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denying motion to dismiss where, "[i]n light of [a contractual] ambiguity, the Court will need to examine extrinsic evidence to determine the parties' intent in drafting the provision - an examination inappropriate at this early stage of the litigation." (citing Bayerische Landesbank, N.Y. Branch v. Aladdin Capital Mgmt. LLC, 692 F.3d 42, 56 (2d Cir. 2012); Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Co. of NY, 375 F.3d 168, 178 (2d Cir. 2004))
Summary of this case from Richard v. Glens Falls National BankOpinion
No. 11 Civ. 6345 (RJS)
09-10-2012
THE BOARD OF TRUSTEES OF AND ON BEHALF OF THE GENERAL RETIREMENT SYSTEM OF DETROIT, ET UNO, Plaintiffs, v. BNY MELLON, N.A., ET UNO, Defendants.
MEMORANDUM AND ORDER :
The Board of Trustees of and on Behalf of The General Retirement System of the City of Detroit ("Detroit General Plan") and The Board of Trustees of and on behalf of The Police & Fire Retirement System of the City of Detroit ("Police Fire Plan") (collectively, "Plaintiffs" or "Plans") bring this putative class action against BNY Mellon, N.A. (the "Association") and The Bank of New York Mellon ("BNY Mellon" and, together with the Association, "Defendants"), alleging causes of action for (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, (3) promissory estoppel, and (4) breach of fiduciary duties in violation of New York law. Pursuant to Federal Rule of Civil Procedure 12(b)(6), Defendants move to dismiss with prejudice Counts I, II, and III of the Amended Class Action Complaint (the "ACAC"), Plaintiffs' prayer for monetary relief in Count IV of the ACAC, and the Association from this action entirely. For the reasons that follow, the Court grants Defendants' motion in part and denies it in part.
I. BACKGROUND
A. Facts
This action arises out of two separate but nearly identical Securities Lending Agreements ("SLAs") between Plaintiffs and BNY Mellon. (ACAC ¶ 2.) Pursuant to these agreements - entered into with Police Fire Plan on June 26, 2003 and with Detroit General Plan on June 26, 2005 - BNY Mellon was tasked with assisting in the daily administration of the Plans' accounts by loaning Plaintiffs' securities to pre-selected categories of borrowers in return for cash and non-cash collateral. (Id. ¶ 20.) As agent for the Plans, BNY Mellon held the collateral in approved collateral accounts and invested it, in BNY Mellon's full discretion, "as a means of earning a modest return that would offset the cost of the custodial fees otherwise being charged to Plaintiffs and the Class Plans." (Id. ¶¶ 39-40.)
The following facts are taken from the pleadings and exhibits attached thereto.
Under the terms of the SLAs, BNY Mellon was authorized to invest the cash portion of the Plans' collateral in "any Approved Investment," defined as "any type of security . . . in which Cash Collateral may be invested or reinvested, as set forth on Schedule I hereto." (Id. Ex. A, art. 1.3.) However, the SLAs reserved to the Plans the power to prohibit BNY Mellon from investing "with particular financial institutions or issuers" by delivering a written notice to BNY Mellon with appropriate instructions. (Id. Ex. A, art. IV.2(b).) Significantly for purposes of this litigation, the SLAs also provided that "[BNY Mellon] shall not be liable for any costs, expenses, damages, liabilities or claims (including attorneys' and accountants' fees) incurred by [the Plans], except those costs, expenses, damages, liabilities or claims arising out of the negligence, bad faith or willful misconduct of [BNY Mellon]." (Id. Ex. A, art. V.1(a).)
Article IV.2(d) of the SLAs provided that each Plaintiffs respective collateral and Approved Investments "shall be controlled by, and subject only to the instruction of, [bny Mellon], and [bny Mellon] shall not be required to comply with any instructions of [either Plaintiff] with respect to the same." (Id. Ex. A., art. IV.2(d).)
Pursuant to its Securities Lending Program ("SLP"), BNY Mellon invested the Plans' collateral in, among other things, floating rate notes (the "Lehman Notes") issued by Lehman Brothers Holdings, Inc. ("Lehman"). (Id. ¶¶ 3, 67.) According to Plaintiffs, despite increasing uncertainty and concerns about Lehman's financial instability, Defendant took no action to protect Plaintiffs' investments. (Id. ¶¶ 4-5.) When Lehman declared bankruptcy on September 15, 2008, BNY Mellon held a total of $1.9 billion of Lehman Notes on behalf of its securities lending clients. (Id. ¶ 501.) As a result, Plaintiffs and the putative class members "suffered more than a billion dollars of losses." (Id. ¶ 6.)
B. Procedural History
Plaintiffs initiated this action on September 12, 2011 by filing a complaint. (Doc. No. 1.) Plaintiffs subsequently amended their complaint on January 23, 2012 by filing the ACAC. (Doc. No. 26.) On February 21, 2012, Defendants moved to dismiss the ACAC in its entirety, pursuant to Federal Rule of Civil Procedure 12(b)(6), and moved to dismiss the Association from this action altogether. (Doc. Nos. 33, 34.) The motion was fully briefed as of March 23, 2012.
II. LEGAL STANDARD
In order to survive a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, a complaint must "provide the grounds upon which [the] claim rests." ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98 (2d Cir. 2007). Plaintiffs must also allege "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). In reviewing a Rule 12(b)(6) motion to dismiss, a court must accept as true all factual allegations in the complaint and draw all reasonable inferences in favor of the plaintiff. ATSI Commc'ns, 493 F.3d at 98. However, that tenet "is inapplicable to legal conclusions." Iqbal, 556 U.S. 678. Thus, a pleading that only offers "labels and conclusions" or "a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555. If the plaintiff "ha[s] not nudged [its] claims across the line from conceivable to plausible, [its] complaint must be dismissed." Id. at 570.
III. DISCUSSION
A. Breach of Contract
New York law requires that a plaintiff alleging breach of contract show "(1) the existence of an agreement, (2) adequate performance of the contract by the plaintiff, (3) breach of contract by the defendant, and (4) damages." Harsco Corp. v. Segui, 91 F.3d 337, 348 (2d Cir. 1996). In determining a party's obligations under a contract, "the initial interpretation of a contract is a matter of law for the court to decide." K. Bell & Assocs., Inc. v. Lloyd's Underwriters, 97 F.3d 632, 637 (2d Cir. 1996) (citation omitted). "Included in this initial interpretation is the threshold question of whether the terms of the contract are ambiguous." Alexander & Alexander Servs., Inc. v. These Certain Underwriters at Lloyd's, London, 136 F.3d 82, 86 (2d Cir. 1998). "[T]he presence or absence of ambiguity is determined by looking within the four corners of the document, without reference to extrinsic evidence." Chapman v. N.Y. State Div. for Youth, 546 F.3d 230, 236 (2d Cir. 2008) (citation omitted). "Ambiguity in a contract is the inadequacy of the wording to classify or characterize something that has potential significance." Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Co. of NY, 375 F.3d 168, 178 (2d Cir. 2004). "Ambiguity with respect to the meaning of contract terms can arise either from the language itself or from inferences that can be drawn from this language." Alexander & Alexander, 136 F.3d at 86. However, contract language is "unambiguous when it has a definite and precise meaning and where there is no reasonable basis for a difference of opinion." Klos v. Lotnicze, 133 F.3d 164, 168 (2d Cir. 1997). "[T]he fact that one party may have a different interpretation of the language does not make it any less plain." Harris Trust & Sav. Bank v. John Hancock Mut. Life Ins. Co., 970 F.2d 1138, 1147 (2d Cir. 1992).
In pleading their breach of contract claim, Plaintiffs rely heavily on a single contractual provision - Article V.1(a) of the SLAs - which they allege BNY Mellon violated by failing to properly monitor or otherwise maintain the putative class members' invested collateral. (See, e.g., ACAC ¶¶ 510-20.) As noted above, that provision provides, in pertinent part, that "[BNY Mellon] shall not be liable for any costs, expenses, damages, liabilities or claims (including attorneys' and accountants' fees) incurred by [the Plans], except those costs, expenses, damages, liabilities or claims arising out of the negligence, bad faith or willful misconduct of [BNY Mellon]." (ACAC Ex. A, art. V.1(a).)
In their motion to dismiss, Defendants assert that Plaintiffs cannot establish as a matter of law that there was a breach of Article V.1(a) because the provision merely sets forth an overall standard of care and does not establish an independent duty or obligation apart from those set forth within Article IV of the SLAs. Specifically, Defendants argue that BNY Mellon cannot be said to have breached a specific contractual duty and acted "negligently" under Article V.1(a) so long as it used its wide discretion to invest the cash collateral in "Approved Investment[s]" and otherwise complied with its obligations enumerated in Article IV of the SLAs. (See Tr. of Oral Arg., May 16, 2012 ("Tr."), 12:2-13:5.) Thus, according to Defendants, because Plaintiffs do not allege that BNY Mellon violated any other provision within the SLAs, Plaintiffs have failed to plead a claim for breach of contract.
At oral argument, Plaintiffs - for the first time - asserted that BNY Mellon violated provision three of "Schedule I: Approved Investments," which reads, in pertinent part, that investments in bonds and other debt obligations "will be rated not less than A-1 (S&P) or P-1 (Moody's) if maturity does not exceed one year, and not less than A (S&P) or A2 (Moody's) if maturity, exceeds one year." (ACAC Ex. A, Schedule 1.) Although Plaintiffs did not disagree that the Lehman Notes were at all relevant times rated "A" by S&P and "A2" by Moody's, they nonetheless argued - incredibly - that BNY Mellon still violated the provision because, notwithstanding the explicit reference to S&P's and Moody's ratings within the provision, BNY Mellon should have considered the ratings of other agencies when determining "Approved Investments." (Tr. 36:10-40:10.) As stated at oral argument, the Court finds such a reading implausible and at odds with the plain meaning of the provision. (Id. at 40:9-10.)
By contrast, Plaintiffs argue that Article V.1(a) creates an independent duty to not act negligently, and that so long as they can prove that BNY Mellon acted negligently in exercising the admittedly wide discretion afforded under the respective contracts, they have sufficiently stated a claim for breach of contract. (See, e.g., Tr. 42:5-9, 43:11-23.) Furthermore, as Plaintiffs note, although Defendants repeatedly refer to Article V.1(a) as the "Exculpatory Provision" within the SLAs, the provision is actually entitled "Standard of Care; Reimbursement" and includes not just an exculpatory provision but also a contractual duty to pay damages arising out BNY Mellon's alleged negligence. (Opp'n at 8.)
There is no dispute that a breach of contract claim under New York law must be based on a defendant's failure to perform an actual contractual obligation. See, e.g., 805 Third Ave. Co. v. M.W. Realty Assoc., 58 N.Y.2d 447, 451 (1983). However, upon considering the plain language of Article V.1(a), the Court finds that the provision is ambiguous as to whether, as Plaintiffs argue, it creates such a stand-alone obligation for BNY Mellon to not act negligently or whether, as Defendants argue, it simply sets forth a more general standard of care by which BNY Mellon had to fulfill its other obligations under the SLAs. In light of this ambiguity, the Court will need to examine extrinsic evidence to determine the parties' intent in drafting the provision - an examination inappropriate at this early stage of the litigation. See Bayerische Landesbank, N.Y. Branch v. Aladdin Capital Mgmt. LLC, --- F.3d ----, No. 11-4306-cv, 2012 WL 3156441, at *11 (2d Cir. Aug. 6, 2012) ("[W]here the contract language creates ambiguity, extrinsic evidence as to the parties' intent may properly be considered, and in the context of a motion to dismiss, if a contract is ambiguous as applied to a particular set of facts, a court has insufficient data to dismiss a complaint for failure to state a claim." (internal quotation marks and citations omitted)); Eternity Global Master Fund, 375 F.3d at 178 ("Unless for some reason an ambiguity must be construed against the plaintiff, a claim predicated on a materially ambiguous contract term is not dismissible on the pleadings.").
Perhaps anticipating such a finding of ambiguity in the language of Article V.1(a), Defendants alternatively argue that even if Defendants do have an obligation under the SLAs to reimburse Plaintiffs for damages, Plaintiffs' breach of contract claim must fail as a matter of law because the ACAC "points to no actual out-of-pocket payment made by Plaintiffs to any entity that BNY Mellon purportedly failed to reimburse." (Mem. in Supp. at 9; see also Reply at 2 (asserting that the ACAC fails to allege any specific payment that BNY Mellon could reimburse).) This argument, while surely creative, fails for the simple reason that Article V.1(a) is not limited to out-of-pocket payments; rather, the provision provides for the reimbursement of any "costs, expenses, damages, liabilities, or claims arising out of the negligence . . . of [BNY Mellon]." (ACAC Ex. A, art. V.1(a); see Opp'n at 9.) Because the ACAC alleges both that BNY Mellon acted negligently in wielding its considerable discretion under the SLAs and that Plaintiffs, as a result, incurred losses in the amounts of $16.1 million on behalf of the Police Fire Plan as of June 30, 2010 and $20.4 million on behalf of the Detroit General Plan as of July 29, 2010 (ACAC ¶¶ 8, 502, 512-16), the Court finds that Plaintiffs have sufficiently pled a claim for breach of contract.
Accordingly, the Court denies Defendants' motion to dismiss Plaintiffs' breach of contract cause of action.
B. Breach of the Implied Covenant of Good
Faith and Fair Dealing
"'[U]nder New York law, a covenant of good faith and fair dealing is implicit in all contracts during the course of contract performance.'" Janel World Trade, Ltd. v. World Logistics Servs., Inc., No. 08 Civ. 1327 (RJS), 2009 WL 735072, at *13 (S.D.N.Y. Mar. 20, 2009) (quoting Tractebel Energy Mktg., Inc. v. AEP Power Mktg, Inc., 487 F.3d 89, 98 (2d Cir. 2007)). "In particular, the covenant includes a pledge that 'neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract.'" Payday Advance Plus, Inc. v. Findwhal.com, Inc., 478 F. Supp. 2d 496, 503 (S.D.N.Y. 2007) (quoting Dallon v. Educ. Testing Serv., 663 N.E.2d 289, 291 (N.Y. 1995)). A claim for breach of the implied covenant of good faith and fair dealing may be brought "only where one party's conduct, though not breaching the terms of the contract in a technical sense, nonetheless deprived the other party of the benefit of its bargain." Pearce v. Manhattan Ensemble Theater, Inc., 528 F. Supp. 2d 175, 180-81 (S.D.N.Y. 2007) (internal quotation marks omitted). "Such a covenant is violated when a party promises commissions or profits and then does not act in good faith to permit such commissions or profits to be earned, thereby depriving the other party of the benefit of the bargain." Keene Corp. v. Bogan, No. 88 Civ. 0217 (MBM), 1990 WL 1864, at *14 (S.D.N.Y. Jan. 11, 1990) (internal quotation marks omitted).
Although New York law implies a covenant of good faith and fair dealing in every contract, "as a general rule, the cause of action alleging breach of the . . . covenant is duplicative of a cause of action alleging breach of contract." Page Mill Asset Mgmt. v. Credit Suisse First Boston Corp., No. 98 Civ. 6907 (MBM), 2000 WL 33557, at *8 (S.D.N.Y. Mar. 30, 2000) (internal quotation marks omitted); see Carvel Corp. v. Diversified Mgmt. Grp., Inc., 930 F.2d 228, 230 (2d Cir. 1991); Excelsior Fund, Inc. v. JP Morgan Chase Bank, N.A., No. 06 Civ. 5246 (JGK), 2007 WL 950134, at *6 (S.D.N.Y. Mar. 28, 2007). Indeed, a claim for breach of the implied covenant can be maintained in conjunction with a breach of contract claim "only if it is based on allegations different from those underlying the accompanying breach of contract claim." Goldblatt v. Englander Commc'ns, L.L.C., No. 06 Civ. 3208 (RWS), 2007 WL 148699, at *5 (S.D.N.Y Jan. 22. 2007) (internal quotation marks omitted) Furthermore, a claim for breach of the implied covenant is actionable only if the alleged misconduct "frustrated the basic purpose" of the contract. Forman v. Guardian Life Ins. Co. of Am., 76 A.D. 3d 886, 888 (N.Y. App. Div. 2010).
Indeed, at oral argument, Plaintiffs even acknowledged that they would be unable to state a claim for breach of the implied covenant of good faith and fair dealing "to the extent that the duties [they allege] are within the scope of the breach of contract claim." (Tr. 48:3-9.)
Here, Plaintiffs' claim for breach of the implied covenant of good faith and fair dealing is entirely duplicative of its claim for breach of contract. As Defendants rightly note, the alleged duties identified by Plaintiffs in their opposition brief are precisely the same as those identified in their claim for breach of contract. (See ACAC ¶ 512 (duty to monitor and maintain principal value); ¶ 513 (duty to manage and inform); ¶ 514 (duty to monitor and maintain principal value); ¶ 515 (alleging negligence, bad faith, and/or willful misconduct); ¶ 516 (alleging failure to monitor and improper maintenance of investments).) Therefore, this claim fails as a matter of law.
Moreover, each of the SLAs includes a provision expressly foreclosing any implied duties such as those that might stem from the implied covenant of good faith and fair dealing. (ACAC Ex. A, art. V.13 ("[BNY Mellon] shall have no duties or responsibilities whatsoever except such duties and responsibilities as are specifically set forth in this Agreement, and no covenant or obligation shall be implied against [BNY Mellon] in connection with this Agreement.")); see also Allianz Ins. Co. v. Cavagnuolo, No. 03 Civ. 1636 (HB), 2004 WL 1048243, at *4 (S.D.N.Y. May 7, 2004) (noting that it is a "firmly established principle that contracts are enforced as they are written").
Therefore, because an implied covenant of good faith and fair dealing would be entirely duplicative of Plaintiffs' breach of contract claim and because such a claim is, in any event, expressly foreclosed by the plain terms of the SLAs, the Court dismisses Plaintiffs' cause of action for breach of the implied covenant of good faith and fair dealing.
C. Promissory Estoppel
Under New York law, a claim for promissory estoppel has three elements: (1) an unambiguous promise; (2) reasonable and foreseeable reliance on the promise; and (3) injury as a result of the reliance. Kaye v. Grossman, 202 F.3d 611, 615 (2d Cir. 2000). However, a valid and enforceable contract precludes recovery in quasi-contract for all matters covered by the contract. See Kwon v. Yun, 606 F. Supp. 2d 344, 368 (S.D.N.Y. 2009) ("Because it is a quasi-contractual claim, . . . promissory estoppel generally applies only in the absence of a valid and enforceable contract."); Clark-Fitzpatrick, Inc. v. Long Island R.R. Co., 70 N.Y.2d 382, 388-89 (1987) ("[A] quasi-contractual obligation is one imposed by law where there has been no agreement or expression of assent, by word or act, on the part of either party involved." (emphasis in original)). Accordingly, "[w]here a plaintiff also alleges breach of a contract, a promissory estoppel claim is duplicative of a breach of contract claim unless the plaintiff alleges that the defendant had a duty independent from any arising out of the contract." Underdog Trucking LLC v. Verizon Servs. Corp., No. 09 Civ. 8918 (DLC), 2010 WL 2900048, at *6 (S.D.N.Y. July 20, 2010).
Here, neither party disputes that the SLAs are valid and enforceable contracts. (See Mem. in Supp. at 13 (acknowledging that the SLAs are valid and enforceable contracts); Opp'n at 12 (same).) At oral argument, Plaintiffs even conceded that the substance of their promissory estoppel claim is "within the contract" (Tr. 51:18-21) and that, to the extent their promissory estoppel claim is "within the scope of the contract claim," the claim would be duplicative and disallowed (id. at 49:2-25). Thus, Plaintiffs are barred from pleading their cause of action for promissory estoppel. Cf. Polagrid LLC v. Videsh Sanchar Nigam Ltd., No. 04 Civ. 9578 (TPG), 2006 WL 903184, at *3 (S.D.N.Y. Apr. 7, 2006) (permitting plaintiff to plead the alternative theory of promissory estoppel only because one of the parties disputed that there was a "valid enforceable contract").
Despite Plaintiffs' concessions at oral argument, their briefs nonetheless contend that the promissory estoppel claims are premised on marketing materials that pre-dated the SLAs and that made representations that are not contained within the SLAs. (Opp'n at 13.) Even if the undisputedly enforceable SLAs did not preclude such recovery, Plaintiffs' claim would still fail because the ACAC does not allege that the marketing materials contained a "'clear and unambiguous promise'" upon which Plaintiffs reasonably relied to their detriment. Learning Annex Holdings, LLC v. Whitney Educ. Grp., Inc., 765 F. Supp. 2d 403, 412 (S.D.N.Y. 2011) (quoting Cyberchron Corp. v. Calldata Sys. Dev., 47 F.3d 39, 44 (2d Cir. 1995)). A promise that is too vague or too indefinite is not actionable under a theory of promissory estoppel. Richbell Info Servs. Inc. v. Jupiter Partners, LP, 309 A.D.2d 288, 304 (N.Y. App. Div. 2003) (explaining that an "alleged promise to proceed with an IPO" was "too indefinite to be the type of clear and unambiguous promise required for promissory estoppel"); Sanyo Elec., Inc. v. Pinros & Gar Corp., 174 A.D.2d 452, 453 (N.Y. App. Div. 1991) (holding that an alleged promise was not "clear and unambiguous" because it was "not only vague and indefinite but . . . was [also] completely contradicted shortly thereafter by written representations").
Plaintiffs point to a number of alleged promises in Defendants' marketing materials that they contend were sufficiently definite. (Opp'n at 13.) These alleged promises took the form of representations that the SLP was a low-risk program with "sound risk management and steady earnings performance," "dynamic risk monitoring and loss analysis," "senior management oversight," "preeminent credit expertise related to the securities industry," and a "Credit Evaluation and Approval process [that] is second to none in the world." (ACAC ¶¶ 526-28.) According to Plaintiffs, the marketing materials also "explained that] SLP [C]ash Collateral Accounts [were] equivalent to money market investments." (Id. ¶ 60.) However, such representations are too indefinite and vague to constitute a "clear and unambiguous" promise. Rather, they appear to be promotional statements not capable of enforcement.
In any event, as noted above, the alleged "promises" are duplicative of Plaintiffs' contract claim and depend upon the same duties that underlie that cause of action. Accordingly, the Court dismisses Plaintiffs' cause of action for promissory estoppel.
D. Breach of Fiduciary Duties
Defendants concede the existence of fiduciary duties for purposes of their motion to dismiss. (Tr. 27:15-19.) Nonetheless, they argue that the Court should dismiss Plaintiffs' prayer for monetary relief in their cause of action for breach of fiduciary duties because it is time barred. Under New York law, "[a] breach of fiduciary duty claim is governed by either a three-year or six-year limitation period, depending on the nature of the relief sought. The shorter time period applies where monetary relief is sought, the longer where the relief sought is equitable in nature." Carlingford Ctr. Point Assocs. v. MR Realty Assocs. L.P., 4 A.D.3d 179, 179-80 (N.Y. App. Div. 2004) (citation omitted). Plaintiffs concede that the applicable statute of limitations governing Plaintiffs' claim for money damages for breach of fiduciary duties is three years but contest when the claim accrued. (Opp'n at 14 ("[T]he applicable statute of limitations governing Plaintiffs' claim of money damages for breach of fiduciary duty claim is three years . . . .").)
Defendants "only seek[] the dismissal of [Plaintiffs'] prayer for monetary relief and not the dismissal of the cause of action for breach of fiduciary duties in its entirety. (Mem. in Supp. at 19.)
At oral argument, Plaintiffs argued for the first time that the six-year statute of limitations should apply to claims seeking both equitable and monetary relief. (Tr. 53:24-54:24.) However, Plaintiffs acknowledged that they neither contested the applicability of the three-year statute of limitations in their briefing (Tr. 53:24-54:8), nor did they contest Defendants' argument that the one district court case holding that the six-year statute of limitations period applied for claims seeking both legal and equitable relief rested on "unsound" legal analysis (Tr. 55:17-21; see Mem. in Supp. at 16-17 n.7). Therefore, even if the Court were to find that Plaintiffs had not conceded the applicability of the three-year statute of limitations, which it does not, it would still consider Plaintiffs' argument waived. See Gortat v. Capala Bros., Inc., No. 07 Civ. 3629 (1LG), 2010 WL 1423018, at *11 (E.D.N.Y. Apr. 9, 2010) (concluding that an argument not addressed in an opposition brief was waived); First Capital Asset Mgmt., Inc. v. Brickellbush, Inc., 218 F. Supp. 2d 369, 392-393 & n.116 (S.D.N.Y. 2002) (same).
1. When the Claim Accrued
Pursuant to New York law, "[a] claim for breach of fiduciary duty accrues, and the statute begins to run, upon the date of the alleged breach." Ciccone v. Hersh, 530 F. Supp. 2d 574, 579 (S.D.N.Y. 2008); accord Huges v. JP Morgan Chase & Co., No. 01 Civ. 6087 (BSJ), 2004 WL 1403337, at *3 (S.D.N.Y. June 22, 2004). Because "New York law recognizes breach of fiduciary duty to be a tort," only "when the claim becomes enforceable, i.e., when all elements of the tort can be truthfully alleged in a complaint," does such a claim actually accrue. Brandon v. Musoff, No. 10 Civ. 9017 (KBF), 2012 WL 135592, at *5 (S.D.N.Y. Jan. 17, 2012) (internal quotation marks and citations omitted); accord Kronos, Inc. v. AVX Corp., 81 N.Y.2d 90, 94 (1993).
Here, Defendants assert that Plaintiffs' breach of fiduciary duties cause of action accrued either on August 10, 2007, when a BNY Mellon employee sent an email to Plaintiffs' personnel notifying them of the investments in the Lehman Notes (Decl. of Vincent Y. Liu, dated Nov. 14, 2011, Doc. No. 35, Ex. 4), or, at a minimum, sometime before September 2008 when the Lehman Notes were trading below par. (Mem. in Supp. at 17-18.) In support of their argument, Defendants point to the ACAC, which cites to thirty-one news articles from July through September 2007 (ACAC ¶¶ 136-66) to indicate that "many major news and business publications published articles chronicling the increasing risk associated with Lehman as a result of its heavy subprime mortgage exposure" (id. ¶ 135). The ACAC also alleges that "the collapse of Bear Stearns" in March 2008 "should have put [BNY Mellon] on notice of increased risk with respect to Investments in Lehman[] and compelled [BNY Mellon] to take action to protect the Plans' and the putative class members' assets from the risk of a similar Lehman default." (Id. ¶ 329.)
The Court may properly consider the email for purposes of a Rule 12(b)(6) motion. See City of Roseville Empls.' Ret. Sys. v. EnergySolutions, Inc., 814 F. Supp. 2d 395, 402 (S.D.N.Y. 2011) ("When presented with a motion to dismiss pursuant to Rule 12(b)(6), the Court may consider . . . documents that the plaintiffs relied on in bringing suit and that are either in the plaintiffs' possession or that the plaintiff knew of when bringing suit, or matters of which judicial notice may be taken.").
By contrast, Plaintiffs argue that they did not sustain damages until they lost the principal value of their notes when Lehman declared bankruptcy on September 15, 2008. (Opp'n at 15.) Thus, according to Plaintiffs, no cause of action existed prior to September 15, 2008 because the Lehman Notes were not yet in "default," and only as of September 15, 2008 could they no longer mature to par. (Id.; Tr. 58:19-23, 60:14-17.) However, given that there is no dispute that the Lehman Notes continue to trade, albeit at a lower value, Plaintiffs fail to offer a convincing explanation as to why default is the singular event that determines whether Plaintiffs have sustained damages in the first instance and not simply a factor that impacts the valuation of the Lehman Notes. Although the magnitude of the damages might have been greater following Lehman's bankruptcy in September 2008, the bankruptcy itself was not the first event by which Plaintiffs could have, by their own theory of the case, alleged damages. Indeed, the ACAC specifically alleges both that "Defendant could have eliminated or significantly mitigated the Plans' losses by selling the Investments prior to Lehman's bankruptcy" and that "the fact that the bond prices dropped below par [as early as January 2008] indicate[d] to a sophisticated investment manager such as Defendant, that the investments were extremely risky and akin to junk bonds." (ACAC ¶ 498; see id. ¶¶ 490-502.) Because Plaintiffs allege that BNY Mellon breached its fiduciary duties as early as August 2007 (see Tr. 59:2-8), and because the Lehman Notes traded at below par from January 2008 onward (ACAC ¶ 496), Plaintiffs' cause of action for breach of fiduciary duties accrued, at a minimum, prior to September 2008. Accordingly, the three-year statute of limitations had expired by the time Plaintiffs filed their complaint on September 12, 2011.
2. Applicability of the Open
Repudiation Doctrine
Plaintiffs nonetheless argue that, should the Court find that the statute of limitations accrued prior to September 2008, the open repudiation doctrine should apply. (Opp'n at 15-16.) Under that doctrine, even where the statute of limitations period has otherwise expired, courts may toll the statute of limitations '"until the fiduciary has openly repudiated his or her obligation or the relationship has been otherwise terminated.'" Golden Pac. Bancorp v. Fed. Deposit Ins. Corp., 273 F.3d 509, 518 (2d Cir. 2001) (quoting Westchester Religious Inst. v. Kamerman, 691 N.Y.S.2d 502, 503 (App. Div. 1999)). Unfortunately for Plaintiffs, the open repudiation doctrine is inapplicable to Plaintiffs' claim because the doctrine only applies to the six-year statute of limitations for equitable relief - not the three-year period for monetary damages. In re Kaszirer, 286 A.D.2d 598, 599 (N.Y. App. Div. 2001) ("Nor does it avail appellant to argue that the running of this three-year period did not begin until defendant clearly repudiated his fiduciary obligations by rejecting plaintiffs' demand for an accounting, since the requirement of a clear repudiation applies only to claims seeking an accounting or other equitable relief.").
Plaintiffs incorrectly cite to Golden Pacific Bancorp for the proposition that courts in the Second Circuit "uniformly apply this tolling doctrine to the three-year statutory period for money damages as well." (Opp'n at 16.) The case does not stand for that proposition. Indeed, the court there held only that the claim at issue was timely under the six-year statute of limitations. Golden Pac. Bancorp, 273 F.3d at 519.
3. Tolling Under American Pipe
Plaintiffs also assert that, should the Court find that the statute of limitations has run, the Court should apply tolling under American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974). (Opp'n at 16-17.) In American Pipe, the Supreme Court held that, "at least where class action status has been denied solely because of failure to demonstrate that 'the class is so numerous that joinder of all members is impracticable,' the commencement of the original class suit tolls the running of the statute for all purported members of the class who make timely motions to intervene after the court has found the suit inappropriate for class action status." 414 U.S. at 552. However, as the Supreme Court later clarified, the tolling effect given to the original class suits in American Pipe "depended heavily on the fact that those filings involved exactly the same cause of action subsequently asserted," as well as the fact that the there was a federal, and not a state, statute of limitations at issue. Johnson v. Ry. Exp. Agency, Inc., 421 U.S. 454, 467 (1975) (explaining that "[t]his factor was more than a mere abstract or theoretical consideration because the prior filing in each case necessarily operated to avoid the evil against which the statute of limitations was designed to protect"). Indeed, the Second Circuit has since held that "the intent of the American Pipe rule is to preserve the individual right to sue of the members of a proposed class until the issue of class certification has been decided[,] . . . not to toll the statute of limitations for persons . . . who were not members of either the proposed or certified class." In re Agent Orange Prod. Liab. Litig., 818 F.2d 210, 214 (2d Cir. 1987) (noting that "a fair reading of the original class action complaints" demonstrated that the plaintiffs could not have been members of the class action at issue for purposes of American Pipe analysis).
Here, Plaintiffs allege that they were members of the proposed class in Board of Trustees of the Southern California IBEW-NECA Defined Contribution Plan v. Bank of New York Mellon Corp., No. 09 Civ. 6273 (RMB) (S.D.N.Y.) (the "IBEW litigation"), "from the date of the filing of the initial complaint on July 13, 2009 until the motion for class certification was filed on January 31, 2012, which narrowed the definition of the proposed class to exclude Plaintiffs." (Opp'n at 17.) However, as Defendants rightly note, Plaintiffs never could have been part of the putative class in the IBEW litigation because the IBEW plaintiffs asserted two ERISA claims in every version of their complaint and because Plaintiffs represent public pensions incapable of inclusion in ERISA causes of action. (Reply at 9); see 29 U.S.C. § 1003(b)(1). Thus, because Plaintiffs could not have been members of the putative class action in the IBEW litigation, they may not benefit from the American Pipe tolling doctrine.
At oral argument, Plaintiffs argued that the plaintiffs in the IBEW litigation were "pursuing ERISA and non-ERISA claims all the way up to [the motion for class certification on] January 31 of 2012" (Tr. 63:25-64:1); however, even a cursory examination of the various complaints in that action belies their point. (See IBEW litigation, 09 Civ. 6273 (RMB), Doc. Nos. 1 (alleging only ERISA claims), 27 (same), 89 (same), 138 (same), 166 (same).) Furthermore, Plaintiffs' argument that the definition section within these complaints included the Plaintiffs here (see Tr. 61:23-62:5) does not alter the fact that non-ERISA plans could not have brought ERISA-only causes of action. --------
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For the reasons stated above, the Court dismisses Plaintiffs' cause of action for breach of fiduciary duty, to the extent it seeks monetary damages, because it is untimely.
E. Claims Against the Association
Defendants argue that the Court should dismiss all claims against the Association "because the [ACAC] fails to allege any factual basis of claims against [it]." (Mem. in Supp. at 19 (emphasis in original).) At oral argument, Plaintiffs conceded that the Association should be dismissed from this action. (Tr. 64:6-12.) Accordingly, the Court dismisses all claims against the Association.
IV. CONCLUSION
For the aforementioned reasons, the Court grants Defendants' motion to dismiss in part and denies it in part. The Court dismisses with prejudice all claims against the Association and, as to the claims against BNY Mellon, dismisses with prejudice Plaintiffs' causes of action for breach of the implied covenant of good faith and fair dealing, promissory estoppel, and Plaintiffs' prayer for monetary relief pursuant to their cause of action for breach of fiduciary duties. It does not, however, dismiss Plaintiffs' cause of action against BNY Mellon for breach of contract. The Clerk of the Court is respectfully directed to terminate the motion located at Doc. No. 33.
The parties are hereby reminded that, pursuant to the Second Revised Case Management Plan and Scheduling Order (the "Scheduling Order"), all fact discovery is to be completed no later than October 19, 2012, and all discovery - including expert discovery - shall be completed no later than April 19, 2013. Furthermore, and also as stated in the Scheduling Order, the parties shall appear for a post-discovery conference on May 8, 2013 at 10:00 a.m. SO ORDERED.
/s/_________
RICHARD J. SULLIVAN
United States District Judge Dated: September 10, 2012
New York, New York
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Plaintiffs are represented by Gerard James Andree of Sullivan, Ward, Asher & Patton, P.C., 25800 Northwestern Highway, 1000 Maccabees Center, Southfield, MI 48075; and Jesse Stine Johnson, Sabrina Elsa Tirabassi, Samuel Howard Rudman, David A. Rosenfeld, Sheri M. Coverman, and Stephen R. Astley of Robbins Geller Rudman & Dowd LLP, 120 E. Palmetto Park Road, Suite 500, Boca Raton, FL 33432.
Defendants are represented by Damien Jerome Marshall and Vincent Yang Liu of Boies Schiller & Flexner LLP, 575 Lexington Avenue, New York, NY 10022.