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They maintain that they have a significant connection to the United States, as this is where AremisSoft was incorporated, where the Trust was established, and where the beneficiaries of the of the Trust are located. See Pl. I also agree that it is not forum-shopping for plaintiffs to file this action here, after filing suit against Kyprianou in Cyprus, as they were obliged to sue him there after unsuccessful attempts to bring him to trial here.
The separate Cyprus action does not diminish the deference due to plaintiffs' choice of Cyprus as the forum for the action against the Bank. However, in the Second Circuit, that deference is diminished when "plaintiff is a corporation doing business abroad and can expect to litigate in foreign courts. Inter-Continental Hotels Corp. See Morrison Law Firm v.
Clarion Co. ECI Telesystems, Ltd. A plaintiff s choice of forum is also "given reduced emphasis where. Airlines, F. Plaintiffs are not a corporation doing business abroad, but they are suing on behalf of a Trust whose governing document specifically authorizes litigation abroad.
Plaintiffs have already litigated in several foreign countries. See Fellas Decl. Plaintiffs therefore more closely resemble a corporation with substantial resources than ordinary citizens of comparatively modest means. See Carey, F. Moreover, the operative facts of this litigation unquestionably took place in Cyprus. See infra Part II. I therefore conclude that while plaintiffs' choice of forum is entitled to some deference, it does not operate at full strength.
Additionally, I note that "[a] citizen's forum choice should not be given dispositive weight. As always, if the balance of conveniences suggests that trial in the chosen forum would be unnecessarily burdensome for the defendant or the court, dismissal is proper. Reyno, U. See also Wiwa v. Royal Dutch Petroleum Co.
Courts in this Circuit have numerous times dismissed suits by an American citizen or entity in favor of a foreign jurisdiction. See, e. Gulf Oil Corp. Ina, Inc. Villa Abrille, No. Cities Serv. In this case, because plaintiffs are not an entity that stands to experience hardship of the kind that would be suffered by an individual plaintiff of modest means, I conclude that the deference due to plaintiffs is not so significant as to outweigh other factors if they weigh in favor of defendant.
In Gulf Oil Corp. Gilbert, U. These include "the ease of access to sources of proof; availability of compulsory process for attendance of unwilling, and the cost of obtaining the attendance of willing, witnesses;. Public interest factors include administrative difficulties stemming from court congestion, the interest in having "localized controversies decided at home," and the interest in having issues of foreign law decided by a foreign tribunal.
Where alleged misconduct is centered in the foreign forum and the majority of evidence resides there, dismissal is favored. See Strategic Value Master Fund v. Cargill Fin. See also Acosta v. JPMorgan Chase, Fed. Here, the vast majority of the evidence appears to be in Cyprus, where the bank accounts were opened and administered.
See Pochanis Decl. The Amended Complaint identifies several witnesses in Cyprus with knowledge of the events, but none in New York. See Def. Conversely, defendant identifies at least 25 potential witnesses in Cyprus, including four current employees, five former employees who participated in administering the accounts at issue, and other non-party witnesses. Joseph LaSala, one of the plaintiff Trustees, offers as important U.
Joseph P. LaSala, in Opp'n Mot. Dismiss, dated Jan. Plaintiffs also suggest that correspondent bank employees here in the United States could be witnesses. Defendant counters that Peak was not so much as mentioned in the complaint and has no first-hand knowledge of the Bank's actions; defendant also points out that Poyiadjis is a minor figure in the complaint, as his name was never mentioned in the paragraph recitation of allegations against the Bank.
As the quotation in Part I. While the witnesses mentioned by plaintiffs undoubtedly would have something to say about the overall scheme perpetrated by Poyiadjis and Kyprianou, I fail to see how they will assist a fact-finder in determining what Bank of Cyprus employees knew and did surrounding the particular accounts at issue in this case. As Judge Weinfeld noted in a situation where an alleged fraudulent scheme occurred in Switzerland but the defendant contended that New York witnesses were important, "The New York witnesses can testify only as to how undisputed trades were executed.
These matters, if pertinent at all, are not even of secondary significance; they are subordinate to the basic issue central to plaintiffs claims. Those who performed the fraudulent acts and issued directions in furtherance thereof did so there. Banque Populaire Suisse, F. I am not persuaded that evidence from these U. That the overwhelming majority of witnesses resides in Cyprus therefore weighs significantly in favor of Cyprus.
Banque Paribas London et al. Second, evidence obtained by means of the Hague Convention, which delivers-testimony in the form of a judge's summary of a deposition,  is a poor substitute for live trial testimony. See Scottish Air, 81 F. We deemed such testimony necessary for the jury to assess the witnesses' credibility.
Linter Group Ltd. Traum, F. Documentary evidence also appears to be based predominantly in Cyprus. This includes documents in the possession of the Bank which relate to the accounts in question, such as documents concerning the opening of the accounts including documents stating the corporate structure of any corporate account-holder and specimen signatures , account statements for each account, transfer instructions, and documents pertaining to the loan identified in the complaint.
Plaintiffs state that "critical and relevant documents are located in the United States," Pl. Whether transporting them is a "relatively undemanding task," see id. I conclude that the location of documents is a factor weighing in favor of defendant, though in today's world where electronic storage of documents is the norm, not a factor of enormous weight.
Another consideration pertaining to the witnesses and documents is translation. The parties dispute the extent to which documents will be in English or Greek. Compare Pl. Defendant also states that Greek is the mother tongue of the persons it lists as potential witnesses for the Bank as well as for non-party witnesses , and that these witnesses would testify in Greek through an interpreter, see Pochanis Decl.
I do not undertake to resolve the dispute between the parties concerning the language of the documents. However, I credit defendant's representation that Bank witnesses would testify through an interpreter. Plaintiffs argue that "[it] is unreasonable for. Defendant to assert that the de minimus [sic] costs of translation are evidence of inconvenience to the multi-national banking institution that is the Bank of Cyprus. Even putting aside the question of cost, the difficulties presented to a court's assessment of witness credibility are considerable.
See Fustok, F. Based on the location of documents and relevant witnesses, I conclude that the private interest factors favor defendant. Public interest factors include judicial economy, the interest in having "localized controversies decided at home," and the interest in having issues of foreign law decided by a foreign tribunal. This Court has explained, "[T]here is little sense to allowing a U.
I turn first to the public interest in having localized controversies decided at home. This factor requires an evaluation of which forum possesses a stronger local interest in the controversy. See Pollux Holding, F. Plaintiffs point to the interest of the United States in safeguarding transactions involving U. See also LaSala Decl. Plaintiffs also point to the interest of the United States in adjudicating matters affecting its residents.
Finally, plaintiffs cite as a United States interest the fact that their claims arise under U. Defendant, by contrast, maintains that Cyprus possesses a strong interest in regulating the conduct of its banks. Defendant also stresses Cyprus's interest in applying its own law, which defendant argues applies in this case. Defendant points out that since the government of Cyprus is already prosecuting Kyprianou's alleged co-conspirators in the Cypriot criminal court, and the Cyprus courts have already been presented with issues underlying the case, these factors, too, cause the public interest to weigh in Cyprus's favor.
Finally, defendant notes that since the litigation against the Bank has already attracted media attention, there is an added interest in allowing the Bank to vindicate its reputation in local courts. I am persuaded that Cyprus possesses by far the strongest interest in this case. There is no question that this dispute centers around events occurring there.
The Bank of Cyprus accounts were opened in Cyprus, and the transfers alleged to have been improperly permitted by the Bank were authorized by personnel in Cyprus. This is at its heart a dispute involving what Cyprus banking representatives did and what they knew when they did these things. The knowledge plaintiffs allege on the part of the Bank concerning the Bank's legal obligations and concerning the fraudulent nature of Kyprianou's transfers resides in the minds of Bank representatives in Cyprus.
If, to quote Gilbert, it is preferable that "localized controversies" be "decided at home," Cyprus is home for the controversies generated by the plaintiffs' complaint. Plaintiffs' argument that the transmission of dollar transfers through banks in the United States creates a strong public interest has been rejected by courts in this Circuit. XVIII v. Bank of Nova Scotia, No 96 Civ.
Ltd v. Bank Saderat Iran, No 95 Civ. The United States may have an interest in ensuring that American currency not be laundered and American investors not be defrauded by those who attempt to use foreign banks to further a criminal scheme. However, this interest pales in comparison with that of Cyprus. Cyprus possesses a strong interest in regulating the conduct of banks within its borders, especially where a particular bank plays such a large role in the country's economy.
In this case, there is even less connection between the underlying events and the United States than in Zweig. As in Piper Aircraft, "[T]he American interest in this accident is simply not sufficient to justify the enormous commitment of judicial time and resources that would inevitably be required if the case were to be tried here.
As for plaintiffs' argument that adjudieating the interests of its residents is a United States interest, I agree that this interest exists, but it stands in equipoise to Cyprus's interest in adjudicating matters affecting its residents. I also agree with plaintiffs that the law to be applied augments the interest of the forum possessing the applicable law,  but I disagree with plaintiffs's position that the law of a state of the United States applies.
Courts often do not decide choice of law issues when performing a forum non conveniens analysis, see Piper Aircraft, U. The mere likelihood of the application of foreign law weighs in favor of dismissal. Generali Belgium, F.
Stentor Elec. Plaintiffs allege both tort and contract causes of action. Brink's Ltd. South African Airways, 93 F. This is a "flexible approach intended to give controlling effect to the law of the jurisdiction which, because of its relationship or contact with the occurrence or the parties, has the greatest concern with the specific issue raised in the litigation. One Public Co.
Lehman Bro. Plaintiffs suggest that the jurisdiction with the greatest interest in the litigation is the locus of injury, which here is the United States. Osgood Machinery, 81 N. The locus of the tort is where the "last event necessary to make the actor liable occurred. Philip Morris Inc. However, this "last place" criterion "is not chiseled in stone, but rather gives way when it is at war with state interests so that the more general Babcock principle applies.
Jackson, 12 N. In other words, this "last place" criterion does not displace ordinary interest analysis. See Cromer Fin. Berger, F. Casuccio, F. Even the Second Circuit's recent application of the test did not rely on it exclusively in conducting interest analysis. Cintas Corp. In this case, the "last place" or locus of the "last event necessary" is the United States, where the harm allegedly caused by the Bank was felt.
A situation such as this, where the alleged misconduct occurred in one jurisdiction, but because of the international nature of a company's business dealings the harm caused by that misconduct was felt in another country, presents precisely the sort of circumstance where a blind adherence to the rule that the last place determines the locus of the tort and therefore the jurisdiction with the greatest interest would result in the jurisdiction which does not possess the greatest interest being deemed so for choice of law purposes.
In Sussman I held that even where the injury was felt in the United States, "Whether or not defendants' conduct was tortious will be measured by the law of Israel. It is that law upon which the parties, plaintiffs and defendants alike, relied in respect of defendants' conduct; and the interest of Israel in applying its law to admonish or prevent similar conduct in the future assumes a critical, and in my opinion, controlling importance in choice of law analysis.
See also Pollux Holding, F. See Finance One, F. I conclude that the strength of Cyprus's interest in the litigation outweighs that of the United States. Cyprus's interest in regulating the conduct of banks within its borders, particularly where the bank is the leading financial services provider in the country, is great. The reputability of the country's banking system is intimately connected to the effectiveness of the country's regulation of its banks, and it has a stronger interest, in policing its financial systems than does the United States in ensuring that United States dollars are not laundered abroad to the detriment of United States shareholders and a United States company.
I therefore conclude that Cyprus law applies to plaintiffs' tort claims. Pitney Bowes Credit Corp. Shearson Lehman Hutton, Inc. This typically points to the place of contracting, the places of negotiation and performance, the location of the subject matter of the contract, and the domicile or place of business of the contracting parties.
Here, the contract at issue was the Bank of Cyprus's contract with AremisSoft, its depositor. Because the accounts were opened in Cyprus, and the Bank was performing its contractual obligations there, the center of gravity is clearly Cyprus. Plaintiffs themselves cite a decision of this Court for the proposition that "[i]n some contract cases, New York choice of law principles require an interest analysis that looks to the law of the jurisdiction having the greatest interest in the litigation.
United Bank of Kuwait, F. If I look to the law of the jurisdiction having the greatest interest in the litigation for the contract claims, I also arrive at Cyprus by means of the analysis given above for the tort claims. Thus Cyprus law applies to plaintiffs' claims arising under contract law as well. Three lawsuits, two of which would be in Cyprus and one here, may conceivably occur.
See Oral Arg. What they envisage is three lawsuits, your Honor. One against the primary perpetrators, Kyprianou and his cohorts, in Cyprus. One against the bank here in New York involving overlapping allegations in similar claims. Then a third lawsuit.
If the bank were to lose here, a third lawsuit back in Cyprus by the bank against Mr. As a number of the issues in these actions are and would be overlapping claims for aiding and abetting Kyprianou's crimes plainly involve issues related to those crimes themselves , the risk of inconsistent judgments arises. It also would be an inefficient use of judicial resources.
See Piper Aircraft U. The values of judicial economy and integrity in the administration of justice therefore militate against plaintiffs' desire to keep the case in this district. I conclude that the public interest strongly favors Cyprus. Because the private interest factors also favor Cyprus, and it is an adequate alternative forum, I hold that the measure of deference due to plaintiffs' choice of forum is outweighed, and dismissal on the ground of forum non conveniens is warranted.
Although the complaint will be dismissed on the basis of forum non conveniens, I will discuss the other grounds for dismissal urged by the Bank in this motion, so that the Court of Appeals will be aware of this Court's opinion on all issues if it decides to reverse the forum non conveniens dismissal.
In Congress enacted the Private Securities Litigation Reform Act "PSLRA" , which imposed constraints on federal securities class actions due to "perceived abuses of the class-action vehicle in litigation involving nationally traded securities. Dabit, U. See Dabit II, S. To dismiss an action under SLUSA, the defendant must show: 1 the action is a "covered class action" under SLUSA; 2 the action is based on state law; and 3 the action is one in which the party alleges "an untrue statement or omission of a material fact in connection with the purchase or sale of a covered security" or alleges that "the defendant used or employed any manipulative or deceptive device or contrivance in connection with the purchase or sale of a covered security.
See Webster v. Life Ins. A "covered class action," as defined by SLUSA, includes a lawsuit in which "damages are sought on behalf of more than 50 persons or prospective class members, and questions of law or fact common to those persons or members of the prospective class. The statute also states that "[f]or purposes of this paragraph, a corporation, investment company, pension plan, partnership, or other entity, shall be treated as one person or prospective class member, but only if the entity is not established for the purpose of participating in the action.
Thus, if damages are sought on behalf of an entity perhaps in addition to other persons , and the entity itself benefits multiple persons, that entity will nonetheless be treated as one person if it was not established for the purpose of participating in the action. In other words, the beneficiaries of damages that would accrue to an entity will only be counted towards the person limit under circumstances where the entity was established to participate in the action.
In the case at bar, an action is brought by the Trustees on behalf a Trust that was assigned both the claims of former shareholders and the claims of AremisSoft itself. These threshold questions arise: 1 whether the Trust is seeking damages "on behalf of more than 50 persons; and 2 if it is, whether the Trust falls within the entity exception, thereby avoiding a class action designation for what would otherwise be the claims of more than 50 persons.
Defendant maintains that the Trust was formed for the purpose of participating in the action, as is evidenced by the Trust Agreement and by an order issued by Judge Pisano concerning the creation of the Trust, and therefore is not to be counted as a single entity. Plaintiffs counter that the Trust was formed for multiple purposes associated with its origin in a bankruptcy proceeding, only one of which is litigating Trust claims, and that therefore it does not constitute a covered class action.
Plaintiffs also contend that since they are only bringing the claims of the Company, see id. Do these plaintiffs seek damages "on behalf of more than 50 persons," as that phrase is used in SLUSA? Because plaintiffs assert that they are bringing claims only on behalf of the Company, and a district court in Massachusetts distinguished corporate claims brought by a bankruptcy trust from the shareholder claims brought by the trust, see Cape Ann Investors LLC v.
Lepone, F. The statutory definition speaks not in terms of the types of claims asserted but only whether damages are asserted "on behalf of more than 50 persons. Here, plaintiffs' complaint states that. See also Trust Agreement, Ex. III, 3. Members" receive the remainder. Since damages are being sought on behalf of these Trust beneficiaries, and since plaintiffs indicate that the former shareholders number more than persons, the Trust is clearly seeking damages "on behalf of more than 50 persons.
That Softbrands is among these beneficiaries does not change the fact that the number is over Additionally, SLUSA's provision exempting from the class action definition an "exclusively derivative action brought by one or more shareholders on behalf of a corporation," 15 U. While the Trust possesses claims that formerly belonged to the Company, it brings these corporate claims on behalf of the Trust as a whole.
In Smith v. While the court went on to disagree with the defendants' position with regard to the entity exception and found that the trust in that case did count as a single entity, it did not disagree with this approach of looking to the trust beneficiaries to determine whether the action was brought on behalf of more than 50 persons.
Presumably the court would not have reached the question whether the entity exception applied if it had not found that the trust beneficiaries numbered more than In Bordier, similarly, Judge Pisano noted that the beneficiaries of the Trust which is the same Trust as in the case at bar numbered more than 50 persons. See Bordier, F. Cape Ann, F. The character of the claim itself might well enter into the analysis at another stage, such as whether a defense of in pari delicto applies,  but it is not relevant at this stage.
Here, since damages are indisputably being sought on behalf of beneficiaries of the Trust numbering more than 50 persons, the Trust is a covered class action unless the entity exception applies. Next I turn to whether the entity exception applies. In support of their argument that such claims do not constitute a covered class action, plaintiffs point to legislative history of SLUSA indicating that the term "covered class action" "does not cover instances in which a person or entity is duly authorized by law.
Thus, a trust in bankruptcy, a guardian, a receiver, and other persons or entities duly authorized by law. This gloss does not resolve the question for the claims of this Trust, which is something more than an ordinary bankruptcy trust and is, as we have seen, not seeking damages only on behalf of "another person or entity.
In the case before him, Judge Pisano determined that the exception did not apply to the AremisSoft Corporation Liquidating Trust because the Trust was formed for the "primary purpose" of engaging in litigation, which he found satisfied the statutory language "for the purpose of participating in the action. I agree with Judge Pisano, who it should be noted presided over the initial class actions against AremisSoft and the genesis of this Trust in the Company's bankruptcy.
Various provisions in the Trust Agreement indicate that while the Trust was empowered to accomplish multiple tasks, the chief among these was litigating the Trust claims. Because I conclude that the Trust was formed for the primary purpose of engaging in litigation, the entity exception does not apply. Plaintiffs seek support for their position in Smith, where the court held that a bankruptcy estate was not a covered class action.
However, in that case, the governing document setting forth the scope of the trustee's powers stated that it would "act as the Estates' representative for all purposes ," which included managing assets and winding up the estates. Smith, F. In other words, the prevalence of ordinary bankruptcy-related tasks in the mandate of the trust precluded a finding that it was organized for the primary purpose of litigating trust claims.
This is not inconsistent with my holding here, because the governing document of that trust was different. The mandate of the Trust in the case at bar more closely resembles that in Cape Ann, where the "Nutramax Litigation Trust," to which were assigned both the claims of an investors' syndicate and the claims of the failed company Nutra-Max, was created by the bankruptcy court during the company's Chapter 11 bankruptcy proceeding as a vehicle for pursuing any potentially recoverable assets.
See Cape Ann, F. The court therefore declined to find that the Trust was a unitary entity under the statutory exception and held that it was a covered class action. While this Court believes that the district court in Cape Ann should not have excluded the company claims from its analysis of trust claims, I am persuaded by the court's reasoning concerning SLUSA's entity exception. The origin of that trust, and the language of its governing document, are similar to those in the case at bar, and thus the Cape Ann court's reasoning supports my interpretation of the statutory language.
In Part II. After showing that plaintiffs' is a "covered class action" based on "state law," defendant must still demonstrate that the substance of plaintiffs' claims falls within SLUSA's preemption. SLUSA only preempts actions in which a plaintiff alleges "an untrue statement or omission of a material fact in connection with the purchase or sale of a covered security" or alleges "that the defendant used or employed any manipulative or deceptive device or contrivance in connection with the purchase or sale of a covered security.
It is not disputed that this case concerns a "covered security. Defendant responds that all that is required is that the complaint contain allegations of misrepresentations concerning securities, even if they were not made by defendant. Since this particular complaint is rife with allegations of misrepresentations by Kyprianou and others, defendant's argument goes, SLUSA preempts it.
Plaintiffs are correct that the conduct of defendant is still central to SLUSA analysis and that the mere allegation of misrepresentations somewhere in the complaint is not sufficient for SLUSA preemption. The Supreme Court's pronouncements that SLUSA should be interpreted broadly, relied on by the Bank, do not dislodge the relevance of defendant's conduct to the analysis.
In other words, while plaintiffs identity is not a critical component of SLUSA analysis, defendant's conduct is. See also Paru v. May 11, claim of breach of fiduciary duty due to company's failure to prevent short-term trading in and out of mutual fund that allegedly harmed fund's long-term investors not preempted by SLUSA because it did not involve allegations of misstatements or omissions by defendant.
See Xpedior Creditor Trust v. See also Breakaway Solutions, Inc. In Xpedior, Judge Scheindlin articulated a test that captures this requirement of a connection between the misrepresentations or omissions alleged in the complaint and the claim or claims being advanced.
This test is applied to the substance, rather than the face, of plaintiffs claim. Under the necessary component test, "a complaint is preempted under SLUSA only when it asserts 1 an explicit claim of fraud e. In re Livent, Inc. Noteholders Sec. Nevertheless, defendant is correct that the misrepresentation or omission at issue need not in all instances be made by defendant for SLUSA to preempt the claim. In the case of an aiding or abetting claim, where the underlying conduct that was aided or abetted sounds in fraud, it might be sufficient for the misrepresentation or omission at issue to have been made by the person allegedly aided and abetted by defendant.
This was also Judge Pisano's conclusion, when, after framing the question before him as "whether SLUSA preempts state law aiding and abetting claims, where a third party, as opposed to the defendant; purportedly made actionable misrepresentations or omissions," he answered it in the affirmative. Bordier, F. In addition to requiring that the claim against defendant sound in fraud, SLUSA also requires that the misstatements or omissions alleged by plaintiffs be "in connection with the purchase or sale of securities.
See Winne, F. Salomon Smith Barney Inc. Where the alleged conduct giving rise to the claim is too far removed from a securities transaction, the "in connection with" requirement is not met. See Norman v. Salomon Smith Barney, Inc. Franklin Res. While the fraud in question need not relate to the investment value of the securities themselves, it must have more than some tangential relation to the securities transaction.
First Union Sec. Rather, there must be a showing of a nexus between the fraud and a securities transaction. These requirements that must be satisfied for SLUSA preemption to apply are, under the law of this Circuit, applied to each claim in the complaint rather than to the whole action. That is not the law of this Circuit. The court noted that defendant's interpretation that maintenance of an entire action is prohibited so long as a complaint included some allegations triggering preemption would lead to the result that "SLUSA would effectively preempt any state law claim conjoined in a given case with a securities fraud case, whatever its nature.
The Court reasoned that the PLRA, which provides that "no action shall be brought" unless administrative procedures have been exhausted, only requires dismissal of claims that have not been properly exhausted not dismissal of an entire action if a claim or claims within it have not been properly exhausted. Additionally the Court addressed principles for dismissal of the complaint: "As a general matter, if a complaint contains both good and bad claims.
If Congress meant to depart from this norm, we would expect some indication of that, and we find none" quotation and citations omitted. In the absence of clear indication from the Supreme Court, I am bound by existing Second Circuit law, until such time as the Second Circuit should change its mind or the Supreme Court decide the question squarely. Accordingly, I consider plaintiffs' claims separately. Only those that are supported by allegations that fall within the scope of SLUSA's preemption are preempted.
Bankruptcy — General Provisions — Definitions. Plaintiffs, Joseph P. LaSala and Fred S. Plaintiffs claim that Defendants aided and abetted the breach of fiduciary duty by former AremisSoft principals, Lycourgos Kyprianou and Roys Poyiadjis and that Defendants violated Swiss money laundering laws.
Dabit, S. They bring the instant motions pursuant to Federal Rules of Civil Procedure 12 b 1 and 12 h 3. Factual and Procedural History. Jurisdiction is premised on diversity pursuant to 28 U. However, both Bordier and Dominick have filed motions to dismiss based on lack of personal jurisdiction and forum non conveniens which are currently pending before the Court. See Rowinski v. Salomon Smith Barney, Inc. John Hancock Life Ins.
Rule 12 b 1 allows a party to move for dismissal of a case based on lack of subject matter jurisdiction. Rule 12 h 3 states that "[w]henever it appears by suggestion of the parties or otherwise that the court lacks jurisdiction over the subject matter, the court shall dismiss the action. However, unlike many actions which are preempted by SLUSA after being removed to federal court based on SLUSA, this case was brought in federal court on diversity jurisdiction pursuant to section The parties agree that this motion should be decided before their other pending motions and thus, the Court decides the instant motion at this juncture.
AremisSoft was a Delaware corporation with its principal place of business in New Jersey. Subsequent to the bankruptcy filing, the Court created the Trust. The Trust is a Delaware Trust formed pursuant to three orders issued by the Court in connection with the settlement of the underlying securities fraud class action lawsuit involving AremisSoft, In re AremisSoft Corp.
Both the class action settlement and reorganization plan were approved by the Court. Any and all claims arising out of the purchase or sale of AremisSoft securities from April 22, through July 27, and all of AremisSoft's claims arising pre-bankruptcy were assigned to and for the benefit of the Trust.
The Court appointed Plaintiffs Joseph P. Zeidman to act as Trustees of the Trust. Plaintiffs bring the instant lawsuit in that capacity. Plaintiffs claim that from through , two former AremisSoft principals, Lycourgos Kyprianou and Roys Poyiadjis issued various false and misleading public statements and filings with the Securities and Exchange Commission "SEC" which essentially made AremisSoft appear more profitable and successful that it was in reality.
These misrepresentations allegedly caused the market price of AremisSoft stock to be artificially inflated. Plaintiffs claim that Kyprianou and Poyiadjis sold their AremisSoft stock at the purportedly inflated prices and by doing so, engaged in illegal insider trading by reaping large profits at the expense of the investing public.
By the time the truth about AremisSoft's financial condition was revealed, the price of the company's publicly held shares fell dramatically. They are not parties to this instant matter. Plaintiffs allege that Defendants Bordier and Dominick, private Swiss banks, substantially assisted Kyprianou and Poyiadjis in concealing this alleged fraud. According to Plaintiffs, Kyprianou and Poyiadjis employed numerous entities with accounts at Bordier and Dominick to hold and sell their AremisSoft stock.
Further, Kyprianou and Poyiadjis allegedly funneled millions of dollars of their proceeds from their AremisSoft stock sales through the accounts at Bordier and Dominick. In addition, Plaintiffs claim that Kyprianou and Poyiadjis used accounts at Bordier and Dominick to substantiate sham corporate transactions that they created in an effort to disguise their fraud.
Specifically, Plaintiffs' claim that in assisting the activities of Kyprianou and Poyiadjis, Defendants Bordier and Dominick 1 aided and abetted the breaches of fiduciary duty to AremisSoft shareholders committed by Kyprianou and Poyiadjis; and 2 violated Articles ter and bis of the Swiss Federal Code of Criminal Law and various provisions of the Swiss Money Laundering Act. Plaintiffs claim, and Defendants at this juncture do not dispute, that there is a private right of action available to Plaintiffs under these provisions of Swiss law.
Defendants have filed a motion to dismiss pursuant to Fed. See, e. Salomon Smith Barney Inc. Unfortunately, an unintended consequence of the PSLRA was that plaintiffs began avoiding federal courts altogether. Hilb, Rogal Hobbs Co. Instead, they increasingly brought suit under state law, often in state courts. See 15 U. SLUSA achieves this objective by authorizing the removal and federal preemption of certain state law securities class actions brought in state court.
See Rowinski, F. SLUSA preemption applies where 1 the matter is a "covered class action"; 2 based on the statutory or common law of any State; 3 alleging a misrepresentation or omission of a material fact or act of deception; 4 in connection with the purchase or sale of a covered security. The definitions of these terms, some of which are in dispute, are explained below. The statute explicitly provides that "no covered class action based upon the statutory or common law of any State or subdivision thereof may be maintained in any State or federal court by any private party alleging A a misrepresentation or omission of a material fact in connection with the purchase or sale of a covered security; or B that the defendant used or employed any manipulative or deceptive device or contrivance in connection with the purchase or sale of a covered security.
A "covered security" is, among other things, a security traded on a national exchange. This element is not in dispute. Further, although Plaintiffs argue that they do not allege that Defendants made any misrepresentations or omissions of material fact, they do not dispute that should the Court find that the requisite misrepresentations or omissions are alleged, they were made "in connection with the purchase or sale of a covered security. Instead, it "denies plaintiffs the right to use the class action device to vindicate certain claims.
Section 10 b and Rule 10b-5 prohibit deception, misrepresentation, and fraud "in connection with the purchase or sale of any security. Such claims would be subject to the heightened substantive and procedural standards set forth by the PSLRA. The alternative for potential plaintiffs is to bring state law claims individually or as part of a lawsuit not falling under SLUSA's definition of "covered class action. Plaintiffs argue that the beneficiaries of the Trust cannot bring individual state law claims in state court against Bordier and Dominick because they assigned their potential causes of action to the Trust.
Thus, according to Plaintiffs, if the Court finds that Plaintiffs' claims are preempted by SLUSA, the beneficiaries are left with no remedy on these claims. The Court has considered this argument and notes that the beneficiaries chose to assign their claims to the Trust. Thus, their remedy is derivative of the Trust's ability to proceed here. Dabit , S. Manor Drug Stores, U.
In Blue Chip Stamps, the Supreme Court held that the private right of action under Rule 10b-5 is limited to purchasers and sellers of securities, and thus, does not extend to mere holders. See Blue Chip Stamps, U. Accordingly, holders of securities lacked standing to bring claims under Rule 10b The Court found that this rule would help curb the special risk of vexatious litigation posed by securities holders. See id. The Dabit Court took a broad view of SLUSA and found that even though the plaintiffs lacked the requisite standing to bring a federal securities claim due to their status as holders, as opposed to purchasers or sellers of securities, their state law class action claims were still subject to dismissal under SLUSA.
See Dabit, S. The Court reached this conclusion by finding that the SLUSA requirement that the fraud be "in connection with the purchase or sale of a covered security" mirrored the requirement as stated in Rule 10b The Court found that in Blue Chip Stamps, by holding that the private right of action under Rule 10b-5 was limited to purchasers and sellers of securities, the Court was not defining the phrase "in connection with the purchase or sale" under Rule 10b Instead, the Court was defining the scope of a private right of action under Rule 10b-5 based on policy considerations.
O'Hagan, U. Accordingly, in Dabit, the Court held that the state law holder class action claims were preempted by SLUSA, despite the fact that the class members lacked standing to bring Rule 10b-5 claims. In so holding, the Court emphasized that "the magnitude of the federal interest in protecting the integrity and efficient operation of the market for nationally traded securities cannot be overstated.
In this case, there is no Blue Chip Stamps problem. Presumably, since Plaintiffs represent a class of purchasers and sellers of AremisSoft stock and not a class of holders, Plaintiffs would have standing to pursue Rule 10b-5 claims against Defendants if they desired to do so.
However, Plaintiffs in this case lack a federal securities remedy for a different reason. Plaintiffs presumably have not brought Rule 10b-5 claims against Bordier and Dominick because to do so, they would need to show that these Defendants made fraudulent misrepresentations or omissions which harmed Plaintiffs. First Interstate Bank of Denver, N.
June 17, holding that corporate principals were not liable under section 10 b because they did not make or substantially participate in any misrepresentations or omissions. In this case, it was Kyprianou and Poyiadjis, not Bordier and Dominick, who actually made the purported misrepresentations. Thus, to the extent that anyone violated section 10 b and Rule 10b-5 under the circumstances of this matter, it was Kyprianou and Poyiadjis, not Bordier and Dominick.
Plaintiffs were prohibited from bringing claims against Bordier and Dominick for aiding and abetting these violations of section 10 b and Rule 10b-5 pursuant to the Supreme Court's decision in Central Bank of Denver, N. See Central Bank, U. Thus, Plaintiffs instead bring state law claims against Defendants for aiding and abetting Kyprianou and Poyiadjis' breach of fiduciary duty.
Further, Plaintiffs alleged that Defendants violated Swiss money laundering laws. The basis for the Swiss law claims is essentially that Defendants knew that the transactions performed in the accounts in question at Defendants' banks bore all of the hallmarks of classic money laundering. Specifically, Plaintiffs claim that Defendants knew that the assets in the accounts did not belong to the entities whose names were on the accounts.
According to Plaintiffs, Defendants violated their duties under Swiss money laundering laws to investigate these transactions given these red flags. The instant motion to dismiss pursuant to SLUSA raises the following issues which will be discussed below:. The first issue is whether this action, brought by the Trustees on behalf of a class of AremisSoft investors is a "covered class action" pursuant to SLUSA.
A "covered class action" is essentially a lawsuit where damages are sought on behalf of more than fifty people or prospective class members. The statute does not limit "covered class actions" to those traditionally brought pursuant to Fed.
Compare 15 U. The statute further provides that an entity will be considered "one person" under SLUSA and thus, its claims will not be preempted if the "entity is not established for the purpose of participating in the action. Plaintiffs argue that this is not a covered class action because the Trust, as represented by the Trustees, was not "established for the purpose of participating in the action.
The case law illustrates that while a traditional bankruptcy trustee constitutes "one person" under SLUSA and thus, its claims are not subject to preemption, see Golub, F. Lepone, F. This distinction is evidenced by the courts' respective holdings in Cape Ann and Smith. In Cape Ann, the District of Massachusetts found that a trust created by a bankruptcy court whose primary purpose was prosecuting causes of action for the benefit of certain shareholders who assigned their claims to the trust was not "one person" under SLUSA and thus, its claims were subject to preemption.
See Cape Ann, F. In particular, the agreement which formed the trust in Cape Ann provided that the trust was formed for the primary purpose of "prosecuting the Causes of Action contributed to it. Accordingly, the Cape Ann court found that the trust was similar to a shareholder class representative. The Cape Ann court explicitly rejected the argument that Plaintiffs make in this case, namely, that the trust must be formed for the purpose of pursuing the particular action at hand to trigger SLUSA preemption.
The court stated that this argument "makes no sense conceptually or legally. The Court agrees with this finding. Logically, a trust formed for the primary purpose of litigating causes of action which subsequently brings such a cause of action must be considered a trust formed for the primary purpose of "participating in the action" under SLUSA. In Golub, the court found that where a group of persons assigned their claims to a representative through private contractual negotiations, such constituted a "covered class action" under SLUSA.
See Golub, F. The court, however, did not hold that SLUSA's scope was limited to situations where plaintiffs assigned their claims to a representative for the purpose of litigating a particular cause of action. In fact, a reading of Golub indicates that it found just the opposite. In Smith, a trustee was appointed pursuant to Chapter 11 bankruptcy proceedings.
See Smith, F. Under the debtor's plan, which appointed the trustee, the trustee was appointed to act "as the Estates' representative for all purposes emphasis added " such as managing assets, prosecuting and settling claims, administering disputed claim reserve, and making distributions pursuant to the terms of the debtor's plan.
The Smith trust did not receive assignments of claims from shareholders and instead, pursued claims if at all on behalf of the bankruptcy estate itself. The Smith court agreed with Cape Ann that a trustee formed for the primary purpose of pursuing causes of action is not "one person" pursuant to SLUSA and thus, its claims would be subject to preemption. We adopt this sensible definition.
However, the Court in Smith found that the Chapter 11 trustee qualified as "one person" under SLUSA because it was explicitly formed for all purposes, not for the primary purpose of pursuing causes of action. The Liquidating Trust Agreement approved by the Court which created the Trust that Plaintiffs act as Trustees of, explicitly states the following in section 1.
Purpose of the Trust. The Trust is organized for the primary purpose of litigating the Trust Claims, distributing the proceeds of the Trust Claims and the Proceed Assets to the Class Members and liquidating its assets for the benefit of the Class Members. This language is similar to the language in the agreement which created the Cape Ann trust:. Purposes of the Trust.
The Trust is established for the primary purposes of prosecuting the Causes of Action contributed to it. Thus, contrary to Plaintiffs' assertions that the instant Trust is distinguishable from the Cape Ann trust because the Cape Ann trust was formed for the sole purpose of litigation, these two trusts appear to have been formed for very similar purposes, the primary purpose of which was to pursue causes of action after receiving assignments of claims from individual shareholder beneficiaries.
Accordingly, the Trust is distinguishable from the Smith trust which had standing to bring claims only on behalf of the bankruptcy estate. The bankruptcy trustee in Smith did not receive an assignment of claims from a class of shareholders pursuant to a class action settlement as in the instant case and in Cape Ann.
Instead, the Smith trust was formed to be the bankruptcy estate's representative for all purposes. Therefore, by the terms of its creation, the Trust, like the Cape Ann trust, functions more like a shareholder class representative than a traditional bankruptcy trustee, pursuing this litigation on behalf of a class of approximately 6, persons.
The Court notes that the opening paragraph of the AremisSoft Liquidating Trust Agreement states that the Trust is organized for the "primary purpose of liquidating the Trust Assets," which includes litigating Trust claims. See Liquidating Trust Agreement at 1.
Although this language appears inconsistent with section 1. The Liquidating Trust Agreement, like that in Cape Ann, specifically lists litigating Trust claims as a primary purpose. Accordingly, the Court finds that the Trust, represented by the Trustee, was formed for the primary purpose of litigating causes of action and thus, does not constitute "one person" pursuant to SLUSA.
The Court must next determine whether SLUSA preempts claims where Plaintiffs' allege that third parties, as opposed to Defendants, made misrepresentations and omissions of material fact.