Food Holdings Ltd. v. Bank of America Corp.

10-1021-cv (L)
Food Holdings Ltd. v. Bank of America Corp.
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
Rulings by summary order do not have precedential effect. Citation to summary orders 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 At a stated term of the United States Court of Appeals for the Second Circuit, held at the Daniel
2 Patrick Moynihan United States Courthouse, 500 Pearl Street, in the City of New York, on the 27th day
3 of May, two thousand eleven.
4
5 PRESENT:
6
7 JOSÉ A. CABRANES,
8 REENA RAGGI,
9 Circuit Judges,
10 JANE A. RESTANI,
11 Judge.*
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14
15 FOOD HOLDINGS LIMITED, Cayman Island Company in
16 Liquidation through the Joint Official Liquidators, G. JAMES CLEAVER and
17 GORDON I. MACRAE, DAIRY HOLDINGS LIMITED, Cayman Island Company
18 in Liquidation through the Joint Official Liquidators, G. JAMES CLEAVER and
19 GORDON I. MACRAE,
20
21 Plaintiffs-Appellants-Cross-Appellees,
22
23 v. Nos. 10-1021-cv (Lead)
24 10-1298-cv (XAP)
25
26 BANK OF AMERICA CORPORATION, BANK OF AMERICA, N.A.,
27 BANC OF AMERICA SECURITIES, LLC, BANK OF AMERICA “DOES,”
28 #1-20,
29
30 Defendants-Appellees-Cross-Appellants.**
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33
*
The Honorable Jane A. Restani, for the United States Court of International Trade, sitting by designation.
**
The Clerk of Court is directed to amend the official caption of this case to conform to the listing of the
parties shown above
1
1 FOR PLAINTIFFS-APPELLANTS- J. GREGORY TAYLOR (Allan B. Diamond,
2 CROSS-APPELLEES: Richard I. Janvey, J. Benjamin King, of counsel), Diamond
3 McCarthy LLP, New York, NY.
4
5 FOR DEFENDANTS-APPELLEES- JOSEPH B. TOMPKINS, JR. (A. Robert Pietrzak,
6 CROSS-APPELLANTS: Daniel Allan McLaughlin, Alan C. Geolot, Mark P.
7 Guerrera, Robert D. Keeling, on the brief), Sidley Austin
8 LLP, New York, NY amd Washington, D.C.
9
10
11 Appeal from a February 17, 2010 opinion and a February 18, 2010 judgment of the United States District
12 Court for the Southern District of New York (Lewis A. Kaplan, Judge).1
13
14 UPON CONSIDERATION WHEREOF, IT IS HEREBY ORDERED, ADJUDGED, AND
15 DECREED that the judgment of the District Court is AFFIRMED.
16
17 This case springs from a failed structured transaction by which the dairy products conglomerate Parmalat
18 attempted to obtain off-balance sheet debt financing. Plaintiffs are two special purpose entities (“plaintiffs” or
19 “SPEs”) created by defendants Bank of America Corporation and affiliated companies (jointly, “defendants” or
20 “BofA”). On November 23, 2005, the SPEs, which are now in liquidation proceedings before the Grand Court of
21 the Cayman Islands, filed claims against defendants for fraud, negligent misrepresentation, breach of fiduciary duty,
22 breach of contract, unjust enrichment, civil conspiracy, and declaratory judgment. On February 28, 2007, the
23 District Court granted defendants’ motion to dismiss in part and denied the motion as to the remaining claims,
24 including the breach of fiduciary duty claim now before us on appeal.
25
26 Between September 14 and September 17, 2009, the District Court held a bench trial on the SPEs’
27 surviving claims. After receiving further post-trial briefing, the District Court issued an opinion on February 17,
28 2010, as corrected by an order of February 19, 2010, rejecting all of the SPEs’ claims. See In re Parmalat Sec. Litig.,
29 684 F. Supp. 2d 453 (S.D.N.Y. 2010). With respect to the claim for breach of fiduciary duty, the District Court
30 held, inter alia, (1) that defendants owed the SPEs a fiduciary duty of full disclosure under New York law; (2) that
31 defendants had breached that duty; but (3) that the SPEs’ damages were not caused by defendants, because the
32 SPEs would have entered into the transaction regardless of whether the omitted information had been disclosed to
33 them. Id. at 478-83.
34
35 This appeal, in which the SPEs challenge only the District Court’s ruling with respect to their claim for
36 breach of fiduciary duty, followed. See Plaintiff’s Br. at 28. We assume the parties’ familiarity with the remaining
37 factual and procedural history, which is explained with exquisite care by the District Court in its opinion and order
38 of February 17 and 19, 2010. See In re Parmalat Sec. Litig., 684 F. Supp. 2d at 457-71.
39
40 (i)
41 The threshold question is whether the SPEs have standing to bring their claims. See Friends of Gateway v.
42 Slater, 257 F.3d 74, 77-78 (2d Cir. 2001) (“[T]his Court must address any jurisdictional standing question first,
43 before deciding a case on the merits.”). To establish constitutional standing, a plaintiff must demonstrate: (1)
44 injury-in-fact; (2) causation; and (3) redressability. See Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992).
1
Plaintiffs also appeal from a February 19, 2010 order making superficial changes to two pages of the February 17, 2010
opinion issued by the District Court.
2
1 According to defendants, the SPEs were “mere pass-through entities” or “phantoms,” and therefore they
2 did not suffer injury-in-fact when the Parmalat transaction went awry. Defendants’ Br. at 23, 25. We disagree.
3 While the SPEs may be “phantoms” of a sort, BofA apparently does not consider them so “phantom” as to
4 relinquish its rights to the $292.4 million of debt that it contends it is owed by the SPEs. See Defendant’s Br. at 13.
5 As defendants know all too well, this debt is just one of the very real legal obligations by which the SPEs must
6 abide. The fact that there may be other counterparties, namely Parmalat, from whom BofA and the other
7 noteholders may potentially recover is not in any way inconsistent with the idea that the SPEs are also fully liable
8 for the debt. Cf. Restatement (Second) of Torts § 879 (1979) (discussing the concept of joint and several liability).
9
10 Nor are the injuries of the SPEs’ creditors identical to the SPEs’ injuries or otherwise a basis to render the
11 SPEs’ injuries a nullity. See Defendant’s Br. at 24-27. Though under some circumstances courts have held that the
12 injury suffered by a debtor is really that of its creditors and therefore inadequate to confer standing upon the
13 debtor, see Hirsch v. Arthur Anderson & Co., 72 F.3d 1085, 1093-94 (2d Cir. 1995); Am. Tissue, Inc. v. Donaldson, Lufkin
14 & Jenrette Sec. Corp., 351 F. Supp. 2d 79, 90 (S.D.N.Y. 2004), we are not confronted with those circumstances here.
15 In Hirsch, for example, it was undisputed that the debtor had a conflict of interest in pursuing claims for the benefit
16 of its creditors, see Hirsch, 72 F.3d at 1088, 1091; here, the SPEs do not have a conflict of interest in suing BofA.
17
18
19 (ii)
20 Plaintiffs argue that BofA’s representatives acted as “de facto” directors of the SPEs, see Plaintiff’s Br. at 37,
21 and therefore owed the SPEs a fiduciary duty of care, in addition to the other fiduciary duties identified by the
22 District Court. See In re Parmalat Sec. Litig., 684 F. Supp. 2d at 478 (defining the duties owed to the SPEs as
23 “[p]erfect candor, full disclosure, [and] good faith”) (internal quotation marks omitted). According to plaintiffs,
24 BofA violated that duty of care by approving the transaction on behalf of the SPEs.
25 We need not reach the question of the exact scope of the duties owed to the SPEs, because even if they
26 were owed a duty of care, the SPEs cannot prove that BofA’s conduct proximately caused their injuries. See
27 Nordwind v. Rowland, 584 F.3d 420, 433 (2d Cir. 2009) (explaining that a plaintiff seeking damages for breach of
28 fiduciary duty must show that the defendant’s conduct proximately caused its injuries). As the District Court
29 explained in its well-reasoned opinion, the SPEs would have approved the transaction regardless of any additional
30 disclosures, analysis, or deliberation about the deal. See 684 F. Supp. 2d at 481-83.
31
32 Indeed, the SPEs were created for one purpose, and one purpose alone: to participate in a structured
33 transaction involving BofA, the noteholders, and Parmalat, with no “upside” potential and little “downside” risk to
34 the SPEs. Id. at 458-59. The final transaction was in fact structured according to those terms—in other words, the
35 transaction was precisely the sort of “business” for which the SPEs were designed. Moreover, at the time of the
36 transaction, Parmalat was considered a credit-worthy corporation of substantial repute; its massive fraud was totally
37 unknown to the parties and to the public generally. Id. at 468, 473. Though in hindsight the SPEs’ investment in
38 Parmalat Brazil and the related “put” options and guaranty may appear ill-advised, there is nothing in the record to
39 suggest that the SPEs would have rejected the transaction at the time it was undertaken if BofA had indeed
40 exercised greater care or prescient business judgment on its behalf.
41
42
3
1 In any event, the proximate cause of the SPEs’ loss was Parmalat’s collapse, not the failure of BofA to
2 exercise its alleged fiduciary duties. As the district court found, BofA had no “real inkling that Parmalat was a
3 financial house of cards.” Id. at 473; see also id. at 483 n.188 (“I am not persuaded that BoA was negligent in this
4 respect. After all, Parmalat fooled the entire world for more than a decade.”). That finding precludes a
5 determination that the Parmalat fraud was “a normal or foreseeable consequence of the situation created by”
6 BofA’s decision to steer plaintiffs into the transaction. Derdiarian v. Felix Contracting Corp., 51 N.Y.2d 308, 315
7 (1980). Rather, it was “extraordinary under the circumstances, not foreseeable in the normal course of events,
8 [and] independent of or far removed from” BofA’s conduct. Id. In sum, because Parmalat’s misconduct
9 constituted “independent intervening acts which operate[d] upon but d[id] not flow from” BofA’s alleged breach
10 of duty, this is one of those cases where “only one conclusion may be drawn from the established facts and where
11 the question of legal cause may be decided as a matter of law” in favor of BofA. Id. at 315.
12
13 (iii)
14 Finally, the SPEs contend that the District Court abused its discretion in denying them leave to amend
15 their complaint after dismissing their claim for aiding and abetting a breach of fiduciary duty.
16
17 The SPEs requested to amend their complaint on the final page of their brief in opposition to defendants’
18 motion to dismiss, in boilerplate language and without any explanation as to why leave to amend was warranted.
19 Cf. Porat v. Lincoln Towers Cmty. Ass’n, 464 F.3d 274, 275-76 (2d Cir. 2006) (holding that the District Court did not
20 abuse its discretion in denying leave to amend where the request was made only in a footnote of plaintiff’s
21 opposition to defendants’ motion to dismiss and where plaintiff provided no explanation regarding how the
22 complaint’s defects would be cured). Furthermore, at no time in the subsequent 9 months before the District
23 Court rendered its decision on the motion to dismiss, nor in the 30 months from the time of that decision until the
24 bench trial of September 2009, did counsel for the SPEs submit a proposed amended complaint or a motion to
25 amend that identified and explained their position. Accordingly, although “the usual practice is to grant leave to
26 amend [a] complaint,” Ronzani v. Sanofi S.A., 899 F.2d 195, 198 (2d Cir. 1990) (internal quotation marks omitted),
27 in the circumstances presented here, we cannot say that the District Court abused its discretion in declining to
28 grant leave to amend. See Sims v. Blot, 534 F.3d 117, 132 (2d Cir. 2008) (explaining “abuse of discretion”).
29
30 CONCLUSION
31
32 To summarize:
33 (1) plaintiffs have standing to sue defendants;
34 (2) plaintiffs fail to demonstrate that BofA’s conduct proximately caused their injuries;
35 (3) the District Court did not abuse its discretion in declining to grant plaintiffs leave to amend their
36 complaint.
37
38
39
40
41
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43
4
1
2 Upon a review of the parties’ arguments on appeal, we AFFIRM the judgment of the District Court for
3 the reasons stated above.
4
5
6 FOR THE COURT,
7 Catherine O’Hagan Wolfe, Clerk of Court
8
5