithily put it, in "the
adjudication of federal claims," federal courts ordinarily
"comprise a single system in which each tribunal endeavors to apply
a single body of law," and if different circuits view federal law
differently, then the Supreme Court can restore "uniformity." In
re Korean Air Lines Disaster of Sept. 1, 1983, 829 F.2d 1171, 1175,
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1176 (D.C. Cir. 1987) (brackets and internal quotation marks
omitted), aff'd on other grounds sub nom. Chan v. Korean Air Lines,
Ltd., 490 U.S. 122 (1989).5 Notably, and as footnote 5 of our
opinion shows, even the Eleventh Circuit — the very Circuit whose
law plaintiffs say should apply — flatly rejects the notion that
a transferee court must always use the transferor Circuit's
interpretation of federal law. See Murphy, 208 F.3d at 966
5Cases from the Second, Fourth, Fifth, Eighth, Ninth, and
Eleventh Circuits come out the same way. See Menowitz v. Brown,
991 F.2d 36, 40 (2d Cir. 1993) (noting that "a transferee federal
court should apply its interpretations of federal law, not the
construction of federal law of the transferor circuit"); Bradley
v. United States, 161 F.3d 777, 782 n.4 (4th Cir. 1998) (explaining
that "this court cannot and does not apply the law of another
circuit simply because the case was transferred from the other
circuit"); Tel-Phonic Servs., Inc. v. TBS Int'l, Inc., 975 F.2d
1134, 1138 (5th Cir. 1992) (emphasizing that "[w]hen a case is
transferred from a district in another circuit, the precedent of
the circuit court encompassing the transferee district court
applies to the case on matters of federal law"); In re TMJ Implants
Prods. Liab. Litig., 97 F.3d 1050, 1055 (8th Cir. 1996) (agreeing
that "[w]hen analyzing questions of federal law, the transferee
court should apply the law of the circuit in which it is located");
Newton v. Thomason, 22 F.3d 1455, 1460 (9th Cir. 1994) (declaring
that "when reviewing federal claims, a transferee court in this
circuit is bound only by our circuit's precedent"); Murphy v. FDIC,
208 F.3d 959, 964, 966 (11th Cir. 2000) (holding that a "transferee
court should apply its own interpretation of federal law"). And
cases from the Seventh and Tenth Circuits reached the same
conclusion, albeit in dicta. See Eckstein v. Balcor Film Inv'rs,
8 F.3d 1121, 1126 (7th Cir. 1993) (pointing out that although
"Congress might require one federal court to apply another's
interpretation of federal law, . . . § 1404(a) does not itself do
so," and "agree[ing] with Korean Air Lines that a transferee court
normally should use its own best judgment about the meaning of
federal law when evaluating a federal claim"); Olcott v. Del. Flood
Co., 76 F.3d 1538, 1546 (10th Cir. 1996) (same). We will have
more to say about Eckstein and Olcott later.
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(concluding that in dealing with a federal common-law defense, the
transferee court correctly applied its own Circuit's law instead
of the transferor Circuit's law — the rationale being that "[s]ince
the federal courts are all interpreting the same federal law,
uniformity does not require that transferee courts defer to the
law of the transferor circuit"). Persuaded by their legal
analyses, today we join those Circuits and thus conclude that First
Circuit law governs this case.
Hold on, plaintiffs insist: two Supreme Court opinions
— Van Dusen v. Barrack, 376 U.S. 612, 636 (1964), and Ferens v.
John Deere Co., 494 U.S. 516, 522-23 (1990) — say that a transfer
under § 1404(a) accomplishes "a change in courtrooms" only, not "a
change of law." Which means, according to plaintiffs, the law of
the transferor Circuit — here, Eleventh Circuit law — always
follows the case. Though artfully presented, this argument is not
a difference-maker.
Van Dusen and Ferens say that if a federal court
transfers a diversity case under § 1404(a), the transferee court
applies the state law that the transferor court would have applied
to any questions of state law. See Van Dusen, 376 U.S. at 627;
Ferens, 494 U.S. at 524-25. Van Dusen, for example, held that
"where the defendants seek transfer, the transferee district court
must be obligated to apply the state law that would have been
applied if there had been no change of venue" — in other words, a
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venue change "under § 1404(a) generally should be, with respect to
state law, but a change of courtrooms." See 376 U.S. at 639
(emphasis added). Van Dusen left open the question whether the
same rule "would govern if a plaintiff," rather than a defendant,
"sought transfer under § 1404(a)." Id. at 640. Ferens answered
that question by holding "that the transferor law should apply
regardless of who makes the § 1404(a) motion." 494 U.S. at 531.
Van Dusen and Ferens are diversity cases. And with
diversity cases, federalism commands that federal judges apply
state substantive law exactly as a state court would, see Erie
R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938) — a rule that aims to
accomplish two things: prevent forum-shopping, "which had been
encouraged by a regime in which the choice of state or federal
court might determine what substantive law would govern the
litigation," S.A. Healy Co. v. Milwaukee Metro. Sewerage Dist., 60
F.3d 305, 309 (7th Cir. 1995) (Posner, C.J.); and "avoid[]" the
"inequitable administration of the laws," Hanna v. Plumer, 380
U.S. 460, 468 (1965).6 Ultimately, and importantly here, the
concern animating Erie — maintaining the dual dignity of our state
and federal systems — animates Van Dusen and Ferens too. See Van
Dusen, 376 U.S. at 638 (explaining that in "[a]pplying" Erie's
6
Actually, though Erie's rule comes into play most often in
diversity cases, it also applies to state-law claims brought to
federal court via supplemental jurisdiction. See Felder v. Casey,
487 U.S. 131, 151 (1988).
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"analysis to § 1404(a)," courts "should ensure that the 'accident'
of federal diversity jurisdiction does not enable a party to
utilize a transfer to achieve a result in federal court which could
not have been achieved in the courts of the State where the action
was filed"); Ferens, 494 U.S. at 524 (stressing that "[t]he policy
that § 1404(a) should not deprive parties of state-law advantages,
although perhaps discernible in the legislative history, has its
real foundation in Erie").
As for our situation, yes, plaintiffs filed a diversity
complaint alleging scads of state-law claims. But as the parties
recognize, the present appeal (to borrow from plaintiffs' brief)
"devolves from a dispute surrounding the scope and application" of
a federal statutory defense —— which makes this case unlike Van
Dusen and Ferens. And we cannot say it any clearer than now-
Justice Ginsburg did many years ago: "[n]othing" in Van Dusen
compels one federal court to apply another's interpretation of
federal law after a case's transfer. See Korean Air Lines, 829
F.2d at 1186. The same goes for Ferens, by the way. So plaintiffs'
Van Dusen/Ferens-based arguments go nowhere.
Now, true, Congress sometimes tells a federal court to
apply another's interpretation of federal law — like when "Congress
. . . instruct[s] federal courts to adopt state law or federal law
of individual circuits as of a given date," which implies that
"some aspects of federal law will be 'geographically non-
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uniform.'" See 15 Charles Alan Wright et al., Federal Practice
and Procedure § 3846 (4th ed. 2018). And in that situation, "some
courts conclude that the transferee court should apply the law
that would have been applied by the transferor court's circuit."
Id.
Two cases plaintiffs cite to fall in that category:
Eckstein, a Seventh Circuit opinion, and Olcott, a Tenth Circuit
opinion. See Eckstein, 8 F.3d at 1126 ("agree[ing] with Korean
Air Lines that a transferee court" should typically consider
federal questions "independently and reach[] its own decision,
without regard to the geographic location of the events giving
rise to the litigation," but concluding that § 27A of the
Securities Exchange Act of 1934, 15 U.S.C. § 78aa-1, "instructs us
to act differently" on a statute-of-limitations issue); Olcott, 76
F.3d at 1545-46 (same, quoting Eckstein).7 Our situation, however,
does not involve any congressional command compelling a transferee
court to apply another Circuit's understanding of federal law. So
7
See generally McMasters v. United States, 260 F.3d 814, 819
(7th Cir. 2001) (emphasizing that "[o]nly where the law of the
United States is specifically intended to be geographically non-
uniform" — such as with § 27A — "should the transferee court apply
the circuit precedent of the transferor court"). But see Menowitz,
991 F.2d at 40 (holding that because "federal law (unlike state
law) is supposed to be unitary," a transferee court should use the
law of its Circuit and not the law of the transferor court when
dealing with a § 27A limitations issue).
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despite plaintiffs' best efforts, they get no help from Eckstein
and Olcott.
Plaintiffs' brief also hypes two district court
opinions: In re Fresenius Granuflo/NaturaLyte Dialysate Prods.
Liab. Litig., 76 F. Supp. 3d 294 (D. Mass. 2015), and In re Methyl
Tertiary Butyl Ether (MTBE) Prods. Liab. Litig., 241 F.R.D. 435
(S.D.N.Y. 2007). Fresenius did not involve a § 1404(a) transfer,
however. The issue there was what state law should apply to
plaintiffs' state-law consumer protection claim. See 76 F. Supp.
3d at 300-05. And nothing in Fresenius suggests the district court
believed it had to apply the federal law of any Circuit other than
the First Circuit. In MTBE, the judicial panel on multi-district
litigation transferred plaintiffs' state-tort lawsuit to a single
district court (the "MDL court") for consolidated pre-trial
proceedings with other similar suits, knowing that once these
proceedings concluded, each case not terminated would return to
the original district court for trial. See 241 F.R.D. at 437-40;
28 U.S.C. § 1407. The MDL court held that "[i]n the context of
pre-trial issues such as motions to dismiss . . . section 1407
requires the application of the law of the transferee circuit where
the motions are being considered." MTBE, 241 F.R.D. at 439. But
for "issues inherently enmeshed with the trial," the MDL court
said that the law of the transferor courts should apply because
the cases would have to go back to them for any trial. Id. at
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440-41. That situation is nothing like the one before us. Plainly
then, neither of these non-binding district court opinions helps
plaintiffs' cause.8
The long and the short of it is that First Circuit
caselaw interpreting BSA immunity applies here, not Eleventh
Circuit caselaw. And we trudge on.
8 As a parting shot on this issue, plaintiffs fume that
Fidelity pulled a fast one, convincing the Florida federal court
to transfer the case (as they put it) for "the conveniences of
administering discovery and trial," but then moving to dismiss
their claims after the transfer (they make this argument under the
heading blasting the Massachusetts federal court's use of First
Circuit law). To their way of thinking, principles of judicial
estoppel precluded Fidelity from asking the transferee court to
jettison their claims, thus eliminating the need for discovery and
trial. But their argument does not hold together.
Judicial estoppel applies "when a litigant is playing fast
and loose with the courts, and when intentional self-contradiction
is being used as a means of obtaining unfair advantage" — with
"[u]nfair advantage generally" meaning the "party . . . succeeded
previously with a position directly inconsistent with the one it
currently espouses." Franco v. Selective Ins. Co., 184 F.3d 4, 9
(1st Cir. 1999) (internal quotation marks omitted); see also Alt.
Sys. Concepts, Inc. v. Synopsys, Inc., 374 F.3d 23, 33 (1st Cir.
2004) (emphasizing that "[t]he doctrine's primary utility is to
safeguard the integrity of the courts by preventing parties from
improperly manipulating the machinery of the justice system").
Nothing approaching that scenario happened here. Plaintiffs
suggest that Fidelity kept the BSA-immunity theory under wraps for
later use in the transferee court. Yet, on this record, that is
pure speculation — really, it is worse than that, since the record
(don't forget) shows Fidelity invoked BSA immunity in the very
same motion in which it alternatively argued for a transfer. Plus
plaintiffs cite no authority (nor can we think of any) embracing
their view that a litigant in Fidelity's shoes cannot later move
to dismiss a case after securing a § 1404(a) transfer.
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First Circuit Law Bars Plaintiffs' Claims
Again, plaintiffs' basic theory is that Fidelity cannot
get BSA immunity. And that is because, according to plaintiffs,
Fidelity acted in "bad faith" by "intentionally" filing an SAR
that accused them of manipulating the market to create a short
squeeze — all the while knowing it was "objectively impossible"
for them to have done so, since Fidelity knew its own misconduct
had triggered the short squeeze. And plaintiffs make several
arguments for why they are right and thus should get to bring their
case to trial. But our Stoutt opinion — which involved a criminal
referral form ("CRF"), a predecessor form to the SAR — pulls the
rug out from under them.
The defendant bank in Stoutt filed a CRF with the FBI,
accusing Palmer Stoutt of passing a check he knew he did not have
cash to cover. 320 F.3d at 28. He alleged that the bank encouraged
him to do what he did (for reasons not relevant here). Id. at 27-
28, 32. The bank "cast" the CRF "as the disclosure of a possible
case of bank fraud," unquestionably "a possible" federal offense.
Id. at 30. And after the FBI investigated and arrested him, a
federal grand jury indicted him for that crime. Id. at 28-29.
But the government dismissed the charges (for reasons not revealed
in the record). Id. at 29. Unwilling to let bygones be bygones,
Stoutt (as relevant here) sued the bank in federal court, alleging
only local-law torts. See id. As an affirmative defense, the
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bank claimed immunity from all of Stoutt's local-law claims under
the BSA's "safe harbor provision," which "protects disclosures of
'any possible violation of law.'" Id. at 29, 30.9 And the district
court later granted the bank's BSA-immunity-based motion for
summary judgment. Id. at 29.
Zeroing in on the "any possible violation of law"
phrasing, Stoutt argued on appeal that the provision implicitly
requires that "any suspicions conveyed to the authorities be held
in good faith" — a prerequisite missing there "because the Bank
knew that [he] was innocent of criminal conduct." Id. But we
would have none of it. "Conceivably," we wrote, "Stoutt could
argue that the report was not one of a possible violation, even
though so termed and colorably disclosing a possible crime, if the
Bank knew that there was (in reality) no violation." Id. at 30.
"But," we added, "this is a non-literal reading of the statute,
which speaks of 'any possible violation.'" Id. And, we noted,
"whatever its internal beliefs" — Stoutt, again, claimed the bank
was dead certain that he was guiltless — "the Bank did by any
objective test identify a 'possible violation.'" Id.
As support for our position, we drove home these points:
Congress could have easily added a good-faith requirement to the
9
The version of the BSA that applied in Stoutt is slightly
different from the one that applies now. See id. at 29 n.3. But
the difference does not matter, because both grant civil immunity
for a "disclosure of any possible violation of law."
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statute but did not. Id. at 31. Actually, such a "requirement
. . . was at one time in the proposed immunity provision" but got
pulled before passage. Id. Which makes sense, since the provision
was (according to its congressional author) "intended to provide
'the broadest possible exemption from civil liability for the
reporting of suspicious transactions.'" Id. (quoting 139 Cong.
Rec. E57-02 (1993)). And as far as Congress's policy concerns,
"any qualification" on the immunity created by the BSA "poses
practical problems," including that imposing an "objective
reasonableness" or a "subjective good faith" requirement on a
filing would "obviously create[] a risk of second guessing" and
discourage disclosure. Id. (emphasis added). More, the risk that
an "unfounded" or "malicious" filing will result in "false charges"
is slight since "ordinarily the disclosures will as a practical
matter be made to the [government] authorities, who provide their
own filter as to what investigations are pursued and made public."
Id. at 32. More still, "remedies other than private damage actions
are available for wilfully false reports: private sanctions such
as employment termination, and government penalties such as fines
and imprisonment."10 Id. (citing 18 U.S.C. §§ 1001, 1517).
10 "Wilfully" is the British spelling of the American
"willfully." See Bryan A. Garner, Garner's Modern American Usage
864 (3d ed. 2009).
- 24 -
Given this compendium of considerations, we concluded
that the BSA immunizes financial institutions even if their
"disclosures [are] unfounded, incomplete, careless and even
malicious," just so long as they identify "a possible violation"
of law — something the bank had done there. See id. at 32 (internal
quotation marks omitted). And in doing so, we rejected the
Eleventh Circuit's view in Lopez, 129 F.3d at 1192-93 — the very
opinion our plaintiffs urge us to follow — that immunity applies
only when "a financial institution ha[s] a good faith suspicion
that a law or regulation may have been violated." Instead, we
accepted the Second Circuit's position in Lee v. Bankers Trust
Company, 166 F.3d 540, 544 (2d Cir. 1999), that the "plain language
of the safe harbor provision describes an unqualified privilege,
never mentioning good faith or any suggestive analogue thereof."
See Stoutt, 320 F.3d at 30 (siding with the Second Circuit over
the Eleventh Circuit).
Now back to our case. Calling Fidelity's conduct
"deceptive," "fraudulent," and "misleading" — words they use
because Fidelity submitted the SAR to conceal its own crime —
plaintiffs' brief argues at length that financial institutions
cannot get BSA immunity if they acted in "bad faith." Which is
simply another way of saying financial institutions can get BSA
immunity only if they acted in "good faith." But that argument
goes poof, given how it is just like the one we shot down in
- 25 -
Stoutt. See 320 F.3d at 30-32.
Ditto for plaintiffs' contention that BSA immunity does
not apply if the SAR accuses someone of an "objectively impossible"
violation of law — "objectively impossible," the argument goes,
because Fidelity caused the illegal short squeeze, not them. But,
to repeat, Stoutt expressly refused to limit BSA immunity by
splicing an "objective reasonableness" requirement into the
statute. See id. at 31. Anyway, if an SAR discloses an
"objectively impossible" violation of law — plaintiffs offer the
hypothetical example of an SAR accusing the Deutsch family of
"kill[ing] Abraham Lincoln in 2012" — we doubt the government would
investigate or prosecute such an accusation. Stoutt also said
with crystalline clarity that this immunity applies even if a
financial institution files an SAR that is "wholly unfounded."
Id. And we think that phrase is broad enough to encompass a
situation where the SAR claims an "impossible" or "objectively
impossible" violation of law.
Stoutt similarly precludes plaintiffs' argument "that an
intentionally misleading SAR" prevents Fidelity from getting BSA
immunity. After all, Stoutt firmly ruled that a financial
institution receives BSA immunity for SAR disclosures even for
"malicious" or "wilfully false" disclosures. Id. at 31-33.
And plaintiffs' argument about congressional policy is
hardly a difference-maker either. That is so because Stoutt
- 26 -
factored Congress's policy concerns into its decisional mix and
reached a result that cuts against the very one plaintiffs push
for here.
Having said all this, however, we think it equally
important to reemphasize something Stoutt emphasized. Which is
that even though private actions are off the table, financial
institutions that file malicious or intentionally false SARs are
hardly untouchable. Among other things, and as Stoutt was at pains
to explain, the federal government can go after them, with fines
and prison time where appropriate. Id. at 32.
Undaunted by Stoutt, plaintiffs still believe they hold
a winning hand, thanks to three state-court opinions that withheld
BSA immunity from an SAR filer that twisted the truth in its
report, just like Fidelity did by not disclosing that it — and not
the Deutsches — had illegally manipulated the market. The three
cases are Bank of Eureka Springs v. Evans, 109 S.W.3d 672 (Ark.
2003), Digby v. Tex. Bank, 943 S.W.2d 914 (Tex. App. 1997), and
Walls v. First State Bank of Miami, 900 S.W.2d 117 (Tex. App.
1995). The difficulty for plaintiffs is that a prior panel opinion
like Stoutt remains binding on us until (a) the Supreme Court or
the First Circuit sitting en banc judicially overrules it;
(b) Congress statutorily overrules it; or, in exceedingly
infrequent situations, (c) non-binding but compelling caselaw
convinces us to abandon it. See, e.g., United States v. Walker-
- 27 -
Couvertier, 860 F.3d 1, 8 (1st Cir. 2017), cert. denied sub nom.
Lugo-Diaz v. United States, 138 S. Ct. 1303 (2018), and cert.
denied, 138 S. Ct. 1339 (2018). Exceptions (a) and (b) do not
apply here. As for exception (c), Digby and Walls predate Stoutt
and so lacked the benefit of Stoutt's reasoning. And Evans misread
Stoutt as requiring an objective basis for an SAR filing, see 109
S.W.3d at 680, when Stoutt rejected such a requirement, see 320
F.3d at 31-32. Evans also provoked a spirited dissent, which
scolded the majority for "substitut[ing]" its "interpretation of
a federal statute for that announced by the great majority of
federal courts interpreting that same statute." See 109 S.W.3d at
686-87 (Thornton, J., dissenting) (emphasis added). All of which
is to say that we must — and do — follow Stoutt.11
Final Words
Having worked our way through the issues, we affirm the
judgment entered below.12 Each party shall bear its own costs on
11 As a last gasp, plaintiffs suggest that because Stoutt
decided the BSA-immunity issue on summary judgment after
discovery, our judge acted "unprecedented[ly]" by kicking out
their claims on a motion to dismiss. The easy answer to this
contention is that the Second Circuit in Lee resolved a BSA-
immunity issue in the context of a motion to dismiss. See 166
F.3d at 543. And we embraced Lee in Stoutt. See 320 F.3d at 30.
Which means plaintiffs' suggestion does not change the outcome of
this case.
12One last matter. Fidelity also argues that we can affirm
on an alternative ground — namely, that federal law bars it "from
disclosing even whether a[n] SAR was filed, let alone its
contents"; so "[p]laintiffs can never prove that [it] filed an
inaccurate SAR"; and thus it "cannot be forced to defend against
- 28 -
appeal.
[their] claims while, at the same time, being prohibited from using
key exculpatory evidence." But given our holding, we do not
address that argument.
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